UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 0-22056

Rural/Metro Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	86-0746929
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

9221 East Via de Ventura, Scottsdale, Arizona 85258

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (480) 994-3886

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 24,645,853 shares of the registrant’s Common Stock outstanding on March 19, 2007.

EXPLANATORY NOTE

On September 14, 2007, Rural/Metro Corporation (the “Company”) filed a Current Report on Form 8-K with the Securities and Exchange Commission (the “SEC”) in which it announced that it was restating previously reported financial statements to correct accounting errors, and that such financial statements could no longer be relied upon. As more fully described in Note 2 to the financial statements, the Company has identified errors with respect to the accounting for income taxes, subscription revenue, operating leases and retirement plan contributions. In addition, the Company also identified errors related to certain other items, which are not material individually, but are material in the aggregate when combined with the errors described in Note 2.

This Amendment (this “Amendment”) amends the Quarterly Report on Form 10-Q for the quarter ended December 31, 2006, as filed on March 23, 2007 (the “Original Filing”). See Note 2 to the financial statements for the restated results relating from the correction of certain accounting practice errors noted above.

Except as required to reflect the effects of the items described above, no additional modifications or updates in this Amendment have been made to the Original Filing. Information not relating to the restatement remains unchanged and reflects the disclosures made at the time of the Original Filing. This amendment does not describe other events occurring after the Original Filing, including exhibits, or modify or update those disclosures affected by subsequent events, other than the events surrounding the Company’s notes and its 2005 Credit Facility, which are discussed below. This Amendment should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing, as information in such reports and documents may help provide a better understanding of certain information contained in this Amendment. Accordingly, this Amendment only amends and restates Items 1, 2 and 4 of Part I, and Item 1A of Part II of the Original Filing, in each case, solely as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby. Additionally, pursuant to the rules of the SEC, Item 6 of Part II of the Initial Amendment has been amended to contain currently dated certifications of the Chief Executive Officer and Chief Financial Officer. As required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, the certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Amendment as Exhibits 31.1, 31.2, 32.1 and 32.2.

Due to the restatement of the financial statements described above, the Company did not timely file its Annual Report on Form 10-K for the fiscal year ended June 30, 2007, as disclosed on Form 12b-25 filed on September 14, 2007. As a result, the Company received a notice of default from the trustee of its 9.875% Senior Subordinated Notes due 2015 and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the Company’s 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless the Company obtained a waiver. Effective September 1, 2007, the Company obtained a waiver of any defaults, including the event of default described above, under its 2005 Credit Facility. In addition, any default under the notes relating to the untimely filing of the Annual Report on Form 10-K for the fiscal year ended June 30, 2007, will be cured upon the filing of that report with the SEC, which the Company will file concurrently with filing this Amendment and within the 60-day grace period (expires November 23, 2007). Any or all forward-looking statements relating to the default made in this Amendment (and in any other public filings or statements we might make) may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Accordingly, except to the extent required by applicable law, we undertake no duty to update the forward-looking statements made in this Amendment.

Item 4 of Part I describes management’s evaluation of its disclosure controls and procedures and internal control over financial reporting as of December 31, 2006.

Concurrently with filing this Amendment, the Company is filing its amended its Quarterly Reports on Form 10-Q/A for the quarters ended September 30, 2006 and March 31, 2007. The Company will also concurrently file its Annual Report on Form 10-K for the fiscal year ended June 30, 2007, which will contain restated financial statements as of and for the years ended June 30, 2006 and 2005, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

2

RURAL/METRO CORPORATION

INDEX TO QUARTERLY REPORT

ON FORM 10-Q/A

FOR THE QUARTERLY PERIOD ENDED

DECEMBER 31, 2006

			Page
Part I.	Financial Information
	Item 1.	Financial Statements (unaudited):
		Consolidated Balance Sheets	4
		Consolidated Statements of Operations	5
		Consolidated Statement of Changes in Stockholders’ Deficit	6
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	70
	Item 4.	Controls and Procedures	70
Part II.	Other Information
	Item 1.	Legal Proceedings	72
	Item 1A.	Risk Factors	72
	Item 4	Submission of Matters to a Vote of Security Holders	82
	Item 5	Other Information	83
	Item 6.	Exhibits	84
	Signatures		85

3

Part I. Financial Information

Item 1. Financial Statements

RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)

	December 31, 2006 (As restated)			June 30, 2006 (As restated)
ASSETS
Current assets:
Cash and cash equivalents	$	7,799		$	3,041
Short-term investments		—			6,201
Accounts receivable, net		86,556			83,367
Inventories		9,332			8,828
Deferred income taxes		11,549			13,610
Prepaid expenses and other		5,160			3,191
Total current assets		120,396			118,238
Property and equipment, net		46,937			45,303
Goodwill		38,362			38,362
Deferred income taxes		68,404			70,374
Insurance deposits		1,928			2,842
Other assets		19,154			23,749
Total assets	$	295,181		$	298,868
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	14,821		$	14,229
Accrued liabilities		40,131			41,279
Deferred revenue		24,359			24,444
Current portion of long-term debt		38			37
Total current liabilities		79,349			79,989
Long-term debt, net of current portion		288,089			291,337
Other liabilities		22,552			26,135
Total liabilities		389,990			397,461
Minority interest		2,540			2,065
Stockholders’ deficit:
Preferred stock, $0.01 par value, 2,000,000 shares authorized, zero shares issued and outstanding at December 31, 2006 and June 30, 2006		—			—
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,600,810 and 24,495,518 shares issued and outstanding at December 31, 2006 and June 30, 2006, respectively		246			245
Additional paid-in capital		154,266			153,955
Treasury stock, 96,246 shares at December 31, 2006 and June 30, 2006		(1,239	)		(1,239	)
Accumulated deficit		(250,622	)		(253,619	)
Total stockholders’ deficit		(97,349	)		(100,658	)
Total liabilities, minority interest and stockholders’ deficit	$	295,181		$	298,868

See accompanying notes

4

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended December 31,						Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)			2006 (As restated)			2005 (As restated)
Net revenue	$	117,000		$	113,553		$	233,758		$	224,540
Operating expenses:
Payroll and employee benefits		72,530			66,924			145,561			132,931
Depreciation and amortization		2,988			2,787			5,988			5,489
Other operating expenses		30,368			30,297			58,683			59,916
(Gain) loss on sale of assets		11			35			8			(1,307	)
Total operating expenses		105,897			100,043			210,240			197,029
Operating income		11,103			13,510			23,518			27,511
Interest expense		(7,986	)		(7,748	)		(15,771	)		(15,256	)
Interest income		140			172			260			325
Income from continuing operations before income taxes and minority interest		3,257			5,934			8,007			12,580
Income tax provision		(2,129	)		(2,495	)		(4,405	)		(5,977	)
Minority interest		(201	)		(153	)		(974	)		(315	)
Income from continuing operations		927			3,286			2,628			6,288
Income (loss) from discontinued operations, net of income taxes		383			(459	)		369			(70	)
Net income	$	1,310		$	2,827		$	2,997		$	6,218
Income per share:
Basic -
Income from continuing operations	$	0.04		$	0.14		$	0.11		$	0.26
Income (loss) from discontinued operations		0.01			(0.02	)		0.01			0.00
Net income	$	0.05		$	0.12		$	0.12		$	0.26
Diluted -
Income from continuing operations	$	0.04		$	0.13		$	0.11		$	0.25
Income (loss) from discontinued operations		0.01			(0.02	)		0.01			0.00
Net income	$	0.05		$	0.11		$	0.12		$	0.25
Average number of common shares outstanding - Basic		24,581			24,330			24,546			24,281
Average number of common shares outstanding - Diluted		25,011			25,298			24,953			25,280

See accompanying notes

5

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(unaudited)

(in thousands, except share amounts)

	Number of Shares	Common Stock		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit (As restated)			Total (As restated)
Balance at June 30, 2006, as previously reported	24,495,518	$	245	$	153,955		$	(1,239	)	$	(249,233	)	$	(96,272	)
Adjustment for restatements (See Note 2)	—		—		—			—			(4,386	)		(4,386	)
Balance at June 30, 2006, as restated	24,495,518		245		153,955			(1,239	)		(253,619	)		(100,658	)
Issuance of common stock due to options exercised under Stock Option Plans	105,292		1		225			—			—			226
Tax benefit from options exercised under Stock
Option Plans	—		—		93			—			—			93
Stock-based compensation benefit	—		—		(7	)		—			—			(7	)
Comprehensive income, net of tax:
Net income, restated	—		—		—			—			2,997			2,997
Comprehensive income														2,997
Balance at December 31, 2006	24,600,810	$	246	$	154,266		$	(1,239	)	$	(250,622	)	$	(97,349	)

See accompanying notes

6

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)
Cash flows from operating activities:
Net income	$	2,997		$	6,218
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization		5,988			5,681
Accretion of 12.75% Senior Discount Notes		3,772			3,349
Deferred income taxes		4,031			5,363
Insurance adjustments		(3,128	)		(2,387	)
Amortization of deferred financing costs		1,007			1,100
Earnings of minority shareholder		975			315
Gain on sale of property and equipment		(667	)		(1,307	)
Stock-based compensation (benefit) expense		(7	)		16
Change in assets and liabilities—
Accounts receivable		(3,189	)		(12,892	)
Inventories		(504	)		(142	)
Prepaid expenses and other		(1,969	)		1,881
Insurance deposits		914			1,779
Other assets		3,271			1,502
Accounts payable		1,492			(98	)
Accrued liabilities		73			(5,442	)
Deferred revenue		(85	)		506
Other liabilities		(1,306	)		354
Net cash provided by operating activities		13,665			5,796
Cash flows from investing activities:
Sales of short-term investments		18,451			30,100
Purchases of short-term investments		(12,250	)		(37,700	)
Capital expenditures		(8,433	)		(9,096	)
Proceeds from the sale of property and equipment		687			1,559
Net cash used in investing activities		(1,545	)		(15,137	)
Cash flows from financing activities:
Repayment of debt		(7,019	)		(7,738	)
Distributions to minority shareholders		(500	)		(155	)
Issuance of common stock		226			595
Cash paid for debt issuance costs		(162	)		—
Tax benefit from the exercise of stock options		93			436
Net cash used in financing activities		(7,362	)		(6,862	)
Increase (decrease) in cash and cash equivalents		4,758			(16,203	)
Cash and cash equivalents, beginning of period		3,041			17,688
Cash and cash equivalents, end of period	$	7,799		$	1,485
Non-cash investing activities:
Property and equipment funded by liabilities	$	102		$	—

See accompanying notes

7

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business

Rural/Metro Corporation, a Delaware corporation, along with its subsidiaries (collectively, the “Company”) is a leading provider of both emergency and non-emergency medical ambulance services. These services are provided under contracts with governmental entities, hospitals, nursing homes and other healthcare facilities and organizations. The Company also provides fire protection and related services on a subscription fee basis to residential and commercial property owners and under long-term contracts with fire districts, industrial sites and airports. These services consist primarily of fire suppression, fire prevention and first responder medical care.

Other Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The year end condensed balance sheet data was derived from audited financial statements , but does not include all information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position and results of operations. The results of operations for the three and six months ended December 31, 2006 and 2005 are not necessarily indicative of the results of operations for the full fiscal year.

These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto as such appear in our annual audited financial statements and are filed with the SEC from time to time.

(1) Significant Accounting Policies

Use of Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, general liability and workers’ compensation claim reserves and deferred tax asset recoverability. We base our estimates on historical experience and various assumptions we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following accounting policies as critical to understanding our results of operations. The discussion below is not intended to represent a comprehensive list of our accounting policies.

Reclassifications of Financial Information

Certain financial information relating to prior years has been reclassified to conform to the current year presentation.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments with original maturities of three months or less when purchased to be cash equivalents. Outstanding checks are netted against cash when there is a sufficient balance of cash available in the Company’s bank accounts to cover the outstanding amount and the right of offset exists. Where there is no right of offset against cash balances, outstanding checks in excess of cash on-hand are classified as accounts payable within the consolidated balance sheet and the change in the related balances is reflected in operating activities on the consolidated statement of cash flows.

Overdraft balances were $2.3 million and $1.3 million at December 31, 2006 and June 30, 2006, respectively, and were included in accounts payable in the Company’s consolidated balance sheet.

8

Short-term Investments

The Company’s short-term investments consist of taxable auction rate securities. Short-term investments totaled $0 and $6.2 million at December 31, 2006 and June 30, 2006, respectively. In accordance with Statement of Financial Accounting Standards (“SFAS”) Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” these short-term investments are classified as available-for-sale and recorded at cost, which approximates fair value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 7 to 28 days.

Medical Transportation and Related Services Revenue Recognition

Medical transportation and related services fees are recognized when services are provided and are recorded net of discounts applicable to Medicare, Medicaid and other third-party payers and net of estimates for uncompensated care. Because of the length of the collection cycle with respect to medical transportation and related services fees, it is necessary to estimate the amount of these adjustments at the time revenue is recognized. The collectibility of these fees is analyzed using historical collection experience within each service area. Using collection data resident in our billing system, we estimate the percentage of gross medical transportation and related services fees that will not be collected and record provisions for both discounts and uncompensated care. The portion of the provision allocated to discounts is based on historical write-offs relating to such discounts as a percentage of the related gross revenue recognized for each service area. The ratio is then applied to current period gross medical transportation and related services fees to determine the portion of the provision that will be recorded as a reduction in revenue. The remaining amount of the provision is classified as uncompensated care. If the historical data used to calculate these estimates does not properly reflect the ultimate collectibility of the current revenue stream, revenue could be overstated or understated. Discounts applicable to Medicare, Medicaid and other third-party payers related to continuing operations, which are reflected as a reduction of medical transportation and related services revenue, totaled $67.3 million and $132.9 million for the three and six months ended December 31, 2006, respectively and $61.3 million and $119.0 million for three and six months ended December 31, 2005, respectively.

Uncompensated care can be affected by a variety of factors, including the number of patients we transport that do not pay us for the medical services we provide, a sustained disruption in collections, and the quality of our billing documentation and procedures. The estimate for uncompensated care that is applied to gross medical transportation and related services fee revenue is calculated as the difference between the total expected collection percentage less contractual discounts described above. If historical data used to calculate these estimates do not properly reflect the ultimate collectibility of the current revenue stream, the estimate for uncompensated care may be overstated or understated. The estimate for uncompensated care on medical transportation revenue from continuing operations totaled $27.4 million and $54.7 million for the three and six months ended December 31, 2006, respectively and $23.4 million and $45.9 million for three and six months ended December 31, 2005, respectively.

Insurance Claim Reserves

In the ordinary course of our business, we are subject to accident, injury and professional liability claims. Additionally, certain of our operational contracts, as well as laws in certain of the areas where we operate, require that specified amounts of insurance coverage be maintained. In order to minimize the risk of exposure and comply with such legal and contractual requirements, we carry a broad range of insurance policies, including comprehensive general liability, automobile, property damage, professional, workers’ compensation and other lines of coverage. We typically renew each of these policies annually and purchase limits of coverage at levels management believes are appropriate, taking into account historical and projected claim trends, reasonable protection of our assets and operations and the economic conditions in the insurance market. Depending upon the specific line of coverage, the total limits of insurance maintained may be achieved through a combination of primary policies, excess policies and self-insurance.

We retain certain levels of exposure with respect to our general liability and workers’ compensation programs and purchase coverage from third party insurers for exposures in excess of those levels. In addition to expensing premiums and other costs relating to excess coverage, we establish reserves for claims, both reported and incurred but not reported, on a gross basis using currently available information as well as our historical claims experience. We also recognize a receivable from our insurers for amounts expected to be recovered in excess of our retention. We periodically evaluate the financial capacity of our insurers to assess the recoverability of the related receivables.

9

We engage third-party administrators (“TPAs”) to manage claims resulting from our general liability and workers’ compensation programs. The TPAs establish initial loss reserve estimates at the time a claim is reported and then monitor the development of the claim over time to confirm that such estimates continue to be appropriate. Management periodically reviews the claim reserves established by the TPAs and engages independent actuaries to assist with the evaluation of the adequacy of its reserves on a semi-annual basis. We adjust our claim reserves with an associated charge or credit to expense as new information on the underlying claim is obtained.

Reserves related to workers’ compensation claims totaled $11.7 million and $13.7 million at December 31, 2006 and 2005, respectively. Reserves related to general liability claims totaled $16.5 million and $21.7 million at December 31, 2006 and 2005, respectively.

Deferred Tax Assets and Liabilities

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record valuation allowances to reduce net deferred tax assets to the amount considered more likely than not to be realized. Changes in estimates of future taxable income can materially change the amount of such valuation allowances.

Asset Impairment

We review our property and equipment for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable by comparing the carrying amount of such assets to the estimated undiscounted future cash flows associated with them. In cases where the estimated undiscounted cash flows are less than the related carrying amount, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the assets. The fair value is determined based on the present value of estimated future cash flows using a discount rate commensurate with the risks involved.

Our goodwill balances are reviewed for impairment annually (and interim periods if events or changes in circumstances indicate that the related asset may be impaired) using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. We perform our annual impairment test on June 30.

10

(2) Restatement – Correction of Errors

On September 14, 2007, the Company filed a Current Report on Form 8-K with the SEC in which it announced that it was restating previously reported financial statements to correct accounting errors. As more fully described below, the Company has identified errors with respect to the accounting for income taxes, subscription revenue, operating leases and retirement plan contributions. In addition, the Company also identified errors related to certain other items, which are not material individually, but are material in the aggregate when combined with the errors below.

Income Taxes

During the fourth quarter of fiscal 2007, the Company reviewed its tax positions in accordance with Financial Accounting Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which is effective for the Company at the beginning of the first quarter of fiscal 2008. In connection with its review, the Company concluded that certain positions related to federal and state income taxes met the probable threshold for the recognition of loss contingencies as promulgated by Financial Accounting Standard No 5, Accounting for Contingencies, (FAS 5), and therefore the Company should have recognized an additional income tax provision in the years affected. These errors included state income tax adjustments for jurisdictions in which the Company has not previously filed tax returns and adjustments to the calculation of taxable income related to certain intercompany charges. Other tax-related errors included erroneously recording benefits for net operating losses of certain wholly-owned subsidiaries that the Company determined may not be sustainable within its consolidated tax return and other errors related to deductions taken on prior tax returns. In addition, the Company discovered additional tax-related errors related to the calculation of temporary differences related to partnership investments, which were identified by management when the temporary differences did not fully reverse upon dissolution of certain partnerships. The combined impact of these errors resulted in an increase in net income of $4,000 and a decrease in net income of $62,000 for the three months ended December 31, 2006 and 2005, respectively and a decrease in net income of $167,000 and $128,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of these errors on net income for all periods preceding fiscal 2007 was $781,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

Subscription Revenue

During the fourth quarter of fiscal 2007, management determined that the Company had prematurely recognized revenue for certain fire subscription services and ambulance subscription services provided by the Company. Generally, the Company is obligated to provide coverage to its customers for subscription services after the Company has received both a signed executed agreement and payment for the coverage period. In accordance with generally accepted accounting principles, the Company is required to recognize revenue for these services on a straight-line basis over the contractual life of the subscription agreement, which begins on the date in which both the signed agreement and the payment are received. Based on a review conducted by management, it was determined that the Company improperly recognized a full month of revenue for the month in which the subscription payment was received instead of recognizing revenue for only the remaining number of calendar days left in the month. In addition, management also determined that the Company prematurely recognized revenue in situations where customers renewed subscription agreements prior to the expiration of the existing contractual period. In these situations the Company failed to defer its revenue recognition for the renewal period until its obligations under the existing contractual period were satisfied. The combined impact of these errors resulted in an increase in net income of $36,000 and $97,000 for the three months ended December 31, 2006 and 2005, respectively, and a decrease in net income of $15,000 and $116,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of these errors on net income for all periods preceding fiscal 2007 was $1,909,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

11

Operating Leases

During the fourth quarter of fiscal 2007, management discovered a misapplication of generally accepted accounting principles with respect to the Company’s accounting for certain of its operating leases that had been executed prior to fiscal 2007. In accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, (SFAS 13), lessees are required to account for operating leases, which contain fixed escalating payment terms, by recognizing rent expense on a straight-line basis over the lease term including those instances where rental payments are not made on a straight-line basis. In connection with a review of the Company’s real estate leases, management identified multiple operating leases containing payment escalation provisions under which rental expense was not being recognized on a straight-line basis. The impact of this error resulted in an increase in net income of $25,000 and a decrease in net income of $19,000 for the three months ended December 31, 2006 and 2005, respectively, and an increase in net income of $50,000 and a decrease in net income of $41,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of this error on net income for all periods preceding fiscal 2007 was $639,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

Retirement Plan Matching Contributions

During the fourth quarter of fiscal 2007, management determined that the Company had not recognized an expense for its obligation to provide matching contributions on elective deferrals under a 401(k) plan (the “Plan”) made by certain employees covered by a collective bargaining agreement. Based on a review conducted by management, it was determined that the Company had properly funded its obligation with respect to the matching obligation since the Plan’s inception; however, instead of recognizing an offsetting expense for the amount of the contribution, the Company improperly relieved an accrued liability associated with an unrelated 401k plan. The impact of this error resulted in a decrease in net income of $62,000 and $57,000 for the three months ended December 31, 2006 and 2005, respectively, and a decrease in net income of $112,000 and $111,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of this error on net income for all periods preceding fiscal 2007 was $302,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

Other Items

During the fourth quarter of 2007, management identified a number of other adjustments to correct and record expenses in the periods in which such expenses were incurred. These errors include but are not limited to year-end expense accruals and depreciation expense on certain leasehold improvements. The combined impact of these errors of the other items resulted in an increase in net income of $12,000 for the three months ended December 31, 2006 and 2005 and an increase in net income of $193,000 and $179,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of these errors on net income for all periods preceding fiscal 2007 was $755,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of these adjustments.

The effects of the adjustments described above on the Company’s Consolidated Balance Sheets at December 31, 2006 and June 30, 2006 and on the Company’s Consolidated Statements of Operations for the three and six months ended December 31, 2006 and 2005 are disclosed in the table below.

12

Statement of Cash Flows

At June 30, 2006, the Company had accrued $1.0 million of equipment purchases which were included within property and equipment on the Company’s Consolidated Balance Sheet as of June 30, 2006. Although the Company had not disbursed funds for these assets until the first quarter of fiscal 2007, the Company improperly presented the impact of these accrued purchases as a component of cash used in investing activities within its Consolidated Statement of Cash Flows for the year ended June 30, 2006. In addition, the Company also improperly excluded the impact of the capital expenditures from cash used in investing activities within its Consolidated Statement of Cash Flows for the six months ended December 31, 2006. The adjustment to the Company’s Consolidated Statement of Cash Flows resulted in a $1.0 million increase in net cash provided by operating activities and a $1.0 million increase in net cash used in investing activities for the six months ended December 31, 2006. There was no effect on the Company’s Consolidated Statements of Operations for the three and six months ended December 31, 2006 and 2005, as a result of this adjustment.

13

The effects of the adjustments described above on the Company’s Consolidated Balance Sheets at December 31, 2006 and June 30, 2006 are as follows:

	Consolidated Balance Sheet
	December 31, 2006 As previously reported in Amendment 1			Adjustments due to subscription revenue correction			Adjustments due to operating lease corrections			Adjustments due to retirement plan correction			Adjustments due to other item corrections			Adjustments due to income tax corrections			December 31, 2006 As restated
Current portion deferred income taxes	$	7,514		$	1,202		$	104		$	260		$	—		$	2,469		$	11,549
Prepaid expenses and other		6,099			—			—			—			(939	)		—			5,160
Total current assets		117,300			1,202			104			260			(939	)		2,469			120,396
Property and equipment, net		47,565			—			—			—			(628	)		—			46,937
Long-term portion deferred income taxes		69,308			—			264			—			241			(1,409	)		68,404
Other assets		18,299			—			—			—			855			—			19,154
Total assets		292,762			1,202			368			260			(471	)		1,060			295,181
Accrued liabilities		37,087			—			271			674			(3	)		2,102			40,131
Deferred revenue		21,233			3,126			—			—			—			—			24,359
Total current liabilities		73,179			3,126			271			674			(3	)		2,102			79,349
Other liabilities		21,866			—			686			—			—			—			22,552
Total liabilities		383,134			3,126			957			674			(3	)		2,102			389,990
Accumulated deficit		(246,185	)		(1,924	)		(589	)		(414	)		(468	)		(1,042	)		(250,622	)
Total stockholders’ deficit		(92,912	)		(1,924	)		(589	)		(414	)		(468	)		(1,042	)		(97,349	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	292,762		$	1,202		$	368		$	260		$	(471	)	$	1,060		$	295,181
	Consolidated Balance Sheet
	June 30, 2006 As previously reported in Amendment 1			Adjustments due to subscription revenue correction			Adjustments due to operating lease corrections			Adjustments due to retirement plan correction			Adjustments due to other item corrections			Adjustments due to income tax corrections			June 30, 2006 As restated
Current portion deferred tax assets	$	9,574		$	1,193		$	90		$	189		$	—		$	2,564		$	13,610
Prepaid expenses and other		3,698			—			—			—			(507	)		—			3,191
Total current assets		114,709			1,193			90			189			(507	)		2,564			118,238
Property and equipment, net		45,970			—			—			—			(667	)		—			45,303
Long-term portion deferred tax assets		71,051			—			309			—			256			(1,242	)		70,374
Other assets		23,454			—			—			—			295			—			23,749
Total assets		296,388			1,193			399			189			(623	)		1,322			298,868
Accounts payable		13,957			—			—			—			272			—			14,229
Accrued liabilities		38,590			—			235			491			(140	)		2,103			41,279
Deferred revenue		21,342			3,102			—			—			—			—			24,444
Total current liabilities		73,926			3,102			235			491			132			2,103			79,989
Other liabilities		25,332			—			803			—			—			—			26,135
Total liabilities		390,595			3,102			1,038			491			132			2,103			397,461
Accumulated deficit		(249,233	)		(1,909	)		(639	)		(302	)		(755	)		(781	)		(253,619	)
Total stockholders’ deficit		(96,272	)		(1,909	)		(639	)		(302	)		(755	)		(781	)		(100,658	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	296,388		$	1,193		$	399		$	189		$	(623	)	$	1,322		$	298,868

14

The effects of the adjustments described above on the Company’s Consolidated Statements of operations for the three months ended December 31, 2006 and 2005 are as follows:

	Consolidated Statement of Operations
	Three Months Ended December 31, 2006 As previously reported in Amendment 1			Adjustments due to subscription revenue correction			Adjustments due to operating lease corrections			Adjustments due to retirement plan correction			Adjustments due to other item corrections			Adjustments due to income tax corrections			Three Months Ended December 31, 2006 As restated
Net revenue	$	116,941		$	59		$	—		$	—		$	—		$	—		$	117,000
Payroll and employee benefits		72,429			—			—			101									72,530
Depreciation and amortization		3,007			—			—			—			(19	)		—			2,988
Other operating expenses		30,409			—			(41	)		—						—			30,368
Total operating expenses		105,856			—			(41	)		101			(19	)		—			105,897
Operating income		11,085			59			41			(101	)		19			—			11,103
Income (loss) from continuing operations before income taxes and minority interest		3,239			59			41			(101	)		19			—			3,257
Income tax (provision) benefit		(2,126	)		(23	)		(16	)		39			(7	)		4			(2,129	)
Income (loss) from continuing operations		912			36			25			(62	)		12			4			927
Net income	$	1,295		$	36		$	25		$	(62	)	$	12		$	4		$	1,310
Basic earnings per share	$	0.05		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00		$	0.05
Diluted earnings per share	$	0.05		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00		$	0.05
	Consolidated Statement of Operations
	Three Months Ended December 31, 2005 As previously reported in Amendment 1			Adjustments due to subscription revenue correction			Adjustments due to operating lease corrections			Adjustments due to retirement plan correction			Adjustments due to other item corrections			Adjustments due to income tax corrections			Three Months Ended December 31, 2005 As restated
Net revenue	$	113,396		$	157		$	—		$	—		$	—		$	—		$	113,553
Payroll and employee benefits		66,832			—			—			92									66,924
Depreciation and amortization		2,807			—			—			—			(20	)		—			2,787
Other operating expenses		30,266			—			31			—						—			30,297
Total operating expenses		99,940			—			31			92			(20	)		—			100,043
Operating income		13,456			157			(31	)		(92	)		20			—			13,510
Income (loss) from continuing operations before income taxes and minority interest		5,880			157			(31	)		(92	)		20			—			5,934
Income tax (provision) benefit		(2,412	)		(60	)		12			35			(8	)		(62	)		(2,495	)
Income (loss) from continuing operations		3,315			97			(19	)		(57	)		12			(62	)		3,286
Net income	$	2,856		$	97		$	(19	)	$	(57	)	$	12		$	(62	)	$	2,827
Basic earnings per share	$	0.12		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00		$	0.12
Diluted earnings per share	$	0.11		$	0.00		$	0.00		$	0.00		$	0.00		$	0.00		$	0.11

15

The effects of the adjustments described above on the Company’s Consolidated Statements of operations for the six months ended December 31, 2006 and 2005 are as follows:

	Consolidated Statement of Operations
	Six Months Ended December 31, 2006 As previously reported in Amendment 1			Adjustments due to subscription revenue correction			Adjustments due to operating lease corrections			Adjustments due to retirement plan correction			Adjustments due to other item corrections			Adjustments due to income tax corrections			Six Months Ended December 31, 2006 As restated
Net revenue	$	233,782		$	(24	)	$	—		$	—					$	—		$	233,758
Payroll and employee benefits		145,370			—			—			183			8						145,561
Depreciation and amortization		6,027			—			—			—			(39	)		—			5,988
Other operating expenses		59,033			—			(81	)		—			(269	)		—			58,683
Total operating expenses		210,438			—			(81	)		183			(300	)		—			210,240
Operating income		23,344			(24	)		81			(183	)		300			—			23,518
Income (loss) from continuing operations before income taxes and minority interest		7,833			(24	)		81			(183	)		300			—			8,007
Income tax (provision) benefit		(4,180	)		9			(31	)		71			(107	)		(167	)		(4,405	)
Income (loss) from continuing operations		2,679			(15	)		50			(112	)		193			(167	)		2,628
Net income	$	3,048		$	(15	)	$	50		$	(112	)	$	193		$	(167	)	$	2,997
Basic earnings per share	$	0.12		$	0.00		$	0.00		$	0.00		$	0.01		$	(0.01	)	$	0.12
Diluted earnings per share	$	0.12		$	0.00		$	0.00		$	0.00		$	0.01		$	(0.01	)	$	0.12
	Consolidated Statement of Operations
	Six Months Ended December 31, 2005 As previously reported in Amendment 1			Adjustments due to subscription revenue correction			Adjustments due to operating lease corrections			Adjustments due to retirement plan correction			Adjustments due to other item corrections			Adjustments due to income tax corrections			Six Months Ended December 31, 2005 As restated
Net revenue	$	224,729		$	(189	)	$	—		$	—		$	—		$	—		$	224,540
Payroll and employee benefits		132,751			—			—			180			—			—			132,931
Depreciation and amortization		5,528			—			—			—			(39	)		—			5,489
Other operating expenses		60,090			—			66			—			(240	)		—			59,916
Total operating expenses		197,062			—			66			180			(279	)		—			197,029
Operating income		27,667			(189	)		(66	)		(180	)		279			—			27,511
Income (loss) from continuing operations before income taxes and minority interest		12,736			(189	)		(66	)		(180	)		279			—			12,580
Income tax (provision) benefit		(5,916	)		73			25			69			(100	)		(128	)		(5,977	)
Income (loss) from continuing operations		6,505			(116	)		(41	)		(111	)		179			(128	)		6,288
Net income	$	6,435		$	(116	)	$	(41	)	$	(111	)	$	179		$	(128	)	$	6,218
Basic earnings per share	$	0.27		$	(0.01	)	$	0.00		$	0.00		$	0.01		$	(0.01	)	$	0.26
Diluted earnings per share	$	0.25		$	0.00		$	0.00		$	0.00		$	0.01		$	(0.01	)	$	0.25

16

Previous Restatement

During the quarter ended December 31, 2006, the Company changed its accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients, defined as “uncompensated care.” The Company now presents revenue net of an estimate for uncompensated care within the Consolidated Statement of Operations. Also during the same quarter, management determined that inventory had been historically overstated by the improper inclusion of certain durable medical supply items that should have been expensed as incurred. The effects of the adjustment for inventory on the Company’s Consolidated Balance Sheet as of June 30, 2006 and its Consolidated Statements of Operations for the three and six months ended December 31, 2005 are as follows:

	Consolidated Balance Sheet
	June 30, 2006 As previously reported			Adjustments due to inventory correction			June 30, 2006 As restated in Amendment 1
Inventories	$	13,135		$	(4,307	)	$	8,828
Current portion deferred income taxes		9,461			113			9,574
Prepaid expenses and other		3,702			(4	)		3,698
Total current assets		118,907			(4,198	)		114,709
Long-term portion deferred income taxes		69,657			1,394			71,051
Total assets	$	299,192		$	(2,804	)		296,388
Accumulated deficit		(246,433	)		(2,800	)		(249,233	)
Total stockholders’ deficit		(93,472	)		(2,800	)		(96,272	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	299,192		$	(2,804	)		296,388
	Consolidated Statement of Operations
	Three Months Ended December 31, 2005 As previously reported, adjusted for effect of revenue accounting change			Adjustments due to inventory correction			Three Months Ended December 31, 2005 As restated in Amendment 1
Net revenue	$	113,396		$	—		$	113,396
Other operating expenses		30,403			(137	)		30,266
Total operating expenses		100,077			(137	)		99,940
Operating income		13,319			137			13,456
Income (loss) from continuing operations before income taxes and minority interest		5,743			137			5,880
Income tax provision		(2,364	)		(48	)		(2,412	)
Income (loss) from continuing operations		3,226			89			3,315
Net income	$	2,767		$	89		$	2,856
Basic earnings per share	$	0.11		$	0.01		$	0.12
Diluted earnings per share	$	0.11			—		$	0.11

17

	Consolidated Statement of Operations
	Six Months Ended December 31, 2005 As previously reported, adjusted for effect of revenue accounting change			Adjustments due to inventory correction			Six Months Ended December 31, 2005 As restated in Amendment #1
Net revenue	$	224,729		$	—		$	224,729
Other operating expenses		60,227			(137	)		60,090
Total operating expenses		197,199			(137	)		197,062
Operating income		27,530			137			27,667
Income (loss) from continuing operations before income taxes and minority interest		12,599			137			12,736
Income tax provision		(5,868	)		(48	)		(5,916	)
Income (loss) from continuing operations		6,416			89			6,505
Net income	$	6,346		$	89		$	6,435
Basic earnings per share	$	0.26		$	0.01		$	0.27
Diluted earnings per share	$	0.25			—		$	0.25

18

(3) New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the Company in the first quarter of fiscal 2008. The Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its consolidated financial statements and related disclosures.

In September 2006, the FASB issued SFAS Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosure about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for the Company in the first quarter of fiscal 2009. The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its consolidated financial statements and related disclosures.

In September 2006, the FASB issued SFAS Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). This standard requires balance sheet recognition of the funded status for all pension and postretirement benefit plans in the year in which the changes occur through accumulated other comprehensive income. Additionally, this standard requires the measurement of the funded status of a plan as of the end of the employer’s fiscal year. The balance sheet recognition provisions of SFAS 158 are effective for the Company as of June 30, 2007 while the measurement date provisions are effective for the Company for the fiscal year ended June 30, 2009. As further discussed in Note 13 to our consolidated financial statements, the Company has a defined benefit pension plan that will be subject to the provisions of SFAS 158. As of December 31, 2006, the Company’s defined benefit pension plan was overfunded. The Company is currently evaluating the impact, if any, the adoption of the balance sheet recognition provisions of SFAS 158 will have on its consolidated financial statements and related disclosures. As the Company currently measures the funded status of its plan as of the end of its fiscal year, the measurement date provisions will have no impact on its consolidated financial statements and related disclosures.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). This statement provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality assessment. For prior year immaterial misstatements that are considered material under SAB 108, a one-time transitional cumulative adjustment would be made to beginning retained earnings in the first interim period in which the statement is adopted. SAB 108 is effective for the Company on June 30, 2007.

In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP 123(R)-3”). Under the provisions of FSP 123(R)-3, entities may follow either the transition guidance for the additional-paid-in-capital pool as prescribed by SFAS 123(R) or elect to use the alternative transition method as described in FSP 123(R)-3. An entity that adopts SFAS 123(R) using the modified prospective application method may make a one-time election to adopt the transition method described in FSP 123(R)-3. The Company elected to use the alternative transition method provided in FSP 123(R)-3 to calculate the pool of windfall tax benefits as of the adoption date of SFAS 123(R).

(4) Stock Based Compensation

At December 31, 2006, the Company had two stock compensation plans, the Amended and Restated 1992 Stock Option Plan (the “1992 Plan”) and the 2000 Non-Qualified Stock Option Plan (the “2000 Plan”). The 1992 Plan, which provided for the issuance of stock options to employees and non-employees, including executive officers and the Board of Directors, expired on November 5, 2002. The 2000 Plan, which provides for the issuance of stock options to employees and non-employees, excluding executive officers and the Board of Directors, had 480,664 common shares available for issuance at December 31, 2006.

The Company recognized $0 and $7,000 of stock based compensation benefit in the statement of operations for the three and six months ended December 31, 2006. The Company recognized approximately $7,000 and $16,000 of stock based compensation expense for the three and six months ended December 31, 2005, respectively. At December 31, 2006, there were no remaining unvested awards under either stock compensation plan. Upon an option grant, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and amortized to expense over the vesting period of the award. There were no stock options granted during the three and six months ended December 31, 2006.

19

(5) Accrued Severance

At December 31, 2006, the Company had approximately $1.0 million in accrued severance benefits pursuant to an employment agreement with the Company’s former Chief Financial Officer. Approximately $1.1 million is included in payroll and employee benefits expense in the consolidated statement of operations for the six months ended December 31, 2006.

(6) General Liability and Worker’s Compensation Plans

General Liability

The Company maintains insurance policies for comprehensive automobile liability and professional liability (referred to collectively as “general liability”). These policies are typically renewed annually. Management periodically reviews its general liability claim reserves and engages its independent actuaries to assist with the assessment of reserve adequacy. The Company adjusts its claim reserves with an associated charge or credit to expense as new information on the underlying claims are obtained.

The Company engaged its independent actuaries to perform updated valuations of its related claim reserves during the six month periods ended December 31, 2006 and 2005. Based on these analyses, the Company reduced its general liability claim reserves by $0.4 million during the second quarter of fiscal 2007 and increased its general liability claim reserves by $0.2 million during the second quarter of fiscal 2006. The related benefit and expense is reflected in other operating expenses for the three and six months ended December 31, 2006 and 2005, respectively.

Workers’ Compensation

The Company maintains insurance policies for workers’ compensation and employer’s liability. The Company is required by law to maintain statutory limits of workers’ compensation insurance. These policies are typically renewed annually. Management periodically reviews its workers’ compensation claim reserves and engages its independent actuaries to assist with the assessment of reserve adequacy. The Company adjusts its claim reserves with an associated charge or credit to expense as new information on the underlying claims are obtained. These adjustments may be reflected as changes to the Company’s reserve liabilities or collateral deposit assets.

The Company engaged its independent actuaries to perform updated valuations of its related claim reserves during the six month periods ended December 31, 2006 and 2005. Based on these analyses, the Company reduced its workers’ compensation claim reserves by $3.1 million and $1.5 million during the second quarters of fiscal 2007 and 2006, respectively. The related benefit is reflected as a reduction of payroll and employee benefits for the three and six months ended December 31, 2006 and 2005, respectively.

Additionally, the Company recognized estimated premium refunds and reserve adjustments totaling $0.4 million as an increase to payroll and employee benefits and a decrease to other assets for the three and six months ended December 31, 2006, and $1.1 million as a reduction of payroll and employee benefits for the three and six months ended December 31, 2005 based upon an updated loss assessment prepared by its independent actuaries. Of the $1.1 million recognized during the second quarter of fiscal 2006, $0.8 million pertained to policy years ended April 30, 2004 and 2003 and was reflected as an increase in other assets and the remaining $0.3 million pertained to the policy year ended April 30, 2005 and was reflected as a reduction to the Company’s workers’ compensation claim reserves. The Company has recorded loss reserves for claims expected to be incurred during this policy period as the risk of loss was not effectively transferred to the insurer.

20

(7) Long-term Debt

The following is a summary of the Company’s outstanding long-term debt (in thousands):

	December 31, 2006			June 30, 2006
Senior Secured Term Loan B due March 2011	$	100,000		$	107,000
9.875% Senior Subordinated Notes due March 2015		125,000			125,000
12.75% Senior Discount Notes due March 2016		62,942			59,170
Other obligations, at varying rates from 6.0% to 12.75%, due through 2013		185			204
Long-term debt		288,127			291,374
Less: Current maturities		(38	)		(37	)
Long-term debt, net of current maturities	$	288,089		$	291,337

The Senior Secured Term Loan B due March 2011 (the “Term Loan B”) bears interest at LIBOR plus 2.25% per annum based on contractual periods from one to six months in length at the Company’s option. At December 31, 2006, $85.0 million of the outstanding Term Loan B balance was under a LIBOR option six-month contract accruing interest at 7.61% per annum, while the remaining $15.0 million was under a LIBOR option three-month contract accruing interest at 7.62%. At June 30, 2006, $97.0 million of the outstanding Term Loan B balance was under a LIBOR option six-month contract accruing interest at 7.50 % per annum, and the remaining $10.0 million outstanding was under a LIBOR option three-month contract accruing interest at 7.40 %.

The Company has capitalized $13.5 million of expenses associated with its outstanding debt and is amortizing these costs as interest expense over the terms of the respective agreements. Unamortized deferred financing costs were $9.9 million and $10.8 million at December 31, 2006 and June 30, 2006, respectively, and are included in other assets in the consolidated balance sheet.

On November 8, 2006, the Company, through its wholly owned subsidiary, Rural/Metro Operating Company, LLC (“Rural/Metro LLC”), made a $7.0 million unscheduled principal payment on its Term Loan B. In connection with this payment, the Company wrote-off approximately $0.2 million of deferred financing costs during the second quarter of fiscal 2007. Rural/Metro LLC has made inception-to-date unscheduled principal payments totaling $35.0 million, and may, from time to time, make additional unscheduled principal payments at its discretion.

At December 31, 2006, the Company had $39.0 million issued under its $45.0 million Letter of Credit Facility, primarily in support of insurance deductible arrangements. In addition, the Company’s $20.0 million Revolving Credit Facility, which includes a letter of credit sub-line in the amount of $10.0 million, was undrawn at December 31, 2006.

The senior secured credit facilities (collectively, the “2005 Credit Facility”), the $125.0 million aggregate principal amount 9.875% senior subordinated notes due 2015 (the “Senior Subordinated Notes”) and the $93.5 million aggregate principal amount at maturity 12.75% senior discount notes due 2016 (the “Senior Discount Notes”) include various financial and non-financial covenants as well as quarterly and annual financial reporting obligations.

Specifically, the 2005 Credit Facility, as amended, requires Rural/Metro LLC and its subsidiaries to meet certain financial tests, including a maximum total leverage ratio, a minimum interest expense coverage ratio and a minimum fixed charge coverage ratio. The 2005 Credit Facility also contains covenants which, among other things, limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset sales, acquisitions, mergers, prepayments of other indebtedness, liens and encumbrances, capital expenditures, business activities by the Company, as a holding company, and other matters customarily restricted in such agreements.

21

The Company was in compliance with all of its covenants, as amended, under its 2005 Credit Facility at December 31, 2006. Due to the restatement of the financial statements, we did not timely file the Annual Report on Form 10-K for the year ended June 30, 2007, as disclosed on Form 12b-25 filed on September 14, 2007. As a result, the Company received a notice of default from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. Effective September 1, 2007, the Company obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of the Annual Report on Form 10-K for the year ended June 30, 2007. In addition, any default under the notes relating to the untimely filing of the Annual Report on Form 10-K for the year ended June 30, 2007, will be cured within the 60-day cure period (expires November 23, 2007) upon the filing of this report with the SEC. See Credit Facility Amendments below and Note 15 to the consolidated financial statements.

Financial Covenant	Level Specified in Agreement	Level Achieved for Specified Period	Levels to be Achieved at
			March 31, 2007	June 30, 2007
Debt leverage ratio	< 4.75	3.84	< 4.75	< 4.75
Interest expense coverage ratio	> 2.00	2.67	> 2.00	> 2.00
Fixed charge coverage ratio	> 1.10	1.42	> 1.10	> 1.10
Maintenance capital expenditure (1), (2)	N/A	N/A	N/A	< $22.0 million
New business capital expenditure (2)	N/A	N/A	N/A	< $4.0 million

(1) Capital expended in the normal course of operating in existing markets.

(2) Measured annually at June 30^th.

Credit Facility Amendments

On November 10, 2006, the Company amended the 2005 Credit Facility (“Amendment No. 4”) to modify the definition of the Consolidated EBITDA covenant to exclude the severance benefits associated with the termination of the Company’s former Chief Financial Officer. Amendment No. 4 was effective as of September 30, 2006.

On January 18, 2007, the Company amended the 2005 Credit Facility (“Amendment No. 5”) to modify certain financial covenant requirements contained in the Credit Agreement, including total leverage ratio, interest expense coverage ratio and fixed charge coverage ratio. In addition, Amendment No. 5 modified the definitions of “Consolidated Net Income” and “Consolidated Net Rental and Operating Lease Expense” to exclude discontinued operations prior to June 30, 2006. In connection with Amendment No. 5, the Company paid $0.7 million in lender and administration fees during the third quarter of fiscal 2007. Of this amount, $0.5 million was capitalized and will be amortized to interest expense over the remaining term of the 2005 Credit Facility. As a result of entering into Amendment No. 5, which is effective as of December 31, 2006, the Company is in compliance with all of its covenants under the 2005 Credit Facility at December 31, 2006.

Condensed Consolidating Financial Information

The Senior Subordinated Notes are unsecured senior subordinated obligations of Rural/Metro LLC and Rural/Metro (Delaware) Inc. (“Rural/Metro Inc”, collectively referred to as the “Senior Subordinated Notes Issuers”) and are fully and unconditionally guaranteed on a joint and several basis by Rural/Metro Corporation (which is referred to singularly as Parent within the schedules presented in this Note 7) and substantially all of the current and future subsidiaries of Rural/Metro LLC, excluding Rural/Metro Inc. (the “Senior Subordinated Note Guarantors”).

The Company does not believe that the separate financial statements and related footnote disclosures concerning the Senior Subordinated Note Guarantors would provide any additional information that would be material to investors making an investment decision. Condensed consolidating financial information for the Parent, the Senior Subordinated Notes Issuers, the Senior Secured Note Guarantors and the Company’s remaining subsidiary (the “Non-Guarantor”) is presented in the following tables. The Non-Guarantor consists of the Company’s joint venture with the City of San Diego, San Diego Medical Services Enterprise, LLC, which is consolidated in accordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”. Certain information presented has been restated from that originally reported to reflect the impact of correcting certain accounting practice errors related to income taxes, subscription revenue, operating leases, retirement plan matching contributions and other items as discussed in Note 2 to the consolidated financial statements. In addition, certain reclassifications have been made to the December 31, 2005 Condensed Consolidating Statement of Cash Flows to be comparable with the December 31, 2006 presentation.

22

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers				Senior Subordinated Notes Guarantors (As restated)			Non- Guarantor			Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)		Eliminations (As restated)			Rural/Metro Corporation Consolidated (As restated)
	Parent (As restated)			Rural/Metro LLC (As restated)		Rural/Metro Inc.
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	—	$	6,820		$	979		$	—		$	7,799	$	—		$	7,799
Short-term investments		—			—		—		—			—			—			—		—			—
Accounts receivable, net		—			—		—		78,430			8,126			—			86,556		—			86,556
Inventories		—			—		—		9,332			—			—			9,332		—			9,332
Deferred income taxes		—			—		—		11,549			—			—			11,549		—			11,549
Prepaid expenses and other		—			25		—		5,135			—			—			5,160		—			5,160
Total current assets		—			25		—		111,266			9,105			—			120,396		—			120,396
Property and equipment, net		—			—		—		46,734			203			—			46,937		—			46,937
Goodwill		—			—		—		38,362			—			—			38,362		—			38,362
Deferred income taxes		—			—		—		68,404			—			—			68,404		—			68,404
Insurance deposits		—			—		—		1,928			—			—			1,928		—			1,928
Other assets		1,806			8,132		—		8,691			525			—			17,348		—			19,154
Due from (to) affiliates (1)		—			137,060		125,000		(134,238	)		(2,822	)		(125,000	)		—		—			—
Due from (to) Parent		(42,704	)		42,704		—		—			—			—			42,704		—			—
Rural/Metro LLC investment in subsidiaries		—			48,796		—		—			—			(48,796	)		—		—			—
Parent Company investment in Rural/Metro LLC		6,491			—		—		—			—			—			—		(6,491	)		—
Total assets	$	(34,407	)	$	236,717	$	125,000	$	141,147		$	7,011		$	(173,796	)	$	336,079	$	(6,491	)	$	295,181
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—	$	—	$	13,538		$	1,283		$	—		$	14,821	$	—		$	14,821
Accrued liabilities		—			5,226		—		34,256			649			—			40,131		—			40,131
Deferred revenue		—			—		—		24,359			—			—			24,359		—			24,359
Current portion of long-term debt		—			—		—		38			—			—			38		—			38
Total current liabilities		—			5,226		—		72,191			1,932			—			79,349		—			79,349
Long-term debt, net of current portion (1)		62,942			225,000		125,000		147			—			(125,000	)		225,147		—			288,089
Other long-term liabilities		—			—		—		22,552			—			—			22,552		—			22,552
Total liabilities		62,942			230,226		125,000		94,890			1,932			(125,000	)		327,048		—			389,990
Minority interest		—			—		—		—			—			2,540			2,540		—			2,540
Stockholders’ equity (deficit):
Common stock		246			—		—		90			—			(90	)		—		—			246
Additional paid-in capital		154,266			—		—		74,770			20			(74,790	)		—		—			154,266
Treasury stock		(1,239	)		—		—		—			—			—			—		—			(1,239	)
Accumulated deficit		(250,622	)		—		—		(28,603	)		5,059			23,544			—		—			(250,622	)
Member equity		—			6,491		—		—			—			—			6,491		(6,491	)		—
Total stockholders’ equity (deficit)		(97,349	)		6,491		—		46,257			5,079			(51,336	)		6,491		(6,491	)		(97,349	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(34,407	)	$	236,717	$	125,000	$	141,147		$	7,011		$	(173,796	)	$	336,079	$	(6,491	)	$	295,181

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations. The Balance Sheet for Rural/Metro Inc. at December 31, 2006 consists of equity and due to affiliates totaling an amount equal to $100.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

23

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior														Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Subordinated Notes Guarantors (As restated)			Non- Guarantor			Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)		Corporation Consolidated (As restated)
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	—	$	1,891		$	1,150		$	—		$	3,041		$	—	$	3,041
Short-term investments		—			—			—		6,201			—			—			6,201			—		6,201
Accounts receivable, net		—			—			—		76,605			6,762			—			83,367			—		83,367
Inventories		—			—			—		8,828			—			—			8,828			—		8,828
Deferred income taxes		—			—			—		13,610			—			—			13,610			—		13,610
Prepaid expenses and other		—			75			—		3,112			4			—			3,191			—		3,191
Total current assets		—			75			—		110,247			7,916			—			118,238			—		118,238
Property and equipment, net		—			—			—		45,099			204			—			45,303			—		45,303
Goodwill		—			—			—		38,362			—			—			38,362			—		38,362
Deferred income taxes		—			—			—		70,374			—			—			70,374			—		70,374
Insurance deposits		—			—			—		2,842			—			—			2,842			—		2,842
Other assets		1,904			8,879			—		12,441			525			—			21,845			—		23,749
Due from (to) affiliates (1)		—			154,242			125,000		(151,408	)		(2,834	)		(125,000	)		—			—		—
Due from (to) Parent Company		(43,023	)		43,023			—		—			—			—			43,023			—		—
LLC investment in subsidiaries		—			30,634			—		—			—			(30,634	)		—			—		—
Parent Company investment in LLC		(369	)		—			—		—			—			—			—			369		—
Total assets	$	(41,488	)	$	236,853		$	125,000	$	127,957		$	5,811		$	(155,634	)	$	339,987		$	369	$	298,868
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—		$	—	$	13,002		$	1,227		$	—		$	14,229		$	—	$	14,229
Accrued liabilities		—			5,222			—		35,603			454			—			41,279			—		41,279
Deferred revenue		—			—			—		24,444			—			—			24,444			—		24,444
Current portion of long-term debt		—			—			—		37			—			—			37			—		37
Total current liabilities		—			5,222			—		73,086			1,681			—			79,989			—		79,989
Long-term debt, net of current portion (1)		59,170			232,000			125,000		167			—			(125,000	)		232,167			—		291,337
Other long-term liabilities		—			—			—		26,135			—			—			26,135			—		26,135
Total liabilities		59,170			237,222			125,000		99,388			1,681			(125,000	)		338,291			—		397,461
Minority interest		—			—			—		—			—			2,065			2,065			—		2,065
Stockholders’ equity (deficit):
Common stock		245			—			—		90			—			(90	)		—			—		245
Additional paid-in capital		153,955			—			—		74,770			20			(74,790	)		—			—		153,955
Treasury stock		(1,239	)		—			—		—			—			—			—			—		(1,239	)
Accumulated deficit		(253,619	)		—			—		(46,291	)		4,110			42,181			—			—		(253,619	)
Member equity		—			(369	)		—		—			—			—			(369	)		369		—
Total stockholders’ equity (deficit)		(100,658	)		(369	)		—		28,569			4,130			(32,699	)		(369	)		369		(100,658	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(41,488	)	$	236,853		$	125,000	$	127,957		$	5,811		$	(155,634	)	$	339,987		$	369	$	298,868

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations. The Balance Sheet for Rural/Metro Inc. at June 30, 2006 consists of equity and due to affiliates totaling an amount equal to $100.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

24

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior														Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)		Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Corporation Consolidated (As restated)
Net revenue	$	—		$	—		$	—	$	113,436		$	10,126	$	(6,562	)	$	117,000		$	—		$	117,000
Operating expenses:
Payroll and employee benefits		—			—			—		72,505			25		—			72,530			—			72,530
Depreciation and amortization		—			—			—		2,988			—		—			2,988			—			2,988
Other operating expenses		—			—			—		27,213			9,717		(6,562	)		30,368			—			30,368
Loss on sale of assets		—			—			—		11			—		—			11			—			11
Total operating expenses		—			—			—		102,717			9,742		(6,562	)		105,897			—			105,897
Operating income		—			—			—		10,719			384		—			11,103			—			11,103
Equity in earnings of subsidiaries		3,292			9,246			—		—			—		(9,246	)		—			(3,292	)		—
Interest expense		(1,982	)		(5,954	)		—		(50	)		—		—			(6,004	)		—			(7,986	)
Interest income		—			—			—		121			19		—			140			—			140
Income from continuing operations before income taxes and minority interest		1,310			3,292			—		10,790			403		(9,246	)		5,239			(3,292	)		3,257
Income tax provision		—			—			—		(2,129	)		—		—			(2,129	)		—			(2,129	)
Minority interest		—			—			—		—			—		(201	)		(201	)		—			(201	)
Income from continuing operations		1,310			3,292			—		8,661			403		(9,447	)		2,909			(3,292	)		927
Income from discontinued operations, net of income taxes		—			—			—		383			—		—			383			—			383
Net income	$	1,310		$	3,292		$	—	$	9,044		$	403	$	(9,447	)	$	3,292		$	(3,292	)	$	1,310

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

25

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior														Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)		Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Corporation Consolidated (As restated)
Net revenue	$	—		$	—		$	—	$	109,747		$	9,479	$	(5,673	)	$	113,553		$	—		$	113,553
Operating expenses:
Payroll and employee benefits		7			—			—		66,892			25		—			66,917			—			66,924
Depreciation and amortization		—			—			—		2,785			2		—			2,787			—			2,787
Other operating expenses		—			—			—		26,814			9,156		(5,673	)		30,297			—			30,297
Loss on sale of assets		—			—			—		35			—		—			35			—			35
Total operating expenses		7			—			—		96,526			9,183		(5,673	)		100,036			—			100,043
Operating income (loss)		(7	)		—			—		13,221			296		—			13,517			—			13,510
Equity in earnings of subsidiaries		4,598			10,585			—		—			—		(10,585	)		—			(4,598	)		—
Interest expense		(1,764	)		(5,987	)		—		3			—		—			(5,984	)		—			(7,748	)
Interest income		—			—			—		162			10		—			172			—			172
Income from continuing operations before income taxes and minority interest		2,827			4,598			—		13,386			306		(10,585	)		7,705			(4,598	)		5,934
Income tax provision		—			—			—		(2,495	)		—		—			(2,495	)		—			(2,495	)
Minority interest		—			—			—		—			—		(153	)		(153	)		—			(153	)
Income from continuing operations		2,827			4,598			—		10,891			306		(10,738	)		5,057			(4,598	)		3,286
Loss from discontinued operations, net of income taxes		—			—			—		(459	)		—		—			(459	)		—			(459	)
Net income	$	2,827		$	4,598		$	—	$	10,432		$	306	$	(10,738	)	$	4,598		$	(4,598	)	$	2,827

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

26

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior														Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)		Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Corporation Consolidated (As restated)
Net revenue	$	—		$	—		$	—	$	226,253		$	20,653	$	(13,148	)	$	233,758		$	—		$	233,758
Operating expenses:
Payroll and employee benefits		(7	)		—			—		145,521			47		—			145,568			—			145,561
Depreciation and amortization		—			—			—		5,987			1		—			5,988			—			5,988
Other operating expenses		—			—			—		53,142			18,689		(13,148	)		58,683			—			58,683
Loss on sale of assets		—			—			—		8			—		—			8			—			8
Total operating expenses		(7	)		—			—		204,658			18,737		(13,148	)		210,247			—			210,240
Operating income		7			—			—		21,595			1,916		—			23,511			—			23,518
Equity in earnings of subsidiaries		6,860			18,662			—		—			—		(18,662	)		—			(6,860	)		—
Interest expense		(3,870	)		(11,802	)		—		(99	)		—		—			(11,901	)		—			(15,771	)
Interest income		—			—			—		228			32		—			260			—			260
Income from continuing operations before income taxes and minority interest		2,997			6,860			—		21,724			1,948		(18,662	)		11,870			(6,860	)		8,007
Income tax provision		—			—			—		(4,405	)		—		—			(4,405	)		—			(4,405	)
Minority interest		—			—			—		—			—		(974	)		(974	)		—			(974	)
Income from continuing operations		2,997			6,860			—		17,319			1,948		(19,636	)		6,491			(6,860	)		2,628
Income from discontinued operations, net of income taxes		—			—			—		369			—		—			369			—			369
Net income	$	2,997		$	6,860		$	—	$	17,688		$	1,948	$	(19,636	)	$	6,860		$	(6,860	)	$	2,997

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

27

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior															Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)			Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Corporation Consolidated (As restated)
Net revenue	$	—		$	—		$	—	$	217,023		$	18,891		$	(11,374	)	$	224,540		$	—		$	224,540
Operating expenses:
Payroll and employee benefits		16			—			—		132,881			34			—			132,915			—			132,931
Depreciation and amortization		—			—			—		5,487			2			—			5,489			—			5,489
Other operating expenses		—			—			—		53,040			18,250			(11,374	)		59,916			—			59,916
Gain on sale of assets		—			—			—		(1,297	)		(10	)		—			(1,307	)		—			(1,307	)
Total operating expenses		16			—			—		190,111			18,276			(11,374	)		197,013			—			197,029
Operating income (loss)		(16	)		—			—		26,912			615			—			27,527			—			27,511
Equity in earnings of subsidiaries		9,684			21,455			—		—			—			(21,455	)		—			(9,684	)		—
Interest expense		(3,450	)		(11,771	)		—		(35	)		—			—			(11,806	)		—			(15,256	)
Interest income		—			—			—		310			15			—			325			—			325
Income from continuing operations before income taxes and minority interest		6,218			9,684			—		27,187			630			(21,455	)		16,046			(9,684	)		12,580
Income tax provision		—			—			—		(5,977	)		—			—			(5,977	)		—			(5,977	)
Minority interest		—			—			—		—			—			(315	)		(315	)		—			(315	)
Income from continuing operations		6,218			9,684			—		21,210			630			(21,770	)		9,754			(9,684	)		6,288
Loss from discontinued operations, net of income taxes		—			—			—		(70	)		—			—			(70	)		—			(70	)
Net income	$	6,218		$	9,684		$	—	$	21,140		$	630		$	(21,770	)	$	9,684		$	(9,684	)	$	6,218

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

28

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior Subordinated									Rural/Metro						Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Notes Guarantors (As restated)			Non- Guarantor (As restated)			Eliminations (As restated)			LLC - Consolidated (As restated)			Eliminations (As restated)			Corporation Consolidated (As restated)
Cash flows from operating activities:
Net income	$	2,997		$	6,860		$	—	$	17,688		$	1,948		$	(19,636	)	$	6,860		$	(6,860	)	$	2,997
Adjustments to reconcile net income to cash provided by operating activities –
Depreciation and amortization		—			—			—		5,987			1			—			5,988			—			5,988
Accretion of 12.75% Senior Discount Notes		3,772			—			—		—			—			—			—			—			3,772
Deferred income taxes		(93	)		—			—		4,124			—			—			4,124			—			4,031
Insurance adjustments		—			—			—		(3,128	)		—			—			(3,128	)		—			(3,128	)
Amortization of deferred financing costs		98			909			—		—			—			—			909			—			1,007
Earnings of minority shareholder		—			—			—		—			—			975			975			—			975
Gain on sale of property and equipment		—			—			—		(667	)		—			—			(667	)		—			(667	)
Stock-based compensation benefit		(7	)		—			—		—			—			—			—			—			(7	)
Changes in assets and liabilities –
Accounts receivable		—			—			—		(1,825	)		(1,364	)		—			(3,189	)		—			(3,189	)
Inventories		—			—			—		(504	)		—			—			(504	)		—			(504	)
Prepaid expenses and other		—			(50	)		—		(1,915	)		(4	)		—			(1,969	)		—			(1,969	)
Insurance deposits		—			—			—		914			—			—			914			—			914
Other assets		—			—			—		3,271			—			—			3,271			—			3,271
Accounts payable		—			—			—		1,436			56			—			1,492			—			1,492
Accrued liabilities		—			4			—		(126	)		195			—			73			—			73
Deferred revenue		—			—			—		(85	)		—			—			(85	)		—			(85	)
Other liabilities		—			—			—		(1,306	)		—			—			(1,306	)		—			(1,306	)
Net cash provided by operating activities		6,767			7,723			—		23,864			832			(18,661	)		13,758			(6,860	)		13,665
Cash flows from investing activities:
Sales of short-term investments		—			—			—		18,451			—			—			18,451			—			18,451
Purchases of short-term investments		—			—			—		(12,250	)		—			—			(12,250	)		—			(12,250	)
Capital expenditures		—			—			—		(8,433	)		—			—			(8,433	)		—			(8,433	)
Proceeds from the sale of property and equipment		—			—			—		687			—			—			687			—			687
Net cash used in investing activities		—			—			—		(1,545	)		—			—			(1,545	)		—			(1,545	)
Cash flows from financing activities:
Repayment of debt		—			—			—		(7,019	)		—			—			(7,019	)		—			(7,019	)
Distributions to minority shareholders		—			—			—		—			(500	)		—			(500	)		—			(500	)
Distributions to Rural/Metro LLC		—			500			—		—			(500	)		—			—			—			—
Issuance of common stock		226			—			—		—			—			—			—			—			226
Cash paid for debt issuance costs		—			(162	)		—		—			—			—			(162	)		—			(162	)
Tax benefit from the exercise of stock options		93			—			—		—			—			—			—			—			93
Due to/from affiliates		(7,086	)		(8,061	)		—		(10,371	)		(3	)		18,661			226			6,860			—
Net cash used in financing activities		(6,767	)		(7,723	)		—		(17,390	)		(1,003	)		18,661			(7,455	)		6,860			(7,362	)
Increase (decrease) in cash and cash equivalents		—			—			—		4,929			(171	)		—			4,758			—			4,758
Cash and cash equivalents, beginning of period		—			—			—		1,891			1,150			—			3,041			—			3,041
Cash and cash equivalents, end of period	$	—		$	—		$	—	$	6,820		$	979		$	—		$	7,799		$	—		$	7,799

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

29

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior Subordinated									Rural/Metro						Rural/Metro
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Notes Guarantors (As restated)			Non- Guarantor (As restated)			Eliminations (As restated)			LLC - Consolidated (As restated)			Eliminations (As restated)			Corporation Consolidated (As restated)
Cash flows from operating activities:
Net income	$	6,218		$	9,684		$	—	$	21,140		$	630		$	(21,770	)	$	9,684		$	(9,684	)	$	6,218
Adjustments to reconcile net income to cash provided by operating activities –
Depreciation and amortization		—			—			—		5,679			2			—			5,681			—			5,681
Accretion of 12.75% Senior Discount Notes		3,349			—			—		—			—			—			—			—			3,349
Deferred income taxes		(436	)		—			—		5,799			—			—			5,799			—			5,363
Insurance adjustments		—			—			—		(2,387	)		—			—			(2,387	)		—			(2,387	)
Amortization of deferred financing costs		101			999			—		—			—			—			999			—			1,100
Earnings of minority shareholder		—			—			—		—			—			315			315			—			315
Gain on sale of property and equipment		—			—			—		(1,307	)		—			—			(1,307	)		—			(1,307	)
Stock-based compensation expense		16			—			—		—			—			—			—			—			16
Changes in assets and liabilities –
Accounts receivable		—			—			—		(12,749	)		(143	)		—			(12,892	)		—			(12,892	)
Inventories		—			—			—		(142	)		—			—			(142	)		—			(142	)
Prepaid expenses and other		—			50			—		1,830			1			—			1,881			—			1,881
Insurance deposits		—			—			—		1,779			—			—			1,779			—			1,779
Other assets		—			—			—		1,502			—			—			1,502			—			1,502
Accounts payable		—			—			—		204			(302	)		—			(98	)		—			(98	)
Accrued liabilities		—			(230	)		—		(5,341	)		129			—			(5,442	)		—			(5,442	)
Deferred revenue		—			—			—		506			—			—			506			—			506
Other liabilities		—			—			—		354			—			—			354			—			354
Net cash provided by operating activities		9,248			10,503			—		16,867			317			(21,455	)		6,232			(9,684	)		5,796
Cash flows from investing activities:
Sales of short-term investments		—			—			—		30,100			—			—			30,100			—			30,100
Purchases of short-term investments		—			—			—		(37,700	)		—			—			(37,700	)		—			(37,700	)
Capital expenditures		—			—			—		(8,891	)		(205	)		—			(9,096	)		—			(9,096	)
Proceeds from the sale of property and equipment		—			—			—		1,559			—			—			1,559			—			1,559
Net cash used in investing activities		—			—			—		(14,932	)		(205	)		—			(15,137	)		—			(15,137	)
Cash flows from financing activities:
Repayment of debt		—			—			—		(7,738	)		—			—			(7,738	)		—			(7,738	)
Distributions to minority shareholders		—			—			—		—			(155	)		—			(155	)		—			(155	)
Distributions to Rural/Metro LLC		—			155			—		—			(155	)		—			—			—			—
Issuance of common stock		595			—			—		—			—			—			—			—			595
Tax benefit from the exercise of stock options		436			—			—		—			—			—			—			—			436
Due to/from affiliates		(10,279	)		(10,658	)		—		(9,954	)		(248	)		21,455			595			9,684			—
Net cash used in financing activities		(9,248	)		(10,503	)		—		(17,692	)		(558	)		21,455			(7,298	)		9,684			(6,862	)
Decrease in cash and cash equivalents		—			—			—		(15,757	)		(446	)		—			(16,203	)		—			(16,203	)
Cash and cash equivalents, beginning of period		—			—			—		17,031			657			—			17,688			—			17,688
Cash and cash equivalents, end of period	$	—		$	—		$	—	$	1,274		$	211		$	—		$	1,485		$	—		$	1,485

Note: The sole purpose of Rural/Metro Inc. was to act as co-issuer of the Senior Subordinated Notes. Rural/Metro Inc. does not conduct any operations.

30

(8) Income Taxes

The following table shows the components of the income tax benefit (provision) (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
	(As restated)			(As restated)			(As restated)			(As restated)
Current income tax benefit (provision)	$	(193	)	$	97		$	(475	)	$	(457	)
Deferred income tax provision		(2,136	)		(2,393	)		(4,121	)		(5,539	)
Total income tax provision	$	(2,329	)	$	(2,296	)	$	(4,596	)	$	(5,996	)
Continuing operations provision	$	(2,129	)	$	(2,495	)	$	(4,405	)	$	(5,977	)
Discontinued operations benefit (provision)		(200	)		199			(191	)		(19	)
Total income tax provision	$	(2,329	)	$	(2,296	)	$	(4,596	)	$	(5,996	)

The effective tax rate for the three and six months ended December 31, 2006 for continuing operations was 65.4% and 55.0%, respectively, which differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to the Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. The Company made income tax payments of $0.2 million for the three and six months ended December 31, 2006.

The effective tax rate for the three and six months ended December 31, 2005 for continuing operations was 42.0% and 47.5%, respectively, which differs from the federal statutory rate of 35.0% primarily as a result of the portion of non-cash interest expense related to the Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. The Company made income tax payments of $0.4 million for the three and six months ended December 31, 2005.

The Internal Revenue Service examination of the Company’s federal income tax return for the year ended June 30, 2004 closed in the three months ended December 31, 2006. Management had previously provided for expected adjustments from the examination and that the final outcome resulted in no adjustments to the Company’s consolidated financial condition, results of operations or cash flows.

(9) Gain on Sale of Assets

On August 19, 2005, the Company sold real estate in Arizona for cash proceeds of $1.6 million. This transaction generated a pre-tax gain of $1.3 million which has been included in gain on sale of assets in the consolidated statement of operations for the six months ended December 31, 2005.

31

(10) Earnings per Share

Income from continuing operations per share assuming no dilution is computed by dividing income from continuing operations by the weighted-average number of shares outstanding. Income from continuing operations per share assuming dilution is computed based on the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options.

A reconciliation of the weighted-average number of shares outstanding utilized in the basic and diluted income per share computations is as follows (in thousands, except per share amounts):

	Three Months Ended December 31,				Six Months Ended December 31,
	2006		2005		2006		2005
	(As restated)		(As restated)		(As restated)		(As restated)
Income from continuing operations	$	927	$	3,286	$	2,628	$	6,288
Average number of shares outstanding – Basic		24,581		24,330		24,546		24,281
Add: Incremental shares for dilutive effect of stock options		430		968		407		999
Average number of shares outstanding – Diluted		25,011		25,298		24,953		25,280
Income from continuing operations per share – Basic	$	0.04	$	0.14	$	0.11	$	0.26
Income from continuing operations per share – Diluted	$	0.04	$	0.13	$	0.11	$	0.25

Option shares with exercise prices above the average market prices of the Company’s common stock during the respective periods have been excluded from the calculation of diluted income per share. Such options totaled 0.2 million and 0.5 million for the three and six months ended December 31, 2006, respectively, and 1.1 million for each of the three and six months ended December 31, 2005.

(11) Segment Reporting

The Company has four regional reporting segments that correspond with the manner in which the associated operations are managed and evaluated by the Chief Executive Officer. Although some of the Company’s operations do not align with the segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	Operations
Mid-Atlantic	Georgia, New York, Ohio, Pennsylvania
South	Alabama, California (fire), Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, Florida, New Jersey (fire), Southern Ohio, Tennessee, Wisconsin
Southwest	Arizona (ambulance/fire), New Mexico, Oregon (fire), Utah
West	California (ambulance), Central Florida, Colorado, Oregon (ambulance), Nebraska, South Dakota, Washington

Each reporting segment provides ambulance and related services while the Company’s fire and other services are predominantly in the South and Southwest Segments.

The accounting policies used in the preparation of the Company’s consolidated financial statements have also been followed in the preparation of the accompanying financial information for each reporting segment. For management purposes, the Company’s measure of segment profitability is defined as income from continuing operations before depreciation and amortization, interest, income taxes and minority interest. Additionally, corporate overhead allocations have been included within segment profits. Segment results presented below reflect continuing operations only.

32

Certain information presented has been restated from that originally reported to reflect the impact of correcting certain accounting practice errors related to income taxes, subscription revenue, operating leases, retirement plan contributions and other items as discussed in Note 2 to the consolidated financial statements.

The following table summarizes segment information (in thousands):

	Mid-Atlantic		South		Southwest			West		Total
	(As restated)		(As restated)		(As restated)			(As restated)		(As restated)
Three months ended December 31, 2006
Net revenues from external customers;
Medical transportation	$	23,836	$	17,109	$	33,704		$	24,256	$	98,905
Fire and other (1)		838		5,824		11,201			232		18,095
Total net revenue	$	24,674	$	22,933	$	44,905		$	24,488	$	117,000
Segment profit from continuing operations	$	4,470	$	2,546	$	4,739		$	2,336	$	14,091
Three months ended December 31, 2005
Net revenues from external customers;
Medical transportation	$	23,236	$	16,068	$	33,997		$	23,411	$	96,712
Fire and other (1)		846		5,453		10,506			36		16,841
Total net revenue	$	24,082	$	21,521	$	44,503		$	23,447	$	113,553
Segment profit from continuing operations	$	3,851	$	2,731	$	6,955		$	2,760	$	16,297
Six months ended December 31, 2006
Net revenues from continuing operations:
Medical transportation	$	48,497	$	33,407	$	66,447		$	49,023	$	197,374
Fire and other (1)		1,862		11,537		22,485			500		36,384
Total net revenue	$	50,359	$	44,944	$	88,932		$	49,523	$	233,758
Segment profit from continuing operations	$	9,897	$	4,692	$	8,807		$	6,110	$	29,506
Six months ended December 31, 2005
Net revenues from continuing operations:
Medical transportation	$	47,515	$	33,093	$	65,541		$	45,621	$	191,770
Fire and other (1)		1,705		10,674		20,316			75		32,770
Total net revenue	$	49,220	$	43,767	$	85,857		$	45,696	$	224,540
Segment profit from continuing operations	$	8,328	$	5,870	$	14,458	(2)	$	4,344	$	33,000

(1) Other revenue consists of revenue generated from fire protection services; including master fire and subscription fire services, airport fire and rescue, home health care services, dispatch contracts, billing contracts and other miscellaneous forms of revenue.

(2) Southwest profit for the six months ended December 30, 2005 includes a $1.3 million gain on the sale of real estate located in Arizona.

33

The following is a reconciliation of segment profit to income from continuing operations before income taxes and minority interest (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
	(As restated)			(As restated)			(As restated)			(As restated)
Segment profit	$	14,091		$	16,297		$	29,506		$	33,000
Depreciation and amortization		(2,988	)		(2,787	)		(5,988	)		(5,489	)
Interest expense		(7,986	)		(7,748	)		(15,771	)		(15,256	)
Interest income		140			172			260			325
Income from continuing operations before income taxes and minority interest	$	3,257		$	5,934		$	8,007		$	12,580

Segment assets consist solely of accounts receivable since they are the only assets regularly reviewed by the Company’s chief operating decision maker for the purpose of assessing segment performance. The following table summarizes segment asset information (in thousands):

	December 31,		June 30,
	2006		2006
Mid-Atlantic	$	15,051	$	14,724
South		14,663		17,385
Southwest		30,943		29,377
West		25,899		21,881
Total segment assets	$	86,556	$	83,367

The following table represents a reconciliation of segment assets to total assets (in thousands):

	December 31,		June 30,
	2006		2006
	(As restated)		(As restated)
Segment assets	$	86,556	$	83,367
Cash and cash equivalents		7,799		3,041
Short-term investments		—		6,201
Inventories		9,332		8,828
Prepaid expenses and other		5,160		3,191
Deferred income taxes		79,953		83,984
Property and equipment, net		46,937		45,303
Goodwill		38,362		38,362
Insurance deposits		1,928		2,842
Other assets		19,154		23,749
Total assets	$	295,181	$	298,868

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(12) Discontinued Operations

During fiscal year 2006, the Company made the decision to exit two medical transportation markets and, as a result, the financial results of these service areas for the three and six months ended December 31, 2006 and 2005 are included in income (loss) from discontinued operations.

Income (loss) from discontinued operations excludes the allocation of certain shared costs such as human resources, financial services, risk management, legal services and interest expense, among others, which are expected to continue. These ongoing services and related costs will be redirected to support new markets or for the expansion of existing service areas. Net revenue and income (loss) from discontinued operations, net of income taxes, is shown by segment in the tables below (in thousands):

	Three Months Ended December 31,				Six Months Ended December 31,
	2006		2005		2006		2005
Net revenue:
Mid-Atlantic	$	—	$	571	$	—	$	2,027
South		—		3,448		—		7,445
Southwest		—		—		—		—
West		—		—		—		—
Net revenue from discontinued operations	$	—	$	4,019	$	—	$	9,472

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
Income (loss):
Mid-Atlantic	$	(9	)	$	(537	)	$	95		$	(435	)
South		392			78			279			365
Southwest		—			—			—			—
West		—			—			(5	)		—
Income (loss) from discontinued operations, net of income taxes	$	383		$	(459	)	$	369		$	(70	)

Income from discontinued operations for the three and six months ended December 31, 2006 is presented net of income tax expense of $200,000 and $191,000, respectively. Loss from discontinued operations for the three months ended December 31, 2005 is presented net of income tax benefit of $199,000 while loss from discontinued operations for the six months ended December 31, 2005 is presented net of income tax expense of $19,000. Income from discontinued operations for the six months ended December 31, 2006 for the Company’s South region includes a pre-tax gain of $0.7 million due to the sale of a business license held by one of the Company’s subsidiaries, as well as a $0.1 million reversal of closure-related costs due to the true-up of certain estimated accrual items related to the Company’s operations in Augusta, Georgia. The business license sold generated a pre-tax gain of $0.7 million which is included in income from discontinued operations for the three and six months ended December 31, 2006. Loss from discontinued operations of $5,000 for the six months ended December 31, 2006 for the Company’s West region is a result of legal expenses incurred for the settlement negotiations with the U.S. government regarding the alleged violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas.

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(13) Defined Benefit Plan

The Company provides a defined benefit pension plan covering eligible employees of one of its subsidiaries. This benefit is limited to employees covered by collective bargaining agreements. Eligibility is achieved upon the completion of one year of service, with full vesting achieved after the completion of five years of service. The amount of benefit is determined using a two-part formula, one of which is based upon compensation and the other which is based upon a flat dollar amount.

The following table presents the components of net periodic pension benefit cost (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
Service cost	$	369		$	225		$	738		$	451
Interest cost		23			11			46			22
Expected return on plan assets		(59	)		(23	)		(118	)		(47	)
Amortization of gain		(2	)		—			(4	)		—
Net periodic pension benefit cost	$	331		$	213		$	662		$	426

The following table presents the assumptions used in the determination of net periodic benefit cost:

	2006		2005
Discount rate	6.48	%	5.00	%
Rate of increase in compensation levels	4.0	%	2.5	%
Expected long-term rate of return on assets	7.5	%	7.5	%

The Company contributed approximately $0.7 million and $1.2 million during the three and six months ended December 31, 2006, respectively, and $0.3 million and $0.5 million during the three and six months ended December 31, 2005, respectively. The Company’s fiscal 2007 contributions are anticipated to approximate $2.4 million.

(14) Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a party to, or otherwise involved in, lawsuits, claims, proceedings, investigations and other legal matters that have arisen in the ordinary course of business. The Company cannot predict with certainty the ultimate outcome of any of these lawsuits, claims, proceedings, investigations and other legal matters which it is a party to, or otherwise involved in, due to, among other things, the inherent uncertainties of litigation, government investigations and proceedings and legal matters in general. The Company is also subject to requests and subpoenas for information in independent investigations. An unfavorable outcome in any of the lawsuits pending against the Company or in a government investigation or proceeding could result in substantial potential liabilities and have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows. Further, these proceedings, and the Company’s actions in response to these proceedings, could result in substantial potential liabilities, additional defense and other costs, increase the Company’s indemnification obligations, divert management’s attention, and/or adversely impact the Company’s ability to execute its business and financial strategies.

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The U.S. government is conducting an investigation into alleged discounts made in violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas. The Company is currently negotiating a settlement with the government regarding these allegations. Although there can be no assurances that a settlement agreement will be reached, any such settlement agreement would likely require the Company to make a substantial payment to the government and may require the Company to enter into a Corporate Integrity Agreement. If a settlement is not reached, the government has indicated that it will pursue further civil action. There can be no assurances that this matter will be fully resolved by settlement or that other investigations or legal action related to these matters will not be pursued against the Company in other jurisdictions or for different time frames.

Regulatory Compliance

The Company is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity is ongoing with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. The Company is from time to time subject to investigations relating to Medicare and Medicaid laws pertaining to its industry. The Company cooperates fully with the government agencies that conduct these investigations. See “Legal Proceedings” above. Violations of these laws and regulations could result in exclusion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. The Company’s compliance program initiates its own investigations and conducts audits to examine compliance with various policies and regulations. In addition, internal investigations or audits may result in significant repayment obligations for patient services previously billed. The Company believes that it is substantially in compliance with fraud and abuse statutes and their applicable governmental interpretation.

Management believes that reserves established for specific contingencies of $2.8 million and $2.9 million as of December 31, 2006 and June 30, 2006, respectively, (including $2.5 million for the Texas matter described above at both December 31, 2006 and June 30, 2006) are adequate based on information currently available.

(15) Subsequent Events

Unscheduled principal payment

On March 22, 2007, the Company, through its wholly owned subsidiary, Rural/Metro LLC, made a $7.0 million unscheduled principal payment on its Term Loan B. In connection with this payment, the Company wrote-off approximately $0.2 million of deferred financing costs during the third quarter of fiscal 2007.

Amendment to 2005 Credit Facility

The Company entered into Amendment No. 5 to the 2005 Credit Facility. The amendment is effective December 31, 2006. See Note 7 to the consolidated financial statements for further discussion.

2005 Credit Facility Waiver

On October 11, 2007, the Company obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of its Annual Report on Form 10-K for the year ended June 30, 2007. See Note 7 to the consolidated financial statements.

Change of Control Agreement

Effective March 22, 2007, the Company entered into a change of control agreement with Kristine B. Ponczak, Senior Vice President and Chief Financial Officer. The agreement provides benefits upon the occurrence of both of two triggering events: (i) a change of control; and (ii) within two years after the change in control, the surviving entity or individuals in control terminate Ms. Ponczak’s employment without cause, or Ms. Ponczak terminates employment for good reason. Upon the occurrence of both triggers, but subject to the limitation described in the last sentence of this paragraph, Ms. Ponczak will receive a sum equal to (A) 200% of (i) her annual base salary, and (ii) the amount of incentive compensation paid or payable to her during the calendar year preceding the calendar year in which the change of control occurs, plus (B) the full amount of any payments due under her employment agreement. The agreement further provides that Ms. Ponczak is entitled to receive certain benefits, including the acceleration of exercisability of stock options or the payment of the value of such stock options in the event they are not accelerated or replaced with comparable options. Health and other benefits received under the change of control agreement will be reduced or eliminated to the extent such benefits are received under an employment agreement. The aggregate payment may not exceed 2.99 times the amount of annualized includable compensation received by Ms. Ponczak as determined under the Internal Revenue Code.

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For purposes of the change of control agreement, “good reason” includes a reduction of duties and/or salary, the surviving entity’s failure to assume the executive’s employment and change of control agreement, or relocation of more than 50 miles from the current corporate headquarters. A “change of control” includes (i) the acquisition of beneficial ownership by certain persons, acting alone or in concert with others, of 30% or more of the combined voting power of the Company’s then-outstanding voting securities; (ii) during any two-year period, the Board members at the beginning of such period cease to constitute at least a majority thereof (except that any new Board member approved by at least two-thirds of the Board members then still in office, who where directors at the beginning of such period, is considered to be a member of the current Board); or (iii) approval by the Company’s stockholders of certain reorganizations, mergers, consolidations, liquidations, or sales of all or substantially all of our assets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The statements, estimates, projections, guidance or outlook contained in this Quarterly Report on Form 10-Q/A include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). Wherever we refer to such words or phrases as “believes”, “anticipates”, “expects”, “plans”, “seeks”, “intends”, “will likely result”, “estimates”, “projects” or similar expressions are intended to identify such forward-looking statements. We caution readers that such forward-looking statements, including those relating to the outcome of our ongoing efforts to remediate deficiencies in our disclosure controls and procedures and internal control over financial reporting, our future business prospects, uncompensated care, working capital, accounts receivable collection, liquidity, cash flow, insurance coverage and claim reserves, capital needs, future operating results and future compliance with covenants in our debt facilities or instruments, wherever they appear in this Quarterly Report or in other statements attributable to us, are necessarily estimates reflecting the best judgment of our senior management about future results or events and, as such, involve a number of risks and uncertainties that could cause actual results or events to differ materially from those suggested by our forward-looking statements.

Forward-looking statements can be found throughout this Quarterly Report on Form 10-Q/A, including but not limited to this section containing Management’s Discussion and Analysis of Financial Condition and Results of Operation, as updated to reflect the restatement of our financial statements for the quarter ended December 31, 2006 and the Explanatory Note at the beginning of this Form 10-Q/A. As such, these forward-looking statements are susceptible to the updated risk factors set forth in full in Item 1A of Part I of the Company’s Annual Report on Form 10-K filed today with the Commission.

Any or all forward-looking statements made in this Form 10-Q/A (and in any other public filings or statements we might make) may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Accordingly, except to the extent required by applicable law, we undertake no duty to update the forward-looking statements made in this Quarterly Report on Form 10-Q/A.

Rural/Metro Corporation is strictly a holding company. All services, operations and management functions are provided through its subsidiaries and affiliated entities. All references to “we,” “our,” “us,” or “Rural/Metro” refer to Rural/Metro Corporation and its predecessors, operating divisions, direct and indirect subsidiaries and affiliates. The website for Rural/Metro Corporation is located at www.ruralmetro.com. Information contained on the website, including any external information which is referenced or “linked” on our website, is not a part of this Quarterly Report.

Restatement – Correction of Errors

On September 14, 2007, the Company filed a Current Report on Form 8-K with the SEC in which it announced that it was restating previously reported financial statements to correct accounting errors and that such financial statements could no longer be relied upon. As more fully described below, the Company has identified errors with respect to the accounting for income taxes, subscription revenue, operating leases and retirement plan contributions. In addition, the Company also identified errors related to certain other items, which are not material individually, but are material in the aggregate when combined with the errors below.

Income Taxes

During the fourth quarter of fiscal 2007, the Company reviewed its tax positions in accordance with Financial Accounting Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which is effective for the Company at the beginning of the first quarter of fiscal 2008. In connection with its review, the Company concluded that certain positions related to federal and state income taxes met the probable threshold for the recognition of loss contingencies as promulgated by Financial Accounting Standard No 5, Accounting for Contingencies, (FAS 5), and therefore the Company should have recognized an additional income tax provision in the years affected. These errors included state income tax adjustments for jurisdictions in which the Company has not previously filed tax returns and adjustments to the calculation of taxable income related to certain intercompany charges. Other tax-related errors included erroneously recording benefits for net operating losses of certain wholly-owned subsidiaries that the Company determined may not be sustainable within its consolidated tax return, and other errors related to deductions taken on prior tax returns. In addition, the Company discovered additional tax-related errors related to the calculation of temporary differences related to partnership investments, which were identified by management when the temporary differences did not fully reverse upon dissolution of certain partnerships. The combined impact of these errors resulted in an increase in net income of $4,000 and a decrease in net income of $62,000 for the three months ended December 31, 2006 and 2005, respectively and a decrease in net income of $167,000

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and $128,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of these errors on net income for all periods preceding fiscal 2007 was $781,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

Subscription Revenue

During the fourth quarter of fiscal 2007, management determined that the Company had prematurely recognized revenue for certain fire subscription services and ambulance subscription services provided by the Company. Generally, the Company is obligated to provide coverage to its customers for subscription services after the Company has received both a signed executed agreement and payment for the coverage period. In accordance with generally accepted accounting principles, the Company is required to recognize revenue for these services on a straight-line basis over the contractual life of the subscription agreement, which begins on the date in which both the signed agreement and the payment are received. Based on a review conducted by management, it was determined that the Company improperly recognized a full month of revenue for the month in which the subscription payment was received instead of recognizing revenue for only the remaining number of calendar days left in the month. In addition, management also determined that the Company prematurely recognized revenue in situations where customers renewed subscription agreements prior to the expiration of the existing contractual period. In these situations the Company failed to defer its revenue recognition for the renewal period until its obligations under the existing contractual period were satisfied. The combined impact of these errors resulted in an increase in net income of $36,000 and $97,000 for the three months ended December 31, 2006 and 2005, respectively, and a decrease in net income of $15,000 and $116,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of these errors on net income for all periods preceding fiscal 2007 was $1,909,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

Operating Leases

During the fourth quarter of fiscal 2007, management discovered a misapplication of generally accepted accounting principles with respect to the Company’s accounting for certain of its operating leases that had been executed prior to fiscal 2007. In accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, (SFAS 13), lessees are required to account for operating leases, which contain fixed escalating payment terms, by recognizing rent expense on a straight-line basis over the lease term including those instances where rental payments are not made on a straight-line basis. In connection with a review of the Company’s real estate leases, management identified multiple operating leases containing payment escalation provisions under which rental expense was not being recognized on a straight-line basis. The impact of this error resulted in an increase in net income of $25,000 and a decrease in net income of $19,000 for the three months ended December 31, 2006 and 2005, respectively, and an increase in net income of $50,000 and a decrease in net income of $41,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of this error on net income for all periods preceding fiscal 2007 was $639,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

Retirement Plan Matching Contributions

During the fourth quarter of fiscal 2007, management determined that the Company had not recognized an expense for its obligation to provide matching contributions on elective deferrals under a 401(k) plan (the “Plan”) made by certain employees covered by a collective bargaining agreement. Based on a review conducted by management, it was determined that the Company had properly funded its obligation with respect to the matching obligation since the Plan’s inception; however, instead of recognizing an offsetting expense for the amount of the contribution, the Company improperly relieved an accrued liability associated with an unrelated 401k plan. The impact of this error resulted in a decrease in net income of $62,000 and $57,000 for the three months ended December 31, 2006 and 2005, respectively, and a decrease in net income of $112,000 and $111,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of this error on net income for all periods preceding fiscal 2007 was $302,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of this adjustment.

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Other Items

During the fourth quarter of 2007, management identified a number of other adjustments to correct and record expenses in the periods in which such expenses were incurred. These errors include but are not limited to year-end expense accruals and depreciation expense on certain leasehold improvements. The combined impact of these errors of other items resulted in an increase in net income of $12,000 for the three months ended December 31, 2006 and 2005 and an increase in net income of $193,000 and $179,000 for the six months ended December 31, 2006 and 2005, respectively. The cumulative effect of these errors on net income for all periods preceding fiscal 2007 was $755,000, which is reflected as an increase in the accumulated deficit at July 1, 2006. There was no material effect on cash flows from operating, investing or financing activities for the six months ended December 31, 2006 and 2005 as a result of these adjustments.

Statement of Cash Flows

At June 30, 2006, the Company had accrued $1.0 million of equipment purchases which were included within property and equipment on the Company’s Consolidated Balance Sheet as of June 30, 2006. Although the Company had not disbursed funds for these assets until the first quarter of fiscal 2007, the Company improperly presented the impact of these accrued purchases as a component of cash used in investing activities within its Consolidated Statement of Cash Flows for the year ended June 30, 2006. In addition, the Company also improperly excluded the impact of the capital expenditures from cash used in investing activities within its Consolidated Statement of Cash Flows for the six months ended December 31, 2006. The adjustment to the Company’s Consolidated Statement of Cash Flows resulted in a $1.0 million increase in net cash provided by operating activities and a $1.0 million increase in net cash used in investing activities for the six months ended December 31, 2006. There was no effect on the Company’s Consolidated Statements of Operations for the three and six months ended December 31, 2006 and 2005, as a result of this adjustment.

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Management’s Overview

During the three and six months ended December 31, 2006, net revenue increased 3.0% and 4.1%, respectively. We continue to be pleased with our ability to renew existing contracts and win new contracts. For the six months ended December 31, 2006, our revenue reflects a $4.3 million increase related to medical transport volume, $6.5 million related to medical transport rate increases, $3.6 million from new medical transportation contracts and $3.6 million from fire and other services. However, revenue growth has been offset by an $8.8 million increase in uncompensated care. We remain focused on initiatives designed to improve our billing and collections processes, as we have experienced an overall decline in collections rates.

Executive Summary

We provide both emergency and non-emergency medical transportation services, private fire protection and related services, and to a lesser extent, wheelchair transportation services in response to our customers’ needs. Our services are primarily provided under contracts with governmental entities, hospitals, nursing homes, other healthcare facilities and public safety organizations.

Our business strategy focuses on obtaining exclusive 911 emergency medical transportation contracts within growing communities and subsequently expanding those operations to include non-emergency medical transportation services. We believe this approach diversifies our revenue stream, improves the utilization of our work force and vehicle fleet and enhances profitability.

County and municipal governments may elect to outsource their 911 emergency medical transportation services to a private provider and solicit requests for proposals. These proposals typically stipulate response times and resource requirements, including dedicated 911 fleets. We experience varying levels of fleet dedication depending on the community we serve and its contract stipulations. Dedicated 911 resources cannot be utilized to provide non-emergency medical transports and may, therefore, experience a lower utilization rate than resources deployed under an integrated system.

Our private fire protection services business strategy focuses on two areas: (1) subscription fire protection services, and (2) master contracts for on-site fire protection at airports.

Subscription fire services are marketed to residential and commercial property owners in growing unincorporated areas contiguous to urban population centers. These areas also present opportunities to expand our emergency and non-emergency medical transportation services, thereby enhancing our ability to leverage total resources in a marketplace.

Master fire protection services are primarily marketed to airport, industrial and other commercial sites and consist of on-site management and staffing of certified firefighters and emergency medical first responders.

Our fiscal 2007 second quarter and year-to-date results reflect our continued focus on enhancing shareholder value through:

• targeting new markets that present excellent opportunities for sustainable and profitable growth;

• expanding existing 911-emergency medical transportation markets as we seek to further leverage our fixed base of labor and fleet assets to serve a growing demand for non-emergency medical transportation services;

• aligning growth with developing industry trends, including opportunities to partner with municipal systems or hospital-based ambulance systems;

• managing our business through continued investments in technology, including billing systems, electronic patient care records, electronic data management and labor management systems;

• enhancing risk management and workplace safety in order to reduce insurance expenses; and

• continuing to reduce debt and improving the Company’s capital structure.

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Operating Statistics

In evaluating our business, we monitor a number of key operating and financial statistics, including net EMS Average Patient Charge (“Net Medical Transport APC”), average Days Sales Outstanding (“DSO”, see further discussion in “Results of Operations” and “Liquidity and Capital Resources”), Earnings (income from continuing operations) Before Interest, Taxes, Depreciation and Amortization, including impairment charges (“EBITDA”), EBITDA adjusted for stock-based compensation, (gains) losses on sale of assets and other unusual or non-recurring transactional events (“adjusted EBITDA”), 911 and non-emergency medical transport volume (see further discussion in “Results of Operations”), alternative transport volume (see further discussion in “Results of Operations”) and fire subscriptions (see further discussion in “Results of Operations), among others.

The following is a summary of certain key operating statistics (EBITDA and adjusted EBITDA in thousands):

	Three Months Ended December 31,				Six Months Ended December 31,
	2006		2005		2006		2005
	(As restated)		(As restated)		(As restated)		(As restated)
Net Medical Transport APC (1)	$	341	$	347	$	341	$	344
DSO (2)		68		57		68		57
EBITDA (3)	$	14,473	$	15,586	$	29,092	$	32,826
Adjusted EBITDA (3)	$	13,856	$	16,134	$	29,598	$	32,035
Medical Transports (4)		269,939		260,697		537,194		519,985
Fire Subscriptions (5)		119,615		116,424		119,615		116,424

(1) Net Medical Transport APC is defined as gross medical transport revenue less provisions for discounts applicable to Medicare, Medicaid and other third-party payers and uncompensated care divided by emergency and non-emergency transports from continuing operations.

(2) DSO is calculated using the average accounts receivable balance on a rolling 13-month basis and net revenue on a rolling 12-month basis and has not been adjusted to eliminate discontinued operations.

(3) See discussion of EBITDA and adjusted EBITDA along with a reconciliation of adjusted EBITDA to net cash provided by operating activities at “Liquidity and Capital Resources – EBITDA and Adjusted EBITDA”.

(4) Medical transports from continuing operations are defined as emergency and non-emergency patient transports.

(5) Fire subscriptions are exclusive to our South and Southwest Segments.

Factors Affecting Operating Results

We have observed the following trends and events that have affected or are likely to affect our financial condition and results of operations.

Transport Volume

Our medical transportation and related services business segment is dependent upon transport volume, which may increase or decrease depending on population growth, age demographics and seasonal or one-time factors. Additionally, non-emergency transport volume is dependent on the number of healthcare facilities within any given community and the concentration of competitors in that area. We typically provide non-emergency medical transportation services to large healthcare systems under preferred provider contracts. We compete for non-emergency transports originating from smaller healthcare facilities and long-term care centers that are not under contract.

Uncompensated Care

A significant portion of our revenue is derived from Medicare, Medicaid and commercial insurance payers, all of which receive discounts from our standard rates (contractual discounts). A factor within these payers would be the deductible or co-pay portion of the charge, which requires that we pursue the insured individual for reimbursement. We have also experienced an increase in the number of patients we transport who are uninsured, primarily under our 911 contracts. This trend is indicative of recent U.S. Census Bureau data that showed the number of uninsured Americans has reached an all-time high, primarily due to the erosion of employer-based insurance coverage.

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Healthcare reimbursement is complicated and may result in extended collection cycles that are outside of management’s control. We have experienced an increase in third-party governmental and commercial payers. We believe that such payers have extended their reimbursement cycles by denying or impeding reimbursement for 911 and/or non-emergency medical transportation services through a series of repeated requests for duplicate or supplemental patient documentation.

Several factors drive our uncompensated care, including the following:

• Patients we transport who are uninsured or otherwise have no ability to pay for our services (“self-pay”). Such patients have increased in volume from 11.1% of our transport mix in the first half of fiscal 2006 to approximately 13.1% in the first half of fiscal 2007. We believe that this increase is in line with overall U.S. healthcare trends specific to our locations. This is largely due to an increasing percentage of people who lack employer-sponsored coverage, with significant declines in health insurance coverage for those in the Southern and Western states.

• Rate increases. On a periodic basis, we evaluate our cost structure and payer mix within each area we serve and, as appropriate, request rate increases. Ambulance rate increases generate additional revenue only from certain commercial insurance programs and self-pay patients, due to the fixed rates, co-pay amounts and deductibles of payers such as Medicare, Medicaid and certain commercial insurance. Rate increases applied to patients who are self-pay patients can compound an already challenging collection process. Increasing the dollars per transport on this payer group may in turn result in an increase in the uncompensated care.

• Our methodology for reserving for uncompensated care. This methodology is based on a standardized procedure that includes periodic reviews of subsequent historical receipts to determine actual historical percentages. These percentages are utilized to determine current anticipated collection percentages, which are applied to gross revenue in order to calculate net revenue. Net revenue is defined as gross medical transportation revenue less provisions for discounts applicable to Medicare, Medicaid and other third-party payers and uncompensated care. Therefore, a sustained disruption in receipts from government or commercial payers may result in an increase in the level of uncompensated care due to various collection challenges related to older receivables.

• The quality of our billing documentation and procedures. Collection of complete and accurate patient billing information during an emergency service call is sometimes difficult due to the acuity of the patients we serve at the time patient care is rendered, and incomplete information hinders post-service collection efforts. As a result, we often receive partial or no compensation for our services.

Work Force Management

Our business strategy focuses on optimizing the deployment of our work force in order to meet contracted response times and otherwise maintain high levels of quality care and customer service. A key measure is our ability to efficiently and effectively manage labor resources and enhance operating results. Several factors may influence our labor management efforts, including our ability to maximize our mix of emergency and non-emergency transportation business, significant wait times associated with emergency rooms that delay redeployment and market-specific shortages of qualified paramedics and emergency medical technicians which affect temporary wages. We also may experience increases in overtime and training wages due to growth in transport volume related to new contracts, expansion in existing markets and seasonal transport demand patterns.

Insurance Programs

We continue to deploy our risk management strategy to close worker’s compensation and general liability claims promptly. We have also worked to minimize future insurance-related losses through proactive risk management and work place safety initiatives. These programs include the implementation of DriveCam technology in the ambulance fleet, ergonomic safety programs designed to reduce on-the-job injuries and complementary return to work, fit for duty and wellness programs.

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Contract Activity

New Contracts

We commenced service to several new markets during the first half of fiscal 2007, including the following:

• One-year contract as the preferred non-emergency medical transportation provider to Deaconess Hospital located in Cincinnati, Ohio, effective July 1, 2006;

• Three-year contract to provide exclusive airport fire fighting and emergency medical transportation services to the Sarasota Bradenton International Airport, effective October 1, 2006;

• Three-year contract as the preferred provider of non-emergency medical transportation services to Valley Medical Center in Renton, Washington, effective October 1, 2006;

• Three-year contract as the exclusive provider of emergency medical transportation services to the City of Spring Hill, Tennessee, effective November 1, 2006; and

• Ten-year contract as the exclusive provider of emergency medical transportation services within Butler County, Missouri and non-emergency transportation services to Poplar Bluff Regional Medical Center, effective December 15, 2006.

Contract Renewals

We were awarded various contract renewals throughout our operations during the first half of fiscal 2007 including the following:

• 15-month renewal of our long-standing contract to provide 911 medical transportation services in Orange County, Florida;

• Three-year renewal to continue as the preferred provider of emergency and non-emergency transportation services to Baptist Memorial Health Care System in Memphis, Tennessee;

• Five-year renewal to continue as the preferred provider of non-emergency medical transportation services and critical care medical transportation services to the University of Colorado Hospital located in Aurora, Colorado;

• Three-year renewal to continue providing specialty firefighting and emergency medical services to Morristown Municipal Airport located in Morristown, New Jersey; and

• Five-year renewal to continue providing emergency medical services to the City of Tucson, Arizona.

New Accounting Standards

FIN 48

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for us in the first quarter of fiscal 2008. We are currently evaluating the impact, if any, the adoption of FIN 48 will have on our consolidated financial statements and related disclosures.

SFAS 157

In September 2006, the FASB issued Statement of Financial Accounting Standards Board (“SFAS”) Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosure about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for us in the first quarter of fiscal 2009. We are currently evaluating the impact, if any, the adoption of SFAS 157 will have on our consolidated financial statements and related disclosures.

45

SFAS 158

In September 2006, the FASB issued SFAS Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). This standard requires balance sheet recognition of the funded status for all pension and postretirement benefit plans in the year in which the changes occur through accumulated other comprehensive income. Additionally, this standard requires the measurement of the funded status of a plan as of the end of the employer’s fiscal year. The balance sheet recognition provisions of SFAS 158 are effective for us as of June 30, 2007, while the measurement date provisions are effective for the fiscal year ended June 30, 2009. As further discussed in Note 13, we have a defined benefit pension plan that will be subject to the provisions of SFAS 158. As of December 31, 2006, our defined benefit pension plan was overfunded. We are currently evaluating the impact, if any, the adoption of the balance sheet recognition provisions of SFAS 158 will have on our consolidated financial statements and related disclosures. As we currently measure the funded status of our plan as of the end of our fiscal year, the measurement date provisions will have no impact on our consolidated financial statements and related disclosures.

SAB 108

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). This statement provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality assessment. For prior year immaterial misstatements that are considered material under SAB 108, a one-time transitional cumulative adjustment would be made to beginning retained earnings in the first interim period in which the statement is adopted. SAB 108 is effective for us on June 30, 2007.

FSP 123(R)-3

In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP 123(R)-3”). Under the provisions of FSP 123(R)-3, entities may follow either the transition guidance for the additional-paid-in-capital pool as prescribed by SFAS 123(R) or elect to use the alternative transition method as described in FSP 123(R)-3. An entity that adopts SFAS 123(R) using the modified prospective application method may make a one-time election to adopt the transition method described in FSP 123(R)-3. We elected to use the alternative transition method provided in FSP 123(R)-3 to calculate the pool of windfall tax benefits as of the adoption date of SFAS 123(R).

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Results of Operations

Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Three Months Ended December 31, 2006 and 2005

(in thousands, except per share amounts)

	2006 (As restated)			% of Net Revenue		2005 (As restated)			% of Net Revenue		$ Change			% Change
Net revenue	$	117,000		100.0	%	$	113,553		100.0	%	$	3,447		3.0	%
Operating expenses:
Payroll and employee benefits		72,530		62.0	%		66,924		58.9	%		5,606		8.4	%
Depreciation and amortization		2,988		2.6	%		2,787		2.5	%		201		7.2	%
Other operating expenses		30,368		26.0	%		30,297		26.7	%		71		0.2	%
Loss on sale of assets		11		0.0	%		35		0.0	%		(24	)	(68.6	)%
Total operating expenses		105,897		90.5	%		100,043		88.1	%		5,854		5.9	%
Operating income		11,103		9.5	%		13,510		11.9	%		(2,407	)	(17.8	)%
Interest expense		(7,986	)	(6.8	)%		(7,748	)	(6.8	)%		(238	)	(3.1	)%
Interest income		140		0.1	%		172		0.2	%		(32	)	(18.6	)%
Income from continuing operations before income taxes and minority interest		3,257		2.8	%		5,934		5.2	%		(2,677	)	(45.1	)%
Income tax provision		(2,129	)	(1.8	)%		(2,495	)	(2.2	)%		366		14.7	%
Minority interest		(201	)	(0.2	)%		(153	)	(0.1	)%		(48	)	(31.4	)%
Income from continuing operations		927		0.8	%		3,286		2.9	%		(2,359	)	(71.8	)%
Income (loss) from discontinued operations, net of income taxes		383		0.3	%		(459	)	(0.4	)%		842		#
Net income	$	1,310		1.1	%	$	2,827		2.5	%	$	(1,517	)	(53.7	)%
Income per share
Basic-
Income from continuing operations	$	0.04				$	0.14				$	(0.10	)
Income (loss) from discontinued operations		0.01					(0.02	)				0.03
Net income	$	0.05				$	0.12				$	(0.07	)
Diluted-
Income from continuing operations	$	0.04				$	0.13				$	(0.09	)
Income (loss) from discontinued operations		0.01					(0.02	)				0.03
Net income	$	0.05				$	0.11				$	(0.06	)
Average number of common shares outstanding – Basic		24,581					24,330					251
Average number of common shares outstanding – Diluted		25,011					25,298					(287	)

# – Variances over 100% not displayed.

Net revenue growth of $3.4 million, or 3.0%, resulted from a $2.2 million, or 2.3%, increase in medical transportation and related services revenue and a $1.2 million, or 7.4%, increase in fire and other services revenue.

As a percentage of net revenue, operating expenses were 240 basis points higher for the three months ended December 31, 2006 compared to the prior period primarily due to a 310 basis point increase in payroll and employee benefits, partially offset by a 70 basis point reduction in other operating expenses, all as a percentage of net revenue. These fluctuations are described in further detail below.

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Net Revenue

The following table shows a comparison of consolidated net revenue by business (in thousands):

	Three Months Ended December 31,
	2006 (As restated)		2005 (As restated)		$ Change		% Change
Medical transportation and related services	$	98,905	$	96,712	$	2,193	2.3	%
Fire and other services		18,095		16,841		1,254	7.4	%
Total net revenue	$	117,000	$	113,553	$	3,447	3.0	%

Medical Transportation and Related Services

Same service area revenue accounted for $0.9 million of the increase in medical transportation and related services revenue, of which $3.1 million, related to increased transports offset by a $2.2 million decrease due to decreased collectible rate. The remaining $1.3 million resulted from revenues generated under new contracts.

The following tables provide comparative details reflecting trends in transport volume on a quarterly basis. Results include same service area medical transports, new contracts, transports originating from 911 emergency calls and transports originating from non-emergency requests for medical transportation services.

A comparison of same service area and new contract medical transports is included in the table below:

	Three Months Ended December 31,
	2006	2005	Transport Change	% Change
Same service area medical transports	266,726	260,697	6,029	2.3	%
New contract medical transports	3,213	—	3,213	#
Medical transports from continuing operations	269,939	260,697	9,242	3.5	%

# – Variances over 100% not displayed

Medical transportation volume increased 3.5% from 260,697 transports for the three months ended December 31, 2005 to 269,939 for the three months ended December 31, 2006. This increase was a result of same service area transport growth of 6,029 transports and 3,213 transports from our new contracts in Utah and Washington.

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A comparison of total transports is included in the table below:

	Three Months Ended December 31,
	2006	2005	Transport Change		% Change
Emergency medical transports	128,325	118,242	10,083		8.5	%
Non-emergency medical transports	141,614	142,455	(841	)	(0.6	)%
Total medical transports	269,939	260,697	9,242		3.5	%
Wheelchair transports	22,159	19,183	2,976		15.5	%
Total transports from continuing operations	292,098	279,880	12,218		4.4	%

Total transportation volume increased by 12,218 transports, or 4.4%. Medical transport growth accounted for 75.6% of total transport growth, and the increase in wheelchair transports accounted for 24.4% of total transport growth. The increase in transports in our wheelchair transport business is a function of the broad range of services provided to our non-emergency medical transportation customers.

Net Medical Transport APC for the three months ended December 31, 2006 was $341 compared to $347 for the three months ended December 31, 2005. The 1.7% decrease was primarily due to an increase in the number of uninsured patients transported under our 911 contracts, as well as the sustained disruption in receipts from certain government payers.

Discounts applicable to contractual allowances related to continuing operations, which are reflected as a reduction of gross medical transportation revenue, totaled $67.3 million and $61.3 million for the three months ended December 31, 2006 and 2005, respectively. Such discounts represented 36.1% and 35.0% of gross medical transportation fees for the three months ended December 31, 2006 and 2005, respectively. The increase of 110 basis points is primarily a result of rate increases. Such rate increases are applicable to commercial insurance and self-pay patients. We are unable to pass on these rate increases to Medicare, Medicaid and certain other payers. The estimate for uncompensated care related to continuing operations, which are also reflected as a reduction of gross medical transport revenue, totaled $27.4 million and $23.4 million for the three months ended December 31, 2006 and 2005, respectively. As a percentage of gross medical transportation revenue, the uncompensated care was 14.7% and 13.4% for the three months ended December 31, 2006 and 2005.

The increase in uncompensated care is primarily a result of two components

• the impact of ambulance rate increases specific to our self-pay patients, and

• the increase in the number of uninsured patients being transported primarily under our 911 contracts.

Additionally, the impact of disruptions in our collections cycle has affected the estimate. During the second quarter of fiscal 2007, we continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. To a lesser extent, we continued to experience collection delays stemming from Medicare patients’ transition to Medicare Advantage (“MA”) plans, primarily in the Southwest Segment. These disruptions in collections from government and private payers have caused an increase in uncompensated care. Management continues to closely monitor collection efforts for these impacted areas.

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Fire and Other Services

The increase in fire and other services revenue is primarily due to fire subscription revenue growth totaling $1.1 million, or 10.6%, of which $0.8 million, or 72.7%, was related to higher subscription rates and $0.3 million, or 27.3%, was related to an increase in the number of subscribers. Additionally, master fire fees increased $0.4 million due to increases in various master fire contract rates and other revenue decreased $0.2 million primarily due to hurricane relief revenue recognized in the prior year.

Operating Expenses

Payroll and Employee Benefits

Of the $5.6 million increase in payroll and employee benefits expense, $1.0 million is attributable to increased employee health insurance expenses due to higher claims paid under our self insurance programs. The Company has experienced an increase in total payroll expenses related to an overall increase in transport volume, wage rate increase under certain union contracts, and competitive wages offered in specific markets to counter paramedic shortages.

Depreciation and Amortization

The increase in depreciation and amortization is primarily due to higher depreciation expense as a result of increased capital expenditures during fiscal 2007.

Other Operating Expenses

The $0.1 million increase in other operating expenses was primarily due to an increase in professional fees due to the Company’s proxy contest.

Interest Expense

The increase in interest expense is primarily due to the continued non-cash accretion of our Senior Discount Notes.

Income Tax Provision

During the three months ended December 31, 2006, we recorded a $2.1 million income tax provision related to continuing operations, including a deferred income tax provision of $1.9 million, resulting in an effective tax rate of 65.4%. This rate differs from the federal statutory rate of 35.0% primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes. Additionally, our effective tax rate includes a reduction related to income included in pretax income that is attributable to the minority interest in our joint venture with the City of San Diego.

We also recorded $0.2 million income tax expense related to discontinued operations during the three months ended December 31, 2006. The Company income tax payments of $0.2 million for the three months ended December 31, 2006.

During the three months ended December 31, 2005, we recorded a $2.5 million income tax provision related to continuing operations, including a deferred income tax provision of $2.6 million, resulting in an effective tax rate of 42.0%. This rate differs from the federal statutory rate of 35.0% primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes.

We also recorded $0.2 million in income tax benefit related to discontinued operations during the three months ended December 31, 2005. The Company made income tax payments of $0.4 million for the three months ended December 31, 2005.

Minority Interest

Minority interest relates to the City of San Diego’s portion (50 percent) of the San Diego Medical Services Enterprise, LLC fiscal year-to-date net income.

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Discontinued Operations

During the prior fiscal year, we made the decision to exit two medical transportation markets and, as a result, the financial results of these service areas for the three months ended December 31, 2006 and 2005 are included in income (loss) from discontinued operations.

For the three months ended December 31, 2006 and 2005, net revenue associated with discontinued service areas totaled zero and $4.0 million, respectively. Income from discontinued operations for the three months ended December 31, 2006 was $0.5 million, net of income tax provision of $0.2 million. Loss from discontinued operations for the three months ended December 31, 2005 was $0.5 million, net of income tax benefit of $0.2 million. Income from discontinued operations for the three months ended December 31, 2006 includes a pre-tax gain of $0.7 million due to the sale of a business license held by one of our subsidiaries, as well as $5,000 in legal expenses incurred for the settlement negotiations with the U.S. government regarding the alleged violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas. Income (loss) from discontinued operations excludes the allocation of certain shared services costs such as human resources, financial services, risk management and legal services, among others. These ongoing services and associated costs will be redirected to support new markets or for the expansion of existing service areas.

Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005 - Segments

Overview

We have four regional reporting segments that correspond with the manner in which our operations are managed and evaluated by our Chief Executive Officer. Although some of our operations do not align with the Segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	Operations
Mid-Atlantic	Georgia, New York, Ohio, Pennsylvania
South	Alabama, California (fire), Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, New Jersey (fire), Southern Ohio, Tennessee, Wisconsin
Southwest	Arizona (ambulance/fire), New Mexico, Oregon (fire), Utah
West	California (ambulance), Central Florida, Colorado, Oregon (ambulance), Nebraska, South Dakota, Washington

Each reporting segment provides ambulance services while our fire and other services are predominantly in the South and Southwest Segments.

The accounting policies used in the preparation of our consolidated financial statements have also been followed in the preparation of the accompanying financial information for each reporting segment. For management purposes, segment profitability is defined as income from continuing operations before depreciation and amortization, interest, income taxes and minority interest. Additionally, corporate overhead allocations have been included within segment profits. Segment results presented below reflect continuing operations only.

The key drivers that impact net medical transportation revenues include transport volume, rates charged for such services, mix of payers, the acuity of the patients we transport, the mix of activity between emergency medical transportation services and non-emergency medical transportation services, our ability to negotiate government subsidies as well as other competitive and market factors. The main drivers of fire and other revenue are fire subscription rates and the number of subscribers. These drivers can vary significantly from market-to-market and can change over time.

51

Mid-Atlantic

The following table presents financial results and key operating statistics for the Mid-Atlantic operations (in thousands, except medical transports, alternative transports, net Medical Transport APC and DSO):

	Three Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	23,836		$	23,236		$	600		2.6	%
Other services		838			846			(8	)	(0.9	)%
Total net revenue	$	24,674		$	24,082		$	592		2.5	%
Segment profit	$	4,470		$	3,851		$	619		16.1	%
Segment profit margin		18.1	%		16.0	%
Medical transports		72,039			71,016			1,023		1.4	%
Wheelchair transports		6,360			4,849			1,511		31.2	%
Net Medical Transport APC	$	307		$	305		$	2		0.7	%
DSO		56			57			(1	)	(1.8	)%

The increase in the number of transports contributed $0.8 million of the increase in net medical transportation and related services revenue offset by a decrease in collectible rate of $0.2 million. Uncompensated care as a percentage of gross revenue increased from 10.6% in the second quarter of fiscal 2006 to 11.6% in the second quarter of fiscal 2007 primarily due to ambulance rate increases specific to self-pay patients, along with an increase in the number of uninsured patients transported under our 911 contracts. The increase in alternative transports is a function of the broad range of services provided to our non-emergency medical transportation customers.

Payroll-related expense as a percentage of net revenue decreased from 58.9% in the second quarter of fiscal 2006 to 56.3% in the second quarter of fiscal 2007 primarily due to reductions in headcount, health insurance costs and workers’ compensation expense partially offset by increased incentives. Other operating expenses as a percentage of net revenue increased from 21.5% in the second quarter of fiscal 2006 to 21.8% in the second quarter of fiscal 2007 primarily driven by a $0.2 million increase in operating supplies due to medical supplies inventory used in response to the increased transports.

The increase in Net Medical Transport APC was primarily a result of rate increases and the change in payer mix in certain markets.

52

South

The following table presents financial results and key operating statistics for the South operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC, fire subscriptions and DSO):

	Three Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	17,109		$	16,068		$	1,041		6.5	%
Fire and other services		5,824			5,453			371		6.8	%
Total net revenue	$	22,933		$	21,521		$	1,412		6.6	%
Segment profit	$	2,546		$	2,731		$	(185	)	(6.8	)%
Segment profit margin		11.1	%		12.7	%
Medical transports		61,907			57,678			4,229		7.3	%
Wheelchair transports		4,638			3,016			1,622		53.8	%
Net Medical Transport APC	$	257		$	260		$	(3	)	(1.2	)%
Fire subscriptions at period end		34,459			34,912			(453	)	(1.3	)%
DSO		73			64			9		14.1	%

The increase in the number of medical transports contributed to a $1.5 million increase in net medical transportation and related services revenue offset by a decrease in the collectible rate of $0.5 million. Uncompensated care as a percentage of gross revenue increased from 13.2% in the second quarter of fiscal 2006 to 13.8% for the second quarter of fiscal 2007 primarily due to ambulance rate increases specific to our self-pay patients. The increase in medical transports was primarily due to increases in the Indiana, Kentucky and Cincinnati markets. The increase in fire and other services revenue was driven by higher master fire contract fees in our specialty fire business line and higher fire subscription rates despite a slight decline in the number of fire subscriptions. The increase in alternative transports is specific to the Birmingham market where such transports were outsourced until August 2006.

Payroll related expense as a percentage of net revenue increased from 62.5% in the second quarter of fiscal 2006 to 64.1% in the second quarter of fiscal 2007 primarily due to beginning wage rate increases and sign-on bonuses used to attract and retain talent, an increase in overtime due to staffing shortages throughout the Segment and an across-the-board wage increase for employees under a Tennessee contract. Other operating expenses as a percentage of net revenue increased from 21.0% in the second quarter of fiscal 2006 to 21.2% in the second quarter of fiscal 2007 primarily driven by a $0.1 million increase in professional fees due to the use of lobbyists and a public relations firm in Tennessee.

DSO increased 9 days as a result of the change in collection patterns stemming from the consolidation of a regional billing location in fiscal 2006. The 9 day increase includes approximately 8 days associated with the discontinued New Jersey operations.

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Southwest

The following table presents financial results and key operating statistics for the Southwest operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC, fire subscriptions and DSO):

	Three Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	33,704		$	33,997		$	(293	)	(0.9	)%
Fire and other services		11,201			10,506			695		6.6	%
Total net revenue	$	44,905		$	44,503		$	402		0.9	%
Segment profit	$	4,739		$	6,955		$	(2,216	)	(31.9	)%
Segment profit margin		10.6	%		15.6	%
Medical transports		66,533			65,871			662		1.0	%
Wheelchair transports		3,376			3,770			(394	)	(10.5	)%
Net Medical Transport APC	$	495		$	504		$	(9	)	(1.8	)%
Fire subscriptions at period end		85,156			81,512			3,644		4.5	%
DSO		62			41			21		51.2	%

The $0.3 million decrease in net medical transportation and related services revenue was driven by a $1.2 million increase from our new 911 contract in Utah offset by a $1.4 million decrease in same service area revenue. The $1.4 million decrease in same service area net medical transportation and related services revenue is the result of a $1.2 million decrease related to transport volume and a $0.2 million decrease in collectible rate. Uncompensated care as a percentage of gross medical transportation revenue increased from 11.6% in the second quarter of fiscal 2006 to 12.7% in the second quarter of fiscal 2007 primarily due to ambulance rate increases specific to our self-pay patients along with the increase in the number of uninsured patients transported under our 911 contracts. Additionally, we continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. To a lesser extent, we continued to experience collection delays stemming from Medicare patients’ transition to MA plans. The increase in fire and other services revenue is primarily due to 4.5% growth in the number of fire subscriptions and higher fire subscription rates.

Payroll related expense as a percentage of net revenue increased from 56.0% in the second quarter of fiscal 2006 to 62.3% in the second quarter of fiscal 2007 primarily due to wage increases under union contracts, increased health insurance expense and increased pension funding requirements. Other operating expenses as a percentage of revenue decreased from 25.2% in the second quarter of fiscal 2006 to 23.6% in the second quarter of fiscal 2007 primarily driven by a $0.4 million reduction in vehicle related expenses.

The decrease in Net Medical Transport APC can primarily be attributed to the increase in uncompensated care, which is discussed in detail above.

DSO increased 21 days primarily as a result of the extended collection cycle related to increases in the number of self-pay patients, Medicaid payers in Arizona and the continued difficulty in collecting receivables from patients utilizing MA plans as discussed above. Of the 21 day increase, approximately 6 days are specific to the Medicaid issue.

54

West

The following table presents financial results and key operating statistics for the West operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC and DSO):

	Three Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	24,256		$	23,411		$	845		3.6	%
Other services		232			36			196		#
Total net revenue	$	24,488		$	23,447		$	1,041		4.4	%
Segment profit	$	2,336		$	2,760		$	(424	)	(15.4	)%
Segment profit margin		9.5	%		11.8	%
Medical transports		69,460			66,132			3,328		5.0	%
Wheelchair transports		7,785			7,548			237		3.1	%
Net Medical Transport APC	$	304		$	310		$	(6	)	(1.9	)%
DSO		85			76			9		11.8	%

# – Variances over 100% not displayed

The $0.8 million increase in medical transportation and related services revenue was driven by a $0.7 million increase in same service area revenue and a $0.1 million increase from our new contract in Washington. Of the $0.7 million increase in same service area revenue, $1.0 million related to increased transport volume offset by a decrease in collectible rate of $0.3 million. Uncompensated care as a percentage of gross medical transport revenue increased from 18.7% in the second quarter of fiscal 2006 to 19.8% in the second quarter of fiscal 2007 primarily due a change in payer mix in certain markets.

Payroll related expense as a percentage of net revenue increased from 53.1% in the second quarter of fiscal 2006 to 56.0% in the second quarter of fiscal 2007. The increase is attributable to increased wages and taxes due to the addition of personnel in San Diego. Other operating expenses as a percentage of net revenue decreased from 32.5% in the second quarter of fiscal 2006 to 31.7% in the second quarter of fiscal 2007 primarily driven by a $0.6 million decrease in expenses related to our partnership with the City of San Diego, partially offset by a $0.2 million increase in professional fees associated with franchise protection efforts in certain markets.

The decrease in Net Medical Transport APC can be attributed to the change in payer mix in certain markets.

DSO increased 9 days as a result of a disruption in collections related to certain Medicaid payers in Washington and Colorado.

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Six Months Ended December 31, 2006 Compared to Six Months Ended December 31, 2005

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Six Months Ended December 31, 2006 and 2005

(in thousands)

	2006 (As restated)			% of Net Revenue		2005 (As restated)			% of Net Revenue		$ Change			% Change
Net revenue	$	233,758		100.0	%	$	224,540		100.0	%	$	9,218		4.1	%
Operating expenses:
Payroll and employee benefits		145,561		62.3	%		132,931		59.2	%		12,630		9.5	%
Depreciation and amortization		5,988		2.6	%		5,489		2.4	%		499		9.1	%
Other operating expenses		58,683		25.1	%		59,916		26.7	%		(1,233	)	(2.1	)%
(Gain) loss on sale of assets		8		0.0	%		(1,307	)	(0.6	)%		1,315		#
Total operating expenses		210,240		89.9	%		197,029		87.7	%		13,211		6.7	%
Operating income		23,518		10.1	%		27,511		12.3	%		(3,993	)	(14.5	)%
Interest expense		(15,771	)	(6.7	)%		(15,256	)	(6.8	)%		(515	)	(3.4	)%
Interest income		260		0.1	%		325		0.1	%		(65	)	(20.0	)%
Income (loss) from continuing operations before income taxes and minority interest		8,007		3.4	%		12,580		5.6	%		(4,573	)	(36.4	)%
Income tax provision		(4,405	)	(1.9	)%		(5,977	)	(2.7	)%		1,572		26.3	%
Minority interest		(974	)	(0.4	)%		(315	)	(0.1	)%		(659	)	#
Income from continuing operations		2,628		1.1	%		6,288		2.8	%		(3,660	)	(58.2	)%
Income (loss) from discontinued operations, net of income taxes		369		0.2	%		(70	)	(0.0	)%		439		#
Net income	$	2,997		1.3	%	$	6,218		2.8	%	$	(3,221	)	(51.8	)%
Income (loss) per share
Basic-
Income from continuing operations	$	0.11				$	0.26				$	(0.15	)
Income (loss) from discontinued operations		0.01					0.00					0.01
Net income	$	0.12				$	0.26				$	(0.14	)
Diluted-
Income from continuing operations	$	0.11				$	0.25				$	(0.14	)
Income (loss) from discontinued operations		0.01					0.00					0.01
Net income	$	0.12				$	0.25				$	(0.13	)
Average number of common shares outstanding – Basic		24,546					24,281					265
Average number of common shares outstanding – Diluted		24,953					25,280					(327	)

# – Variances over 100% not displayed.

Net revenue growth of $9.2 million, or 4.1%, resulted from a $5.6 million, or 2.9%, increase in medical transportation and related services revenue and a $3.6 million, or 11.0%, increase in fire and other services revenue.

As a percentage of net revenue, operating expenses were 220 basis points higher for the six months ended December 31, 2006 compared to the prior period primarily due to a 310 basis point increase in payroll and employee benefits and a 60 basis point decrease in net gain on sale of assets, partially offset by a 160 basis point reduction in other operating expenses, all as a percentage of net revenue. These fluctuations are described in further detail below.

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Net Revenue

The following table shows a comparison of consolidated net revenue by business (in thousands):

	Six Months Ended December 31,
	2006 (As restated)		2005 (As restated)		$ Change		% Change
Medical transportation and related services	$	197,374	$	191,770	$	5,604	2.9	%
Fire and other services		36,384		32,770		3,614	11.0	%
Total net revenue	$	233,758	$	224,540	$	9,218	4.1	%

Medical Transportation and Related Services

Same service area revenue accounted for $2.0 million, or 34.9%, of the increase in medical transportation and related services revenue, of which $4.3 million related to increased transports offset by a decrease in collectible rate of $2.3 million. The remaining $3.6 million, or 65.1%, resulted from revenues generated under new contracts.

The following tables provide comparative details reflecting trends in transport volume on a quarterly basis. Results include same service area medical transports, new contracts, transports originating from 911 emergency calls and transports originating from non-emergency requests for medical transportation services.

A comparison of same service area and new contract medical transports is included in the table below:

	Six Months Ended December 31,
	2006	2005	Transport Change	% Change
Same service area medical transports	527,101	519,985	7,116	1.4	%
New contract medical transports	10,093	—	10,093	#
Medical transports from continuing operations	537,194	519,985	17,209	3.3	%

# – Variances over 100% not displayed

Medical transportation volume increased 3.3% from 519,985 transports for the six months ended December 31, 2005 to 537,194 for the six months ended December 31, 2006. This increase was a result of same service area transport growth of 7,116 transports and 10,093 transports from our new contracts in Florida, Utah and Washington.

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A comparison of total transports is included in the table below:

	Six Months Ended December 31,
	2006	2005	Transport Change	% Change
Emergency medical transports	249,405	233,105	16,300	7.0	%
Non-emergency medical transports	287,789	286,880	909	0.3	%
Total medical transports	537,194	519,985	17,209	3.3	%
Wheelchair transports	43,279	37,905	5,374	14.2	%
Total transports from continuing operations	580,473	557,890	22,583	4.0	%

Total transportation volume increased by 22,583 transports, or 4.0%. Medical transport growth accounted for 76.2% of total transport growth, and the increase in alternative transports accounted for 23.8% of total transport growth. The 14.2% increase in wheelchair transports is a function of the broad range of services provided to our non-emergency medical transportation customers.

Net Medical Transport APC for the six months ended December 31, 2006 was $341 compared to $344 for the six months ended December 31, 2005. The 0.9% decrease was primarily due to an increase in the number of uninsured patients transported under our 911 contracts, as well as the sustained disruption in receipts from certain government payers.

Discounts applicable to contractual allowances related to continuing operations, which are reflected as a reduction of gross medical transportation revenue, totaled $132.9 million and $119.0 million for the six months ended December 31, 2006 and 2005, respectively. Such discounts represented 35.8% and 34.6% of gross medical transportation fees for the six months ended December 31, 2006 and 2005, respectively. The increase of 120 basis points is primarily a result of rate increases. Such rate increases are applicable to commercial insurance and self-pay patients. We are unable to pass on these rate increases to Medicare, Medicaid and certain other payers. The estimate for uncompensated care related to continuing operations, which are also reflected as a reduction of gross medical transport revenue, totaled $54.7 million and $45.9 million for the six months ended December 31, 2006 and 2005, respectively. As a percentage of gross medical transport revenue, the uncompensated care was 14.8% and 13.4% for the six months ended December 31, 2006 and 2005, respectively.

The increase in uncompensated care is primarily a result of two components:

• the impact of ambulance rate increases specific to our self-pay patients, and

• the increase in the number of uninsured patients being transported primarily under our 911 contracts.

Additionally, the impact of disruptions in our collections cycle has affected the estimate. We continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. During the second quarter of fiscal 2007, to a lesser extent, we continued to experience collection delays stemming from Medicare patients’ transition to MA plans, primarily in the Southwest Segment. Finally, in the first quarter of fiscal 2007 we experienced delays in collections from the consolidation of three regional billing locations in fiscal 2006, directly affecting the Mid-Atlantic and South Segments. These disruptions in collections from government and private payers have caused an increase in uncompensated care. Management continues to closely monitor collection efforts for these impacted areas.

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Fire and Other Services

The increase in fire and other services revenue is primarily due to fire subscription revenue growth totaling $2.9 million, or 13.9%, of which $2.3 million, or 79.3%, was related to higher subscription rates and $0.6 million, or 20.7%, was related to an increase in the number of subscribers. Additionally, master fire fees increased $0.8 million due to increases in various master fire contract rates and other revenue decreased $0.1 million primarily due to hurricane relief revenue recognized in the prior year.

Operating Expenses

Payroll and Employee Benefits

Of the $12.6 million increase in payroll and employee benefits expense, $2.1 million is due to increased health insurance expense due to higher claims paid under our self insurance programs, $1.1 million is related to severance benefits pursuant to the employment agreement of the Company’s former Chief Financial Officer, with the balance related to wage rate increases under certain union contracts, as well as competitive wages offered in specific markets to counter paramedic shortages, and an increase in transport volume.

Depreciation and Amortization

The increase in depreciation and amortization is primarily due to higher depreciation expense as a result of increased capital expenditures during fiscal 2007.

Other Operating Expenses

The decrease in other operating expenses was primarily due to a decrease in professional fees resulting from higher accounting and auditing fees associated with Section 404 of the Sarbanes-Oxley Act in the prior year.

Gain on Sale of Assets

We recognized a $1.3 million pre-tax gain on the sale of real estate located in Arizona during the three months ended September 30, 2005. Cash proceeds from this transaction totaled $1.6 million.

Interest Expense

The increase in interest expense is primarily due to the continued non-cash accretion of our Senior Discount Notes.

Income Tax Provision

Our income tax provision consists primarily of deferred income tax expense, as we utilize net operating loss carryforwards to reduce federal and state taxes currently payable and the associated deferred tax benefits are realized. As a result, minimal current cash payments are required.

During the six months ended December 31, 2006, we recorded a $4.4 million income tax provision related to continuing operations, including a deferred income tax provision of $4.1 million, resulting in an effective tax rate of 55.0%. This rate differs from the federal statutory rate of 35.0% primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes. Additionally, our effective tax rate includes a reduction related to income included in pretax income that is attributable to the minority interest in our joint venture with the City of San Diego. The effective tax rate for the six months ended December 31, 2006 differs from the effective tax rate for the year ended June 30, 2006 primarily as a result of adjustments to prior year tax provisions included in the tax provision for the year ended June 30, 2006.

We also recorded $0.2 million in income tax expense related to discontinued operations during the six months ended December 31, 2006. The Company received income tax refunds of $8,200 and made income tax payments of $0.2 million for the six months ended December 31, 2006.

During the six months ended December 31, 2005, we recorded a $6.0 million income tax provision related to continuing operations, including a deferred income tax provision of $5.5 million, resulting in an effective tax rate of 47.5%. This rate differs from the federal statutory rate of 35.0% primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes.

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We also recorded $19,000 in income tax expense related to discontinued operations during the six months ended December 31, 2005. The Company made income tax payments of $0.4 million for the six months ended December 31, 2005.

Minority Interest

Minority interest relates to the City of San Diego’s portion (50 percent) of the San Diego Medical Services Enterprise, LLC fiscal year-to-date net income.

Discontinued Operations

During the prior fiscal year, we made the decision to exit two medical transportation markets and, as a result, the financial results of these service areas for the six months ended December 31, 2006 and 2005 are included in income (loss) from discontinued operations.

For the six months ended December 31, 2006 and 2005, net revenue associated with discontinued service areas totaled zero and $12.9 million, respectively. Income from discontinued operations for the six months ended December 31, 2006 was $340,000, net of income tax expense of $220,000. Loss from discontinued operations for the six months ended December 31, 2005 was $70,000, net of income tax expense of $19,000. Income from discontinued operations for the six months ended December 31, 2006 includes a pre-tax gain of $0.7 million due to the sale of a business license held by one of our subsidiaries, as well as a $0.1 million reversal of closure-related costs due to the true-up of certain estimated accrual items related to our discontinued operations in the City of Augusta, Georgia as well as legal expenses incurred for the settlement negotiations with the U.S. government regarding the alleged violation of the federal Anti-Kickback Statute in connection with certain contracts related to our discontinued operations in the State of Texas. Income (loss) from discontinued operations excludes the allocation of certain shared services costs such as human resources, financial services, risk management and legal services, among others. These ongoing services and associated costs will be redirected to support new markets or for the expansion of existing service areas.

Six Months Ended December 31, 2006 Compared to Six Months Ended December 31, 2005 - Segments

Overview

We have four regional reporting segments that correspond with the manner in which our operations are managed and evaluated by our Chief Executive Officer. Although some of our operations do not align with the Segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	Operations
Mid-Atlantic	Georgia, New York, Ohio, Pennsylvania
South	Alabama, California (fire), Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, New Jersey (fire), Southern Ohio, Tennessee, Wisconsin
Southwest	Arizona (ambulance/fire), New Mexico, Oregon (fire), Utah
West	California (ambulance), Central Florida, Colorado, Oregon (ambulance), Nebraska, South Dakota, Washington

Each reporting segment provides ambulance services while our fire and other services are predominantly in the South and Southwest Segments.

The accounting policies used in the preparation of our consolidated financial statements have also been followed in the preparation of the accompanying financial information for each reporting segment. For management purposes, segment profitability is defined as income from continuing operations before depreciation and amortization, interest, income taxes and minority interest. Additionally, corporate overhead allocations have been included within segment profits. Segment results presented below reflect continuing operations only.

The key drivers that impact net medical transportation revenues include transport volume, rates charged for such services, mix of payers, the acuity of the patients we transport, the mix of activity between emergency medical transportation services and non-emergency medical transportation services, our ability to negotiate government subsidies as well as other competitive and market factors. The main drivers of fire and other revenue are fire subscription rates and the number of subscribers. These drivers can vary significantly from market-to-market and can change over time.

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Mid-Atlantic

The following table presents financial results and key operating statistics for the Mid-Atlantic operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC and DSO):

	Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	48,497		$	47,515		$	982		2.1	%
Other services		1,862			1,705			157		9.2	%
Total net revenue	$	50,359		$	49,220		$	1,139		2.3	%
Segment profit	$	9,897		$	8,328		$	1,569		18.8	%
Segment profit margin		19.7	%		16.9	%
Medical transports		145,348			144,997			351		0.2	%
Wheelchair transports		12,273			10,056			2,217		22.0	%
Net Medical Transport APC	$	309		$	303		$	6		2.0	%
DSO		56			57			(1	)	(1.8	)%

The increase in medical transportation rates contributed $0.8 million, or 80.3% to the increase in net medical transportation and related services revenue while the increase in the number of medical transports contributed $0.2 million, or 19.7% to the increase in net medical transportation revenue. Uncompensated care as a percentage of gross medical transport revenue increased from 10.4% in the first half of fiscal 2006 to 11.6% in the first half of fiscal 2007 primarily due to a change in collection patterns stemming from the consolidation of two regional billing locations in fiscal 2006, ambulance rate increases specific to our self-pay patients along with the increase in the number of uninsured patients transported under our 911 contracts. The increase in alternative transports is a function of the broad range of services provided to our non-emergency medical transportation customers.

Payroll-related expense as a percentage of net revenue decreased from 58.2% in the first half of fiscal 2006 to 55.1% in the first half of fiscal 2007 primarily due to reductions in headcount, health insurance costs and unemployment and workers’ compensation expense partially offset by increased fill-in wages. Other operating expenses as a percentage of net revenue decreased from 20.9% in the first half of fiscal 2006 to 20.3% in the first half of fiscal 2007 primarily driven by a decrease in general liability insurance costs, partially offset by an increase in vehicle related expenses.

The increase in Net Medical Transport APC was primarily a result of rate increases and a change in payer mix in certain markets.

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South

The following table presents financial results and key operating statistics for the South operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC, fire subscriptions and DSO):

	Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	33,407		$	33,093		$	314		0.9	%
Fire and other services		11,537			10,674			863		8.1	%
Total net revenue	$	44,944		$	43,767		$	1,177		2.7	%
Segment profit	$	4,692		$	5,870		$	(1,178	)	(20.1	)%
Segment profit margin		10.4	%		13.4	%
Medical transports		121,183			117,062			4,121		3.5	%
Wheelchair transports		8,271			6,437			1,834		28.5	%
Net Medical Transport APC	$	254		$	263		$	(9	)	(3.4	)%
Fire subscriptions at period end		34,459			34,912			(453	)	(1.3	)%
DSO		73			64			9		14.1	%

The increase in the number of transports contributed to a $1.6 million increase in net medical transportation and related services revenue offset by a decrease in collectible rate of $1.3 million. The increase in medical transports was primarily due to increases in the Indiana, Kentucky and Cincinnati markets. Uncompensated care as a percentage of net revenue increased from 13.0% in the first half of fiscal 2006 to 14.6% for the first half of fiscal 2007 primarily due to a change in collection patterns stemming from consolidation of a regional billing location in fiscal 2006 and ambulance rate increases specific to our self-pay patients. The increase in fire and other services revenue was driven by higher master fire contract fees in our specialty fire business line and higher fire subscription rates despite a slight decline in the number of fire subscriptions. The increase in alternative transports is specific to the Birmingham market where such transports were outsourced until August 2006.

Payroll related expense as a percentage of net revenue increased from 61.2% in the first half of fiscal 2006 to 64.7% in the first half of fiscal 2007 primarily due to beginning wage rate increases and sign-on bonuses used to attract and retain talent, an increase in overtime due to staffing shortages throughout the Segment and an across-the-board wage increase for employees under a Tennessee contract. Other operating expenses as a percentage of net revenue declined from 21.2% in the first half of fiscal 2006 to 20.0% in the first half of fiscal 2007 primarily driven by a $0.3 million reduction in vehicle related expenses.

The decrease in Net Medical Transport APC can be attributed to the increase in the uncompensated care, which is discussed in detail above, as well as a shift in payer mix in certain markets.

DSO increased 9 days as a result of the change in collection patterns stemming from the consolidation of a regional billing location in fiscal 2006. The 9 day increase includes approximately 8 days associated with the discontinued New Jersey operations.

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Southwest

The following table presents financial results and key operating statistics for the Southwest operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC, fire subscriptions and DSO):

	Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change			% Change
Net revenue
Medical transportation and related services	$	66,447		$	65,541		$	906		1.4	%
Fire and other services		22,485			20,316			2,169		10.7	%
Total net revenue	$	88,932		$	85,857		$	3,075		3.6	%
Segment profit	$	8,807		$	14,458		$	(5,651	)	(39.1	)%
Segment profit margin		9.9	%		16.8	%
Medical transports		132,071			127,994			4,077		3.2	%
Wheelchair transports		6,741			7,074			(333	)	(4.7	)%
Net Medical Transport APC	$	492		$	501		$	(9	)	(1.8	)%
Fire subscriptions at period end		85,156			81,512			3,644		4.5	%
DSO		62			41			21		51.2	%

The $0.9 million increase in medical transportation and related services revenue was driven by a $2.4 million increase from our new 911 contract in Utah offset by a $1.5 million decrease in same service area revenue. The $1.5 million decrease in same service area medical transportation and related services revenue is the result of $1.0 million decrease in collectible rate and a $0.5 million decrease related to transport volume. Uncompensated care as a percentage of gross medical transport revenue increased from 11.4% in the first half of fiscal 2006 to 12.7% in the first half of fiscal 2007 primarily due to ambulance rate increases specific to our self-pay patients along with the increase in the number of uninsured patients transported under our 911 contracts. Additionally, we continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. To a lesser extent, throughout the second quarter of fiscal 2007 we continued to experience collection delays stemming from Medicare patients’ transition to MA plans. The increase in fire and other services revenue is primarily due to 4.5% growth in the number of fire subscriptions and higher fire subscription rates.

Payroll related expense as a percentage of net revenue increased from 56.5% in the first half of fiscal 2006 to 62.0% in the first half of fiscal 2007 primarily due to wage increases under union contracts, increased headcount, increased health insurance expense and increased pension funding requirements. Other operating expenses as a percentage of revenue decreased from 24.8% in the first half of fiscal 2006 to 23.5% in the first half of fiscal 2007 primarily driven by a $0.7 million reduction in vehicle related expenses.

The decrease in Net Medical Transport APC can primarily be attributed to the increase in the uncompensated care, which is discussed in detail above.

DSO increased 21 days primarily as a result of the extended collection cycle related to Medicaid payers in Arizona and the continued difficulty in collecting receivables from patients utilizing MA plans as discussed above. Of the 21 day increase, approximately 6 days are specific to the Medicaid issue.

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West

The following table presents financial results and key operating statistics for the West operations (in thousands, except medical transports, alternative transports, Net Medical Transport APC and DSO):

	Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)			$ Change		% Change
Net revenue
Medical transportation and related services	$	49,023		$	45,621		$	3,402	7.5	%
Other services		500			75			425	#
Total net revenue	$	49,523		$	45,696		$	3,827	8.4	%
Segment profit	$	6,110		$	4,344		$	1,766	40.7	%
Segment profit margin		12.3	%		9.5	%
Medical transports		138,592			129,932			8,660	6.7	%
Wheelchair transports		15,994			14,338			1,656	11.5	%
Net Medical Transport APC	$	307		$	307			—	—
DSO		85			76			9	11.8	%

# – Variances over 100% not displayed

The $3.4 million increase in medical transportation and related services revenue was driven by a $2.2 million increase in same service area revenue and a $1.2 million increase from our new contracts in Florida and Washington. Of the $2.2 million increase in same service area medical transportation and related services revenue, $1.9 million, or 86.6% related to increased transport volume, and $0.3 million, or 13.4% related to increased rates. Uncompensated care as a percentage of gross medical transport revenue increased from 18.7% in the first half of fiscal 2006 to 19.6% in the first half of fiscal 2007 primarily due to a change in payer mix in certain markets.

Payroll related expense as a percentage of net revenue increased from 54.0% in the first half of fiscal 2006 to 54.5% in the first half of fiscal 2007 attributable to increased wages and taxes due to the hiring of paramedics in the San Diego operation that were historically independent contractors and thus reflected in other operating expenses. Other operating expenses as a percentage of net revenue decreased from 33.9% in the first half of fiscal 2006 to 29.6% in the first half of fiscal 2007 primarily driven by a $1.5 million decrease in independent contractor fees expensed related to our San Diego operations. We have now hired these independent contractor and thus reflect this expense above in payroll related expense. This is partially offset by a $0.5 million increase in professional fees incurred in fiscal 2007 associated with franchise protection efforts in certain markets and a $0.2 million increase in general liability insurance costs.

DSO increased 9 days as a result of a disruption in collections related to certain Medicaid payers in Washington and Colorado.

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Liquidity and Capital Resources

Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements and to fund working capital, capital expenditures and business development efforts will depend on our ability to generate cash from operating activities which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory and other conditions, some of which may be beyond our control.

If we fail to generate sufficient cash flow from operating activities, we may need to borrow additional funds or issue additional debt or equity securities to achieve our longer-term business objectives. There can be no assurance that we will be able to borrow such funds or issue such debt or equity securities or, if we can, that we can do so at rates or prices acceptable to us. Management believes that cash flow from operating activities coupled with existing cash balances and amounts available under our $20.0 million Revolving Credit Facility will be adequate to fund our operating and capital needs as well as enable us to maintain compliance with our various debt agreements through December 31, 2007. To the extent that actual results or events differ from our financial projections or business plans, our liquidity may be adversely impacted. See Explanatory Note and Note 2 to the consolidated financial statements.

Cash Flow

Throughout the year, we experience significant periodic outflows of cash for debt service, capital expenditures, workers compensation and general liability insurance premium deposits, 401(k) matching contributions and management bonuses.

These outflows include $6.2 million in semi-annual interest payments on our Senior Subordinated Notes payable on September 15 and March 15. Additionally, during each of the six months ended December 31, 2006 and 2005 we made $7.0 million in unscheduled principal payments and made $4.2 million and $3.8 million, respectively, in interest payments associated with our Term Loan B. In addition to cash outflows associated with debt service, we made payments totaling $8.4 million and $9.1 million, respectively, for capital expenditures, made payments of $1.2 million and $0.5 million, respectively, associated with our defined benefit pension plan and made payments of $4.4 million and $4.0 million, respectively, associated with our Management Incentive Plan during the six months ended December 31, 2006 and 2005. During the six months ended December 31, 2005, we paid a settlement of $0.5 million in conjunction with a legal matter in Sioux Falls, South Dakota.

Deposits on our annual workers’ compensation and general liability insurance programs are typically paid in the fourth quarter of the fiscal year. These deposits totaled $2.6 million and $5.8 million in fiscal 2006 and 2005, respectively.

The table below summarizes cash flow information for the three months ended December 31, 2006 and 2005 (in thousands):

	Six Months Ended December 31,
	2006 (As restated)			2005
Net cash provided by operating activities	$	13,665		$	5,796
Net cash used in investing activities		(1,545	)		(15,137	)
Net cash used in financing activities		(7,362	)		(6,862	)

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Operating Activities

Net cash provided by operating activities totaled $13.7 million and $5.8 million for the six months ended December 31, 2006 and 2005, respectively. The $7.9 million increase in net cash provided by operating activities was due to an $11.3 million decrease in cash outflows attributable to changes in net operating assets offset by a $3.2 million decrease in net income and a $0.2 million decrease in non-cash charges. The decrease in cash outflows attributable to changes in net operating assets is primarily due to growth in medical transportation revenue, an increase in accounts payable and a decrease in other assets offset by an increase in prepaid assets due to increased current general liability and workers compensation insurance premiums. The $3.2 million decrease in net income is primarily attributable to a gain on the sale of real estate in Arizona recognized during the first quarter of fiscal 2006 and severance benefits recognized during the first quarter of fiscal 2007, which are payable to the Company’s former Chief Financial Officer. The decrease in non-cash items is primarily attributable to an increase in positive insurance adjustments recognized pursuant to an independent actuarial review on our insurance programs and a decrease in deferred income taxes due to the utilization of our net operating loss carryforwards partially offset by increases in depreciation and amortization expense and accretion on the 12.75% Senior Discount Notes.

We had working capital of $41.0 million at December 31, 2006, including cash, cash equivalents and short-term investments of $7.8 million, compared to working capital of $38.2 million, including cash, cash equivalents and short-term investments of $9.2 million, at June 30, 2006. The increase in working capital as of December 31, 2006 is primarily related to higher net accounts receivable due to the previously mentioned growth in medical transportation revenue and the impact of disruptions of our collections cycle, higher prepaid expenses due to increased general liability insurance premiums, and a decrease in accrued bonuses, partially offset by a decrease in the current portion of the deferred tax asset relating to utilization of a portion of our net operating loss carryforwards.

DSO increased 11 days from December 31, 2005 to December 31, 2006, primarily due to the disruption in collections related to certain Medicaid managed care payers in Arizona which accounts for 2 days of the 11 day total increase. Additionally, collection delays stemming from the consolidation of three regional billing locations in fiscal 2006 also contributed to the increase in DSO.

Investing Activities

Cash used in investing activities includes the purchase and sale of short-term investments, capital expenditures and proceeds from the sale of property and equipment. We invest excess funds in highly liquid, short-term taxable auction rate securities. We had net sales of such securities of $6.2 million during the six months ended December 31, 2006 and net purchases of $7.6 million during the six months ended December 31, 2005. We had capital expenditures totaling $8.4 million and $9.1 million for the six months ended December 31, 2006 and 2005, respectively.

Financing Activities

Financing activities include the tax benefits from the exercise of stock options, proceeds from the issuance of common stock, repayment of debt and minority shareholder distributions. The reduction in current year stock option exercises contributed to a $0.4 million decrease in cash provided by the issuance of common stock and a $0.3 million decrease in the tax benefit realized from the exercise of such options. During the six months ended December 31, 2006 and 2005, we made distributions of $0.5 million and $0.2 million, respectively, to the City of San Diego, the minority shareholder in our medical services joint venture.

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Debt Covenants

The 2005 Credit Facility, Senior Subordinated Notes and Senior Discount Notes include various financial and non-financial covenants as well as quarterly and annual financial reporting obligations.

Specifically, the 2005 Credit Facility, as amended, requires Rural/Metro LLC and its subsidiaries to meet certain financial tests, including a maximum total leverage ratio, a minimum interest expense coverage ratio and a minimum fixed charge coverage ratio. The 2005 Credit Facility also contains covenants which, among other things, limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset sales, acquisitions, mergers, prepayments of other indebtedness, liens and encumbrances, capital expenditures, business activities by the Company, as a holding company, and other matters customarily restricted in such agreements.

We were in compliance with all of our covenants, as amended, under our 2005 Credit Facility at December 31, 2006. Due to the restatement of the financial statements, we did not timely file the Annual Report on Form 10-K for the year ended June 30, 2007, as disclosed on Form 12b-25 filed on September 14, 2007. As a result, we received a notice of default from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. Effective September 1, 2007, we obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of the Annual Report on Form 10-K for the year ended June 30, 2007. In addition, any default under the notes relating to the untimely filing of the Annual Report on Form 10-K for the year ended June 30, 2007, will be cured within the 60-day cure period (expires November 23, 2007) upon the filing of this report with the SEC. See Explanatory Note to this Amendment and Note 15 to the consolidated financial statements.

	Level Specified	Level Achieved for	Levels to be Achieved at
Financial Covenant	in Agreement	Specified Period	March 31, 2007	June 30, 2007
Debt leverage ratio	< 4.75	3.84	< 4.75	< 4.75
Interest expense coverage ratio	> 2.00	2.67	> 2.00	> 2.00
Fixed charge coverage ratio	> 1.10	1.42	> 1.10	> 1.10
Maintenance capital expenditure (1), (2)	N/A	N/A	N/A	< $22.0 million
New business capital expenditure (2)	N/A	N/A	N/A	< $4.0 million

(1) Capital expended in the normal course of operating in existing markets.

(2) Measured annually at June 30^th.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are key indicators that management uses to evaluate our operating performance. While EBITDA and adjusted EBITDA are not intended to replace any presentation included in our consolidated financial statements under generally accepted accounting principles (“GAAP”) and should not be considered an alternative to operating performance or an alternative to cash flow as a measure of liquidity, we believe this measure is useful to investors in assessing our ability to meet our future debt service, capital expenditure and working capital requirements. This calculation may differ in method of calculation from similarly titled measures used by other companies.

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The following table sets forth our EBITDA and adjusted EBITDA for the three and six months ended December 31, 2006 and 2005, as well as a reconciliation to income from continuing operations, the most directly comparable financial measure under GAAP (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006 (As restated)			2005 (As restated)			2006 (As restated)			2005 (As restated)
Income from continuing operations	$	927		$	3,286		$	2,628		$	6,288
Add back:
Depreciation and amortization		2,988			2,787			5,988			5,489
Interest expense on borrowings		5,463			5,374			10,992			10,807
Amortization of deferred financing costs		589			665			1,007			1,100
Accretion of 12.75% Senior Discount Notes		1,934			1,709			3,772			3,349
Interest income		(140	)		(172	)		(260	)		(325	)
Income tax provision		2,129			2,495			4,405			5,977
EBITDA from continuing operations	$	13,890		$	16,144		$	28,532		$	32,685
EBITDA from discontinued operations		583			(558	)		560			141
The items listed below have not been included as adjustments in the above calculation of EBITDA:
Stock-based compensation (benefit) expense		—			7			(7	)		16
(Gain) loss on sale of property and equipment		(664	)		41			(667	)		(1,307	)
Debt amendment fees		47			500			47			500
Executive severance (1)		—			—			1,133			—
Adjusted EBITDA from all operations	$	13,856		$	16,134		$	29,598		$	32,035
Increase (decrease):
Items added back to arrive at EBITDA		(12,963	)		(12,858	)		(25,904	)		(26,397	)
Items added back to arrive at Adjusted EBITDA		617			(548	)		(506	)		791
Income tax benefit (provision) on discontinued operations		(200	)		199			(191	)		(19	)
Depreciation and amortization on discontinued operations		—			(100	)		—			(192	)
Depreciation and amortization		2,988			2,888			5,988			5,681
Accretion of 12.75% Senior Discount Notes		1,934			1,709			3,772			3,349
Deferred income taxes		2,180			2,219			4,031			5,363
Insurance adjustments		(3,128	)		(2,387	)		(3,128	)		(2,387	)
Amortization of deferred financing costs		589			665			1,007			1,100
Earnings of minority shareholder		202			153			975			315
(Gain) loss on sale of property and equipment		(664	)		41			(667	)		(1,307	)
Stock based compensation (benefit) expense		—			7			(7	)		16
Changes in operating assets and liabilities		2,512			(7,313	)		(1,303	)		(12,552	)
Net cash provided by operating activities	$	7,923		$	809		$	13,665		$	5,796

(1) At December 31, 2006, the Company had accrued approximately $1.1 million in severance benefits pursuant to the employment agreement of the Company’s former Chief Financial Officer. This amount is included in payroll and employee benefits expense in the consolidated statement of operations for the six months ended December 31, 2006.

For the three months ended December 31, 2006, consolidated EBITDA from continuing operations of $13.9 million included a 130 basis point increase in uncompensated care as a percentage of gross medical transport revenue. Consolidated EBITDA from continuing operations for the three months ended December 31, 2005 was $16.1 million.

For the six months ended December 31, 2006, consolidated EBITDA from continuing operations of $28.5 million included a 140 basis point increase in uncompensated care as a percentage of gross medical transport revenue and the negative impact of a $0.7 million increase in minority interest associated with our joint venture with the City of San Diego. Consolidated EBITDA from continuing operations for the six months ended December 31, 2005 of $32.7 million included the positive impact of a $1.3 million gain on the sale of real estate in Arizona.

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Subsequent Events

Unscheduled principal payment

On March 22, 2007, we, through our wholly owned subsidiary, Rural/Metro LLC, made a $7.0 million unscheduled principal payment on our Term Loan B. In connection with this payment, we wrote-off approximately $0.2 million of deferred financing costs during the third quarter of fiscal 2007.

Withdrawal of Shelf Registration Statement

On March 22, 2007, we announced that we will withdraw our Registration Statement on Form S-3 that was previously filed with the SEC on February 8, 2006. The Registration Statement has not been declared effective by the SEC, and no securities were sold in connection with the Registration Statement.

Credit Facility Amendment No. 5

On January 18, 2007, the Company amended the 2005 Credit Facility (“Amendment No. 5”). See further discussion in Note 7 to the consolidated financial statements.

2005 Credit Facility Waiver

On October 11, 2007, the Company obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of its Annual Report on Form 10-K for the year ended June 30, 2007. See Note 7 to the consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risks

Our primary exposure to market risk consists of changes in interest rates on our borrowing activities. Under our 2005 Credit Facility, amounts outstanding under Term Loan B bear interest at LIBOR plus 2.25% and amounts drawn under our Revolving Credit Facility bear interest at LIBOR plus 3.25%. Based on amounts outstanding under Term Loan B at December 31, 2006, a 1% increase in the LIBOR rate would increase our interest expense on an annual basis by approximately $1.0 million. The remainder of our debt is primarily at fixed interest rates. We monitor the risk associated with interest rate changes and may enter into hedging transactions, such as interest rate swap agreements, to mitigate the related exposure. In addition, we are exposed to the risk of interest rate changes on our short-term investment activities. We had no investments in auction rate securities at December 31, 2006.

Item 4. Controls and Procedures

Management’s Consideration of Restatement

As discussed in the Explanatory Note to this Form 10-Q/A for the fiscal quarter ended December 31, 2006, and in Note 2 of the footnotes to the consolidated financial statements contained in Part I, Item 1 of this Second Amendment, along with the Company’s Current Report on Form 8-K, Item 4.02, dated September 14, 2007, the Company has restated previously issued consolidated financial statements and financial data (covering the years or periods indicated below):

• Consolidated financial statements for each of the fiscal years ended June 30, 2005 and 2006;

• Selected consolidated financial data for each of the fiscal years ended June 30, 2003 through 2006; and,

• Interim consolidated financial information for each of the first three quarters and the related interim periods in the fiscal years ended June 30, 2006 and 2007.

Additionally, management of the Company has amended its Quarterly Report on Form 10-Q for the quarters ended September 30, 2006, December 31, 2006 and March 31, 2007 to restate the Company’s interim consolidated financial statements for those periods. The determination to restate these consolidated financial statements and selected consolidated financial data was made as a result of the Company’s identification of certain accounting errors as discussed in footnote 2 of this Form 10-Q/A.

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report (December 31, 2006). In its Amended and Restated Filing, filed with the Commission on March 23, 2007, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2006 because of the following material weakness in internal control over financial reporting as of June 30, 2006, which continued to exist as of December 31, 2006. The Company did not maintain effective internal controls over the classification of certain durable medical supply items within inventory. Specifically, the Company did not have effective procedures to detect that certain durable medical supply items were improperly included in inventory.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the restatement discussed above, management of the Company, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has re-evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2006. Based upon this re-evaluation management of the Company identified the following additional material weaknesses in internal control over financial reporting:

The Company did not maintain effective controls over its period-end financial reporting process, including the preparation and review of interim and annual consolidated financial statements and disclosures. Specifically, controls were not operating effectively over the processes related to (i) timely resolution of reconciling items and review of account reconciliations over balance sheet accounts, (ii) accumulating and reviewing all required supporting information to ensure the completeness and accuracy of the consolidated financial

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statements and disclosures and (iii) timeliness of the financial reporting process. This material weakness resulted in restatements of the Company’s fiscal 2006 and 2005 annual and interim financial statements and resulted in adjustments, including audit adjustments, to the Company’s fiscal 2007 annual and interim financial statements. Additionally, this material weakness could result in misstatements of any of the Company’s financial statement accounts and disclosures that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

The period-end financial reporting process material weakness described above contributed to the material weaknesses described below:

• The Company did not maintain effective controls over the accuracy of subscription revenue and deferred revenue. Specifically, the Company’s internal controls are not adequately designed to ensure the accurate calculation of subscription revenue and deferred revenue on a straight-line basis based on the day and the month of the beginning of the contractual period. This deficiency resulted in the restatement of the Company’s interim and annual consolidated financial statements. Additionally, this material weakness could result in misstatements of the Company’s subscription revenue and deferred revenue accounts that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

• The Company did not maintain effective controls over the completeness and accuracy of its accruals and reserves for loss contingencies and related operating expenses. Specifically, the Company’s internal controls are not operating effectively to ensure that loss contingencies are accurately and completely recorded on a timely basis. This material weakness resulted in adjustments to the Company’s fiscal 2007 consolidated financial statements. Additionally, this material weakness could result in misstatements of the Company’s accrual and reserve accounts and related operating expenses that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented of detected on a timely basis.

Management’s Plan for Remediation of Material Weaknesses in Internal Control Over Financial Reporting

In an effort to remediate the material weaknesses described above the Company will undertake the following remediation procedures:

• Inventory – The Company has conducted and completed a review of its controls relating to accounting for inventory, and corrected its method of accounting. While the remediation measures have improved the design effectiveness of the Company’s internal control over financial reporting, the newly designed controls have not yet operated for a sufficient period of time to demonstrate operating effectiveness. The Company continues to monitor and assess its remediation activities to ensure that the material weakness discussed above is remediated as soon as practicable. Additionally, management intends to enhance its controls and procedures related to the performance and analysis of periodic physical inventory counts so as to properly identify items that should be excluded from the inventory balance. Management currently expects that this material weakness will be remediated by June 30, 2007.

• Period-End Financial Reporting – Management will continue to review and improve on its processes surrounding the timely resolution of reconciling items and account reconciliations. Additionally, management has scheduled a review of the financial statement close process and is currently working on the implementation of new reporting software. Management currently expects that this material weakness will be remediated by June 30, 2008.

• Subscription Revenue – The Company is reviewing alternatives for automating the calculation of revenue recognition and deferred revenue liability amounts surrounding its fire and ambulance subscription business. Automating these calculations will provide for the proper level of precision in the calculation of period revenue as well as the proper timing of recognition. Until the Company determines the feasibility of, and implements these automated controls, an analysis using transactional data from the billing system will be performed each quarter in order to ensure that revenue recognized and deferred revenue balances are materially correct. Management currently expects that this material weakness will be remediated by June 30, 2008.

• Accruals and Reserves – Management will continue to emphasize to senior management, the importance of direct and timely communication of significant information across the organization that could impact the timely, accurate and complete recording of accruals and reserves for loss contingencies. The Company will also enhance its quarterly procedures surrounding the identification of significant accounting matters. Management currently expects that this material weakness will be remediated by June 30, 2008.

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Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)), other than those noted above, that occurred during the three month period ended December 31, 2006, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information.

Item 1. Legal Proceedings

The information contained in Footnote 14 to the consolidated financial statements is hereby incorporated by referenced into this Part II – Item 1 of this Quarterly Report.

Item 1A. Risk Factors

You should carefully consider the risks and uncertainties described below, in addition to the information set forth elsewhere in this report, when evaluating our business, industry and capital structure. Additional risks and uncertainties not presently known or that we may currently believe to be immaterial may also materially and adversely affect us. Any of the following risks and uncertainties could materially and adversely affect our business, financial condition or results of operations.

Risk Factors Related to Our Business

Our results of operations and growth could be adversely affected if we lose existing contracts or fail to renew existing contracts on favorable terms.

A significant portion of our growth historically has resulted from increases in the number of emergency and non-emergency transports we make under our existing contracts with municipalities, counties and fire districts to provide 911 and other services. Substantially all of our net revenue for fiscal year 2007 was generated under existing contracts. Our contracts generally range from three to five years in length. Most of our contracts are terminable by either party upon notice of as little as 30 days. Further, certain of our contracts expire during each fiscal period, and we may further be required to seek renewal of certain of these contracts through a formal bidding process that often requires written responses to a Request for Proposal (“RFP”). Even if any of our contracts are renewed, a renewal contract may contain terms that are not as favorable to us as the terms of our current contract. We cannot assure you that we will be successful in retaining or renewing our existing contracts or that the loss or renewal terms of contracts would not have a material adverse effect on us. There is also no assurance that we will continue to experience growth in the number of transports under our existing contracts.

We are subject to decreases in our revenue as a result of changes in payer mix.

We are subject to risks related to changes in the mix of insured versus uninsured patients that receive our medical services. If our mix of uninsured patients to insured patients increases, we may be adversely affected since we have greater difficulty recovering our full fees for services rendered to uninsured patients. Our credit risk related to services provided to uninsured individuals is exacerbated because communities are required to provide 911 emergency response services regardless of their ability to pay. We also believe uninsured patients are more likely to dial 911 to seek care for minor conditions because they frequently do not have a primary care physician with whom to consult. An increase in individuals utilizing our services that do not have an ability to pay could materially impact our business.

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We are in a highly competitive industry; if we do not compete effectively, we could lose business or fail to grow.

The market for providing ambulance services to counties, municipalities, fire districts and hospitals and other healthcare providers is highly competitive. We compete to provide ambulance services with governmental entities, hospitals, local and volunteer and private providers, including national providers such as American Medical Response. In many communities, our primary competitor in providing ambulance service is the local fire department, which in many cases has traditionally acted as first responder during emergencies and has been able to expand its scope of services to include emergency ambulance transports. In order to compete successfully, we must make continuing investments in our fleet, facilities and operating systems.

Some of our current competitors and certain potential competitors may have access to greater capital and other resources than we do. Counties, municipalities, fire districts and healthcare providers that currently contract for ambulance services could choose to provide ambulance services directly in the future. We may experience increased competition from fire departments in providing emergency medical transportation service. We cannot assure you that we will be able to compete successfully to provide our medical transportation services.

We may not accurately assess the costs we will incur under new contracts, which could result in our entering into contracts which are less profitable than we anticipate.

Our new contracts increasingly involve a competitive bidding process. When we obtain new contracts, we must accurately assess the costs we will incur in providing services as well as other factors such as expected transport volume, geographical issues affecting response time and the implementation of technology upgrades. If we fail to accurately assess these factors, we may not realize adequate profit margins or otherwise meet our financial and strategic objectives. Increasing pressure from healthcare payers to restrict or reduce reimbursement rates at a time when the costs of providing medical services continue to increase make assessing the costs associated with the pricing of new contracts (as well as the renewal of existing contracts) even more difficult. In addition, integrating new contracts, particularly those in new geographic locations, could prove more costly, and could require more management time, than we anticipate. Our failure to predict costs accurately or to negotiate an adequate profit margin could have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, we may not be able to terminate unfavorable contracts prior to their stated termination date because of the possibility of forfeiting performance bonds and the potential material adverse effect on our public relations.

Some state and local governments regulate our rate structures and may limit our ability to increase our rates or maintain a satisfactory rate structure.

State or local government regulations or administrative policies regulate the rates we can charge in some states for non-emergency ambulance services. In addition, in some service areas in which we are the exclusive provider of services, the municipality or fire district sets the rates for emergency ambulance services pursuant to a master contract and otherwise establishes the rates for non-emergency ambulance services. In areas where our rates are regulated, there is no assurance we will receive ambulance service rate increases on a timely basis to offset increases in the cost to perform our services, or at all. If we are not able to obtain timely rate increases it could have a material adverse effect on our revenues, profits and cash flows.

If we fail to implement our business strategy, our financial performance and our growth could be materially and adversely affected.

Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions or increased operating costs or expenses. In addition, to the extent we have misjudged the nature and extent of industry trends or our competition, we may have difficulty in achieving our strategic objectives. Any failure to implement our business strategy successfully may adversely affect our business, financial condition and profitability. Our long-term growth may also be adversely affected. Even if we are able to implement some or all of the initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all.

Our business depends on numerous complex information systems, and any failure to successfully maintain these systems or implement new systems could materially harm our operations.

We depend on complex, integrated information systems and standardized procedures for operational and financial information and billing operations. We may not have the necessary resources to maintain existing information systems or implement new systems where necessary to handle our volume and changing needs. Furthermore, we may experience unanticipated delays, complications and expenses in implementing, integrating and operating our systems. Any interruptions in operations during periods of implementation would adversely affect our ability to properly allocate resources and process

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billing information in a timely manner, which could result in customer dissatisfaction and delayed cash flow. We also use the development and implementation of sophisticated and specialized technology to differentiate our services from our competitors and improve our profitability. The failure to implement and maintain operational, financial and billing information systems successfully could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our profit margins.

We could be subject to certain lawsuits.

We could be a party to, or otherwise involved in, lawsuits, claims, proceedings and other legal matters concerning vehicle collisions and personal injuries, patient care incidents and employee job-related injuries. Some of these lawsuits could involve large claim amounts and substantial defense costs. We cannot predict with certainty the ultimate outcome of any lawsuit, claim, proceeding or other legal matter to which we are a party to, or otherwise involved in, due to, among other things, the inherent uncertainties of litigation, government investigations and proceedings and legal matters generally. An unfavorable outcome in any lawsuit, including those described above, could have a material adverse effect on our business, financial condition, profitability and cash flows.

The reserves we establish with respect to our losses covered under our insurance programs are subject to inherent uncertainties, and we could be required to increase our reserves, which would adversely affect our results of operations.

In connection with our insurance programs, we establish reserves for losses and related expenses which represent our expectations of the ultimate resolution and administration costs of losses we have incurred in respect of our liability risks. Our reserves are based on estimates involving actuarial and statistical projections, at a given point in time. However, insurance reserves inherently are subject to uncertainty. Our reserves are based on historical claims, demographic factors, industry trends, severity and exposure factors and other actuarial assumptions calculated by an independent actuary firm. The independent actuary firm performs studies of projected ultimate losses on an annual basis and provides quarterly updates to those projections. We use these actuarial estimates to determine appropriate reserves. Our reserves could be significantly affected if current and future occurrences differ from historical claim trends and expectations. While we monitor claims closely when we estimate reserves, the complexity of the claims and the wide range of potential outcomes may hamper timely adjustments to the assumptions we use in these estimates. Actual losses and related expenses may deviate, individually and in the aggregate, from the reserve estimates reflected in our financial statements. If we determine that our estimated reserves are inadequate, we will be required to increase reserves at the time of the determination which would result in a reduction in our net income in the period in which the deficiency is determined.

Insurance coverage for some of our losses may be inadequate and may be subject to the credit risk of commercial insurance companies.

We obtain insurance coverage from third party insurers to supplement our self insurance program and to cover periods prior to our implementation of the program. To the extent we hold policies to cover certain claims, but either did not obtain sufficient insurance limits, or did not buy an extended reporting period policy, where applicable, or the issuing insurance company is no longer viable, we may be responsible for losses attributable to such claims. While we believe our commercial insurance company providers currently are creditworthy, there can be no assurance that such insurance companies will remain so in the future. If our insurers do not make payments in respect of claims, we may be required to do so, which could have a material adverse effect on our financial condition, results of operations and cash flow.

Servicing our self insurance programs will require a significant amount of cash. We may be unable to generate sufficient cash flow to service our self insurance obligations.

Our self insurance program may require a significant amount of cash in connection with the resolution of losses that we experience. Our business may not generate sufficient cash flow from operating activities to fund losses that we are responsible for under our self insurance program. Our ability to make payments will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower net revenues generally will reduce our cash flow. While we believe our cash flow will be adequate to fund such losses in connection with the self insurance program, there can be no assurance that we will have adequate cash in the future. If we are unable to fund such losses, it could result in a material adverse effect on our financial condition, results of operations and cash flow.

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Material weaknesses or deficiencies in our internal control over financial reporting could result in our inability to provide reliable financial reports, harm stockholder and business confidence on our financial reporting, our ability to obtain financing and other aspects of our business.

We concluded that we had material weaknesses in our internal control related to our period-end financial reporting process, including the preparation and review of interim and annual consolidated financial statements and disclosures; which contributed to material weaknesses in our controls over the accuracy of subscription revenue and deferred revenue, and the completeness and accuracy of our accruals and reserves for loss contingencies and related operating expenses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, management’s assessment as of December 31, 2006 concluded that our internal control over financial reporting was ineffective. We believe that we will remedy the identified material weaknesses in our internal controls and procedures, but there can be no assurance that our corrections will be sufficient or fully effective, or that we will not discover additional material weaknesses in our internal controls and procedures in the future. Due to its inherent limitations, even effective internal control over financial reporting can provide only reasonable assurance with respect financial statement preparation and presentations. These limitations may not prevent or detect all misstatements or fraud, regardless of their effectiveness. See Item 4. “Controls and Procedures” located in Part I of this report for further discussion regarding the Company’s disclosure controls and procedures and internal controls.

Because we have concluded that our internal control over financial reporting is not effective and because our independent registered public accountants issued an adverse opinion on the effectiveness of our internal controls over financial reporting, and to the extent we identify future weaknesses or deficiencies, there could be material misstatements in our financial statements and we could fail to meet our financial reporting obligations. As a result, our ability to obtain additional financing, or obtain additional financing on favorable terms, could be materially and adversely affected which, in turn, could materially and adversely affect our business, our financial condition and the market value of our securities. In addition, perceptions of us could also be adversely affected among customers, lenders, investors, securities analysts and others. These current material weaknesses or any future weaknesses or deficiencies could also hurt confidence in our business and consolidated financial statements and our ability to do business with these groups.

We are subject to the risks of government actions, shareholder lawsuits and other legal proceedings related to the restatement of our prior financial results.

It is possible that there may be governmental actions, shareholder lawsuits and other legal proceedings brought against us in connection with the restatement of our prior financial results. These proceedings may require us to expend significant management time and incur significant accounting, legal and other expenses, and may divert attention and resources from the operation of our business. These expenditures and diversions, as well as the adverse resolution of any specific lawsuit, could have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain effective internal controls may cause us to delay filing our periodic reports with the SEC, affect our NASDAQ listing, and adversely affect our stock price.

The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report of management on internal control over financial reporting in their annual reports on Form 10-K that contain an assessment by management of the effectiveness of the Company’s internal control over financial reporting. In addition, our independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the internal control over financial reporting. The Company has in prior periods identified certain material weaknesses in its internal control over financial reporting. Although we review and assess our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, we cannot be certain our remediation efforts will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future or will be sufficient to address and eliminate the material weaknesses identified. Our inability to remedy the identified material weaknesses or any additional deficiencies or material weaknesses that may be identified in the future could, among other things, cause us to fail to file our periodic reports with the SEC in a timely manner or require it to incur additional costs or to divert management resources. If our periodic reports are not filed with the SEC in a timely manner, investors in our securities do not have the information required by SEC rules regarding our business and financial condition with which to make decisions regarding investment in our securities. Additionally, NASDAQ, the exchange on which our common stock is listed may institute proceedings to delist our common stock due to the untimely filing of the reports with the SEC. We also will not be eligible to use a “short form” registration statement on Form S-3 to make equity or debt offerings for a period of 12 months after the time we become current in our filings. These restrictions could

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adversely affect our ability to raise capital, as well as our business, financial condition and results of operations, as well as result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact our stock price.

Many of our employees are represented by labor unions and any unfavorable labor agreements or work stoppage could adversely affect our business, financial conditions, results of operations and reputation.

Approximately 38% of our employees are represented by 17 collective bargaining agreements. Ten of these collective bargaining agreements, representing approximately 1,750 employees, are subject to renegotiation in fiscal 2008. Although we believe our relations with our employees are good, we cannot assure you that we will be able to negotiate a satisfactory renewal of these collective bargaining agreements or that our employee relations will remain stable. If we are unable to negotiate a timely renewal of one or more agreements, the employees covered by the agreement may enter into a strike or other work stoppage. Such a stoppage could have a material adverse effect on business, financial conditions, results of operations and reputation.

The fire protection services business is a highly competitive industry; if we do not compete effectively, we may lose revenue.

The market for providing fire protection services of residential and commercial properties is primarily municipal fire departments, tax-supported fire districts and volunteer fire departments. Private companies represent only a small portion of the total fire protection market and generally provide services where a tax-supported municipality or fire district has decided to contract for these services or has not assumed the financial responsibility for fire protection. In these situations, we provide services for a municipality or fire district on a contract basis or provide fire protection services directly to residences and businesses who subscribe for this service. To our knowledge there is no other national private fire protection company offering services to residential and commercial property owners.

The market for providing fire protection services to airports and industrial sites is highly competitive. We compete to provide our airport and industrial fire protection services with municipal fire departments and private providers such as Wackenhut Services, Inc.

We depend on our senior management and may not be able to retain those employees or recruit additional qualified personnel, which could adversely affect our business.

We depend on our senior management. The loss of services of any of the members of our senior management could adversely affect our business until a suitable replacement can be found. If we were required to find a suitable replacement for one of our senior managers, there could be a limited number of persons with the requisite skill to serve in the position, and we cannot assure you that we will be able to identify or employ such qualified personnel on acceptable terms.

Risks Related to the Healthcare Industry

We conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations.

The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services, our contractual relationships with our customers, our marketing activities and other aspects of our operations. Failure to comply with these laws can result in civil and criminal penalties such as fines, damages and exclusion from the Medicare and Medicaid programs. The risk of our being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are sometimes open to a variety of interpretations. Any action against us for the violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

Our customers are also subject to ethical guidelines and operational standards of professional and trade associations and private accreditation agencies. Compliance with these guidelines and standards is often required by our contracts with our customers or to maintain our reputation.

The laws, regulations and standards governing the provision of healthcare services may change significantly in the future. We cannot assure you that any new or changed healthcare laws, regulations or standards would not materially and adversely affect our business. We also cannot assure you that a review of our business by judicial, law enforcement, regulatory or accreditation authorities would not result in a determination that could adversely affect our operations.

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We are subject to comprehensive and complex laws and rules that govern the manner in which we bill and are paid for our services by third party payers, and the failure to comply with these rules, or allegations that we have failed to do so, can result in civil or criminal sanctions, including exclusion from federal and state healthcare programs.

Like most healthcare providers, the majority of our services are paid for by private or governmental third party payers, such as insurance companies, Medicare and Medicaid. These third party payers typically have differing and complex billing and documentation requirements that we must meet in order to receive payment for our services. Reimbursement to us is typically conditioned on our providing the correct procedure and diagnostic codes and properly documenting the services themselves, including the level of service provided, the medical necessity for the services and the identity of the practitioner who provided the service.

We must also comply with numerous other laws applicable to our documentation and the claims we submit for payment, including but not limited to (1) “coordination of benefits” rules that dictate which payer we must bill first when a patient has potential coverage from multiple payers; (2) requirements that we obtain the signature of the patient or patient representative, when possible, or document why we are unable to do so, prior to submitting a claim; (3) requirements that we make repayment to any payer which pays us more than the amount to which we were entitled; (4) requirements that we bill a hospital or nursing home, rather that Medicare, for certain ambulance transports provided to Medicare patients of such facilities; (5) requirements that our electronic claims for payment be submitted using certain standardized transaction codes and formats; and (6) laws requiring us to handle all health and financial information of our patients in a manner that complies with specified security and privacy standards.

Governmental and private third party payers and other enforcement agencies carefully audit and monitor our compliance with these and other applicable rules, and in some cases in the past have found that we were not in compliance. We have received in the past, and expect to receive in the future, repayment demands from third party payers based on allegations that our services were not medically necessary, were billed at an improper level, or otherwise violated applicable billing requirements. Our failure to comply with the billing and other rules applicable to us could result in non-payment for services rendered or refunds of amounts previously paid for such services. In addition, non-compliance with these rules may cause us to incur civil and criminal penalties, including fines, imprisonment and exclusion from government healthcare programs such as Medicare and Medicaid, under a number of state and federal laws. These laws include the federal False Claims Act, the Health Insurance Portability and Accountability Act of 1996, the federal Anti-Kickback Statute, The Balanced Budget Act of 1997 and other provisions of federal, state and local law.

In addition, from time to time we self-identify practices that may have resulted in Medicare or Medicaid overpayments or other regulatory issues. For example, we have previously identified situations in which we may have inadvertently utilized incorrect billing codes for some of the services we have billed to government programs such as Medicare or Medicaid. In such cases, if appropriate, it is our practice to disclose the issue to the affected government programs and to refund any resulting overpayments. Although the government usually accepts such disclosures and repayments without taking further enforcement action, it is possible that such disclosures or repayments will result in allegations by the government that we have violated the False Claims Act or other laws, leading to investigations and possibly civil or criminal enforcement actions.

If our operations are found to be in violation of these or any of the other laws which govern our activities, any resulting penalties damages, fines or other sanctions could adversely affect our ability to operate our business and our financial results.

Our contracts with healthcare facilities and marketing practices are subject to the federal Anti-Kickback Statute, and we recently entered into a settlement for alleged violations of that statute.

We are subject to the federal Anti-Kickback Statute, which prohibits the knowing and willful offer, payment, solicitation or receipt of any form of “remuneration” in return for, or to induce, the referral of business or ordering of services paid for by Medicare or other federal programs. “Remuneration” potentially includes discounts and in-kind goods or services, as well as cash. Certain federal courts have held that the Anti-Kickback Statute can be violated if “one purpose” of a payment is to induce referrals. Violations of the Anti-Kickback Statute can result in imprisonment, civil or criminal fines or exclusion from Medicare and other governmental programs.

In 1999, the Office of Inspector General (“OIG”) of the Department of Health and Human Services (the “DHHS”) issued an Advisory Opinion indicating that discounts provided to health facilities on the transports for which they are financially responsible potentially violate the Anti-Kickback Statute when the ambulance company also receives referrals of Medicare and other government-funded transports from the facility. The OIG has clarified that not all discounts violate the Anti-Kickback Statute, but that the statute may be violated if part of the purpose of the discount is to induce the referral of the transports paid for by Medicare or other federal programs, and the discount does not meet certain “safe harbor” conditions. In the Advisory Opinion and subsequent pronouncements, the OIG has provided guidance to ambulance companies to help them avoid unlawful discounts.

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Like other ambulance companies, we have provided discounts to our healthcare facility customers (nursing homes and hospitals) in certain circumstances. We have attempted to comply with applicable law when such discounts are provided. However, the government has alleged in the past that certain of our hospital and nursing home contracts contained discounts in violation of the federal Anti-Kickback Statute.

There can be no assurance that investigations or legal action related to our contracting practices will not be pursued against us. If we are found to have violated the Anti-Kickback Statute, we may be subject to civil or criminal penalties, including exclusion from the Medicare or Medicaid programs, or may be required to enter into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements require substantial payments to the government in exchange for the government to release its claims, and may also require us to enter into a Corporate Integrity Agreement (“CIA”).

In addition to our contracts with healthcare facilities, other marketing practices or transactions entered into by us may implicate the Anti-Kickback Statute. Although we have attempted to structure our past and current marketing initiatives and business relationships to comply with the Anti-Kickback Statute, we cannot assure you that the OIG of the DHHS or other authorities will not find that our marketing practices and relationships violate the statute.

If we fail to comply with the terms of our settlement agreements with the government, we could be subject to additional litigation or other governmental actions which could be harmful to our business.

In the last three years, we have entered into two settlement agreements with the United States government. In October 2005, one of our subsidiaries, Sioux Falls Ambulance, Inc., entered into a settlement agreement to resolve allegations related to billing and documentation practices. As part of the settlement Sioux Falls Ambulance entered into with the government, we entered into a CIA, which is still in effect, and a settlement payment of $0.5 million. Pursuant to this CIA, we are required to establish and maintain a compliance program with respect to the Sioux Falls operation which includes, among other elements, the appointment of a compliance officer and committee, review by an independent review organization, and reporting of overpayments and other “reportable events.”

In April 2007, we entered into a settlement agreement to resolve allegations that certain subsidiaries of Rural/Metro within the State of Texas provided discounts to healthcare facilities in Texas in periods prior to 2002 in violation of the federal Anti-Kickback Statute. In connection with the April 2007 settlement for Rural/Metro Corporation, we agreed to pay the government $2.5 million and we entered into a CIA which requires us to maintain a national compliance program which includes the appointment of a compliance officer and committee, the training of employees, safeguards involving our contracting process nationwide (including tracking of contractual arrangements in certain specified states) and review by an independent organization, and reporting of certain events.

We cannot assure you that the CIA’s or the compliance programs we have initiated have prevented, or will prevent, any repetition of the conduct or allegations that were the subject of these settlement agreements, or that the government will not raise similar allegations in other jurisdictions or for other periods of time. If such allegations are raised, or if we fail to comply with the terms of the CIA’s, we may be subject to fines and other contractual and regulatory remedies specified in the CIA’s or by applicable laws, including exclusion from the Medicare program and other federal and state healthcare programs. Such actions could have a material adverse effect on the conduct of our business, our financial condition or our results of operations.

HIPAA regulations could have a material adverse effect on our business either if we fail to comply with the regulations or as a result of the costs associated with compliance.

The privacy standards under HIPAA took effect April 14, 2001 and cover all individually identifiable health information used or disclosed by a healthcare provider. HIPAA establishes standards concerning the privacy, security and the electronic transmission of patients’ health information. Under the statute, there are civil penalties of up to $100 per violation (not to exceed $25,000 per calendar year for each type of violation) and criminal penalties for knowing violations of up to $250,000 per violation. The enforcing agency, the Office of Civil Rights (the “OCR”) of the Department of Health and Human Services, has announced a compliance-based and compliance improvement type of enforcement program. We believe there is not sufficient basis to understand OCR’s enforcement posture and the potential for fines which may result from OCR’s finding of a violation of the privacy regulations. The significant costs associated with compliance and the potential penalties could result in a material adverse effect on our business, financial condition, results of operations or cash flows.

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HIPAA also mandates compliance with the approved HIPAA format when we submit claims electronically. We are filing claims in the approved HIPAA format with all of our Medicare plans.

The final security rule, which became effective April 20, 2005, requires healthcare suppliers and other entities to set security standards for health information and to maintain reasonable and appropriate safeguards to ensure the integrity and confidentiality of this information. It also requires that we protect health information against unauthorized use or disclosure. Our failure to do so could result in a material adverse effect on our business, financial condition, results of operations or cash flows.

We could experience a material adverse effect on our business, financial condition, results of operations or cash flows due to: (i) significant costs associated with continued compliance under HIPAA or related legislative enactments; (ii) potential fines from our noncompliance; (iii) adverse effects on our collection cycle arising from non-compliance or delayed HIPAA compliance by our payers, customers and other constituents; or (iv) impacts to the healthcare industry as a whole that may directly or indirectly cause a material adverse affect on our business.

We may not be able to successfully recruit and retain paramedics and EMT professionals with the qualifications and attributes desired by us and our customers.

Our ability to recruit and retain paramedics and EMT professionals significantly affects our business. Due to the geographical and demographic diversity of the communities in which we serve, medical personnel shortages in some of our market areas can make the recruiting and retention of full-time personnel more difficult and costly. Moreover, we compete with other entities, both municipal and private, to recruit and retain qualified paramedics and EMTs to deliver our ambulance services. Failure to retain or replace our medical personnel or to attract new personnel, or the additional cost of doing so may have an adverse effect on our business, financial condition and results of operations.

Risks Related to Our Capital Structure

Our substantial indebtedness could adversely affect our financial condition and our ability to operate our business

We have a substantial amount of debt. In addition, subject to restrictions in the indenture governing our notes and the credit agreement governing our senior secured credit facility, we may incur additional debt.

Our substantial debt could have important consequences to you, including the following:

• It may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt;

• Our ability to obtain additional financing for working capital, capital expenditures, debt service requirements or other general corporate purposes may be impaired;

• We must use a significant portion of our cash flow for payments on our debt, which may reduce the funds available to reinvest in the company;

• We are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited; and

• Our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt.

Furthermore, the borrowings under our senior secured credit facility bear interest at variable rates. If these rates were to increase significantly, our debt service costs would increase and could have a potential material affect on our cash flows.

Servicing our debt will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.

Our business may not generate sufficient cash flow from operating activities. Our ability to make payments on and to refinance our debt and to fund planned capital expenditures will depend on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Lower net revenues generally will reduce our cash flow.

If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We cannot assure you that we could effect any of these actions on a timely basis, on commercially reasonable terms or at all, or that these actions would be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from effecting any of these alternatives.

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Restrictive covenants in our senior secured credit facility and the indenture governing our senior subordinated notes and senior discount notes may restrict our ability to pursue our business strategies.

Our 2005 Credit Facility and the indentures governing our senior subordinated notes and senior discount notes limit our ability, among other things, to:

• Incur additional debt or issue certain preferred stock;

• Pay dividends or make distributions to our stockholders;

• Repurchase or redeem our capital;

• Make investments;

• Incur liens;

• Make capital expenditures;

• Enter into transactions with our stockholders and affiliates;

• Sell certain assets;

• Acquire the assets of, or merge or consolidate with, other companies; and

• Incur restrictions on the ability of our subsidiaries to make distributions or transfer assets to us.

The restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities.

In addition, the credit agreement governing our 2005 Credit Facility requires us to meet certain financing ratios and restricts our ability to make capital expenditures or prepay certain other debt. We may not be able to maintain these ratios and have had, and in the future may need, to seek waivers or amendments relating to these ratios. Our 2005 Credit Facility and indentures also require us to provide financial statements and related reports within certain timeframes.

Our ability to comply with these covenants may be affected by events beyond our control, and any material deviations from our forecasts could require us to seek waivers or amendments of covenants, alternative sources of financing or reductions in expenditures. In the past, we have had to obtain waivers under our 2005 Credit Facility for the untimely filing of our financial statements with the SEC and certain defaults arising out of our conclusion that previously filed financial statements should no longer be relied upon. We cannot assure you that any waivers, amendments or alternative financings could be obtained, or, if obtained, would be on terms acceptable to us.

If a breach of any covenant or restriction contained in our financing agreements results in an event of default, those lenders could discontinue lending, accelerate the related debt (which would accelerate other debt) and declare all borrowings outstanding thereunder to be due and payable. In addition, the lenders could terminate any commitments they had made to supply us with additional funds. In the event of a default on our debt, we may not have or be able to obtain sufficient funds to make any accelerated debt payments, which could result in a reorganization of the Company.

The right to receive payments on the senior subordinated notes and guarantees of those notes is unsecured and subordinated to our senior debt, and this could result in situations where there are not sufficient funds available to make payment on the senior subordinated notes.

The senior subordinated notes are subordinated in right of payment to all senior debt of Rural/Metro LLC, including indebtedness under the 2005 Credit Facility. Payment on the guarantee of each guarantor of the senior subordinated notes is subordinated in right of payment to that guarantor’s senior debt, including its guarantee of Rural/Metro LLC’s obligations under the 2005 Credit Facility. The holders of senior debt will be entitled to be paid in full in cash before any payment may be made on the senior subordinated notes or the guarantees thereof, as the case may be. Rural/Metro LLC or a guarantor, as the case may be, may not have sufficient funds to pay all its creditors, and holders of the senior subordinated notes may receive less, ratably, than the holders of senior debt, including the lenders under the 2005 Credit Facility, and due to the turnover provisions in the indenture governing the senior subordinated notes less, ratably, than the holders of unsubordinated obligations, including trade payables.

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The senior subordinated notes are effectively subordinated to claims of Rural/Metro LLC’s secured creditors and the guarantees of each guarantor are effectively subordinated to the claims of the existing and future secured creditors of that guarantor to the extent of the value of the property securing such debt. Rural/Metro LLC’s obligations under the 2005 Credit Facility will be secured by liens on all or substantially all of their, our and Rural/Metro LLC’s and its subsidiaries’ assets. At December 31, 2006, Rural/Metro LLC had $100.0 million aggregate principal amount of secured debt outstanding and the capacity to borrow an additional $20.0 million under the 2005 Credit Facility and to have up to $45.0 million in letters of credit issued, all of which (if drawn, in the case of letters of credit) would be secured senior debt and effectively senior to the senior subordinated notes in right of payment to the extent of the value of the assets securing such debt, as well as by virtue of its ranking.

Rural/Metro Corporation is the sole obligor of the senior discount notes, and our subsidiaries do not guarantee our obligations under the senior discount notes or have any obligation with respect to the senior discount notes; consequently, the senior discount notes are structurally subordinated to the debt and liabilities of our subsidiaries.

The senior discount notes are structurally subordinated to all debt and liabilities (including trade payables) of our subsidiaries. Holders of our senior discount notes will participate with all other holders of our indebtedness in the assets remaining after our subsidiaries have paid all their debts and liabilities. Our subsidiaries may not have sufficient funds to make payments to us, and holders of senior discount notes may receive less, ratably, than the holders of debt of our subsidiaries and other liabilities. Accordingly, if our subsidiaries have their debt accelerated, we may not be able to repay our indebtedness under the senior discount notes. The indenture governing the senior discount notes contains a waiver by the trustee and holders of the senior discount notes of any rights to make a claim for substantive consolidation of us with any of our subsidiaries in any bankruptcy or similar proceeding. As of December 31, 2006, (i) on an unconsolidated basis, we had $62.9 million of senior indebtedness, consisting of the senior discount notes, but excluding the guarantee of borrowings under the 2005 Credit Facility and under the indenture for the senior subordinated notes and (ii) Rural/Metro LLC had $225.2 million of indebtedness, consisting of $100.0 million of borrowings under the 2005 Credit Facility, $125.0 million aggregate principal amount of the senior subordinated notes and $0.2 million of other debt. In addition, as of December 31, 2006, an additional $20.0 million would have been available for borrowing under the revolving credit portion of the 2005 Credit Facility.

We may not pay dividends.

We have never paid any cash dividends on our common stock. We currently plan to retain any earnings for use in our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our Board of Directors. Our senior subordinated notes due 2015, senior discount notes due 2016 and our 2005 Credit Facility contain restrictions on our ability to pay cash dividends, and any future borrowings may contain similar restrictions.

It may be difficult for a third party to acquire us and this could depress our stock price.

We are a Delaware company which has adopted a Shareholder Rights Plan pursuant to which we issued one preferred stock purchase right for each outstanding share of common stock. The rights will cause substantial dilution to a person or group that attempts to acquire us in a manner or on terms not approved by our Board of Directors. Consequently, our Shareholder Rights Plan could make it difficult for a third party to acquire us, even if doing so would benefit security holders. Certain anti-takeover provisions under Delaware law to which we are subject and certain provisions of our charter could also make it more difficult for a third party to acquire us. The anti-takeover effects of these provisions and those of our Shareholder Rights Plan could depress our stock price and may result in the entrenchment of existing management, regardless of their performance.

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Item 4. Submission of Matters to a Vote of Security Holders

We held our annual meeting of stockholders in Scottsdale, Arizona, on December 1, 2006, and adjourned until December 11, 2006, when it concluded. The matters before the meeting were:

• The election of two directors to serve a three-year term or until their successors are elected; and

• The ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2007.

The following individuals were elected at the annual meeting as directors to serve a three-year term or until their respective successors are duly elected and qualified:

Election of Directors	For	Withheld	Abstentions	Broker Non-Votes
Cor J. Clement, Sr.	12,240,026	2,010,858	—	—
Henry G. Walker	12,241,186	2,009,698	—	—

In addition, Class I Directors (Jack E. Brucker, Mary Anne Carpenter and Conrad A. Conrad) and Class II Directors (Louis G. Jekel and Robert E. Wilson) continued their respective terms of office following the 2006 annual meeting of stockholders.

The following individuals were not elected as directors at the annual meeting:

Election of Directors	For	Withheld	Abstentions	Broker Non-Votes
Gabe Hoffman	5,559,039	64,724	—	—
Nicole Viglucci	5,558,742	65,021	—	—

Our stockholders ratified the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2007. Votes totaled 19,785,896 for, 75,546 against, 13,204 abstentions and no broker non-votes.

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Item 5. Other Information

Effective March 22, 2007, we entered into a change of control agreement with Kristine B. Ponczak, Senior Vice President and Chief Financial Officer. The agreement provides benefits upon the occurrence of both of two triggering events: (i) a change of control; and (ii) within two years after the change in control, the surviving entity or individuals in control terminate Ms. Ponczak’s employment without cause, or Ms. Ponczak terminates employment for good reason. Upon the occurrence of both triggers, but subject to the limitation described in the last sentence of this paragraph, Ms. Ponczak will receive a sum equal to (A) 200% of (i) her annual base salary, and (ii) the amount of incentive compensation paid or payable to her during the calendar year preceding the calendar year in which the change of control occurs, plus (B) the full amount of any payments due under her employment agreement. The agreement further provides that Ms. Ponczak is entitled to receive certain benefits, including the acceleration of exercisability of stock options or the payment of the value of such stock options in the event they are not accelerated or replaced with comparable options. Health and other benefits received under the change of control agreement will be reduced or eliminated to the extent such benefits are received under an employment agreement. The aggregate payment may not exceed 2.99 times the amount of annualized includable compensation received by Ms. Ponczak as determined under the Internal Revenue Code.

For purposes of the change of control agreement, “good reason” includes a reduction of duties and/or salary, the surviving entity’s failure to assume the executive’s employment and change of control agreement, or relocation of more than 50 miles from the current corporate headquarters. A “change of control” includes (i) the acquisition of beneficial ownership by certain persons, acting alone or in concert with others, of 30% or more of the combined voting power of the Company’s then-outstanding voting securities; (ii) during any two-year period, the Board members at the beginning of such period cease to constitute at least a majority thereof (except that any new Board member approved by at least two-thirds of the Board members then still in office, who where directors at the beginning of such period, is considered to be a member of the current Board); or (iii) approval by the Company’s stockholders of certain reorganizations, mergers, consolidations, liquidations, or sales of all or substantially all of our assets.

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Item 6. Exhibits

Exhibits

10.1	Amendment No. 5, dated as of January 18, 2007 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. (1)
10.2	Waiver, dated March 13, 2007, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. (2)
10.3	Change of Control Agreement by and between the Registrant and Kristine B. Ponczak, dated March 20, 2007. (3) **
18.1	Preferability Letter from PricewaterhouseCoopers LLP (3)
31.1	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended *
31.2	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended *
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 +
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 +

⁽¹⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on January 23, 2007.

⁽²⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on March 19, 2007.

⁽³⁾ Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on March 23, 2007.

* Filed herewith.

** Management contracts or compensatory plan or arrangement.

+ Furnished but not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RURAL/METRO CORPORATION
Dated: November 14, 2007
	By:	/s/ Jack E. Brucker
		Jack E. Brucker, President & Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Kristine Beian Ponczak
		Kristine Beian Ponczak, Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Gregory A. Barber
		Gregory A. Barber, Vice President and Controller (Principal Accounting Officer)

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Exhibit Index

10.1	Amendment No. 5, dated as of January 18, 2007 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. (1)
10.2	Waiver, dated March 13, 2007, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. (2)
10.3	Change of Control Agreement by and between the Registrant and Kristine A. Beian-Ponczak, dated March 20, 2007. (3) **
18.1	Preferability Letter from PricewaterhouseCoopers LLP (3)
31.1	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
31.2	Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+

⁽¹⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on January 23, 2007.

⁽²⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on March 19, 2007.

⁽³⁾ Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on March 23, 20007.

* Filed herewith.

** Management contracts or compensatory plan or arrangement.

+ Furnished but not filed.

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