<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   Form 10-QSB

(Mark One)
[ X ]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

                         For the quarterly period ended
                                  June 30, 2002

                                       OR

[   ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission file No.       0-20870

                     Security Associates International, Inc.
             (Exact name of Registrant as specified in its charter)

Delaware                                     87-0467198
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)               Identification No.)


        2101 South Arlington Heights Road, Suite 150, Arlington Heights,
                               Illinois 60005-4142
           (Address of principal executive office, including zip code)

                                 (847) 956-8650
              (Registrant's telephone number, including area code)

Check whether the Registrant: (1) 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  [   ]

As of August 13, 2002 the Registrant had outstanding 9,161,684 shares of its
$.001 par value common stock.

<PAGE>

                     Security Associates International, Inc.

                     For the Six Months ended June 30, 2002



                                      INDEX


<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION                                                       PAGE
                                                                                     ----
<S>                                                                                  <C>
Item 1      Consolidated Financial Statements..........................................3

            Consolidated Balance Sheets as of June 30, 2002
            and December 31, 2001......................................................3

            Consolidated Statements of Operations for the three months and the
            six months ended June 30, 2002 and 2001....................................4

            Consolidated Statements of Cash Flows for the six months
            ended June 30, 2002 and 2001...............................................5

            Notes to Consolidated Financial Statements.................................6


Item 2      Management's Discussion and Analysis or Plan of Operation..................9

Part II - OTHER INFORMATION

Item 1      Legal Proceedings..........................................................15

Item 2      Changes in Securities and Use of Proceeds..................................16

Item 3      Defaults Upon Senior Securities............................................16

Item 4      Submission of Matters to a Vote of Security Holders........................16

Item 5      Other Information..........................................................16

Item 6      Exhibits and Reports on Form 8-K...........................................17


SIGNATURES  ...........................................................................18
</TABLE>


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

    Item 1.  Consolidated Financial Statements
                     SECURITY ASSOCIATES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              (UNAUDITED)
    ASSETS                                                   JUNE 30, 2002    DECEMBER 31, 2001
<S>                                                          <C>              <C>
    CURRENT ASSETS:
    Cash                                                      $    272,895      $  5,459,055
    Restricted cash                                                405,000           355,000
    Accounts receivable, net                                     2,423,556         2,254,491
    Other current assets                                           415,191           356,539
                                                              ------------------------------
               Total current assets                              3,516,642         8,425,085
                                                              ------------------------------

    FIXED ASSETS, net                                            4,300,655         4,557,801

    Goodwill, net                                               20,717,698        20,717,698
    Other long-term assets, net                                    500,000           500,000
                                                              ------------------------------
               Total other long-term assets                     21,217,698        21,217,698

                                                              ------------------------------
               TOTAL ASSETS                                   $ 29,034,995      $ 34,200,584
                                                              ==============================


    LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES:
    Accounts payable                                          $  1,026,602      $  1,139,179
    Amounts due under settlement agreement                       2,500,000               -
    Current maturities of long -term debt                        2,437,265         3,604,231
    Accrued interest                                               210,758           788,602
    Accrued expenses                                             3,930,883         3,735,528
    Unearned revenue                                               209,207           199,443
                                                              ------------------------------
               Total current liabilities                        10,314,715         9,466,983
                                                              ------------------------------

    LONG-TERM LIABILITIES:
    Long-term debt, net of current maturities                   18,866,748        20,242,710
    Other long-term liabilities                                    224,276           353,281
                                                              ------------------------------
               Total long-term liabilities                      19,091,024        20,595,991
                                                              ------------------------------
               Total liabilities                                29,405,739        30,062,974
                                                              ------------------------------

    COMMITMENTS AND CONTINGENCIES                                      -                 -

    STOCKHOLDERS' EQUITY:
    Series A convertible preferred stock, $10 par value;
    149,786 shares authorized, 149,459 shares outstanding
    on June 30, 2002 and December 31, 2001                       1,494,590         1,494,590
    Series B convertible preferred stock, $10 par value,
    20,000 shares authorized; 20,000 shares outstanding
    on June 30, 2002 and  December 31, 2001                        200,000           200,000
    Common stock, $.001 par value; 50,000,000 shares
    authorized; 9,161,684 shares outstanding on
    June 30, 2002 and December 31, 2001                              9,162             9,162
    Warrants, net                                                3,711,137         3,711,137
    Additional paid-in capital                                  41,968,436        41,892,013
    Note receivable from issuance of common stock                 (840,000)         (900,000)
    Accumulated deficit                                        (46,914,069)      (42,269,292)
                                                              ------------------------------
               Total stockholders' equity                         (370,744)        4,137,610

                                                              ------------------------------
               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 29,034,995      $ 34,200,584
                                                              ==============================
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                     SECURITY ASSOCIATES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                      (UNAUDITED)          (UNAUDITED)          (UNAUDITED)          (UNAUDITED)
                                                  THREE MONTHS ENDED   THREE MONTHS ENDED    SIX MONTHS ENDED     SIX MONTHS ENDED
                                                     JUNE 30, 2002        JUNE 30, 2001        JUNE 30, 2002        JUNE 30, 2001

<S>                                               <C>                  <C>                   <C>                  <C>
Net revenue                                          $  4,756,050         $  5,220,253         $  9,836,266         $ 10,600,446
Operating unit expense                                  3,439,243            4,105,823            7,556,421            8,236,582
                                                     ---------------------------------------------------------------------------
    Operating unit margin                               1,316,807            1,114,430            2,279,845            2,363,864
                                                     ---------------------------------------------------------------------------

Amortization and depreciation                             298,451            1,045,068              620,769            2,118,801
General and administrative                              2,530,897            1,082,859            3,602,867            1,883,977
Sales and marketing                                       353,937              534,469              631,412            1,054,073
Acquisition and other related expenses                        -              1,022,290                  -              1,022,290
Restructuring expenses                                        -                    -                536,597                  -
                                                     ---------------------------------------------------------------------------
    Total expenses                                      3,183,285            3,684,686            5,391,645            6,079,141
                                                     ---------------------------------------------------------------------------
    Loss from operations                               (1,866,478)          (2,570,256)          (3,111,800)          (3,715,277)
Interest expense, net                                    (722,877)            (771,844)          (1,532,977)          (1,868,798)
                                                     ---------------------------------------------------------------------------
   Loss before taxes                                   (2,589,355)          (3,342,100)          (4,644,777)          (5,584,075)
Provision for income taxes                                    -                    -                    -                    -
                                                     ---------------------------------------------------------------------------
   Net loss available to common stockholders         $ (2,589,355)        $ (3,342,100)        $ (4,644,777)        $ (5,584,075)
                                                     ===========================================================================
Net loss per share                                         ($0.28)              ($0.43)              ($0.51)              ($0.72)
                                                     ===========================================================================

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                               9,161,684            7,754,079            9,161,684            7,754,079
                                                     ===========================================================================
</TABLE>



        The accompanying notes are an integral part of these statements.



                                       4
<PAGE>

                     SECURITY ASSOCIATES INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     (UNAUDITED)       (UNAUDITED)
                                                                                     SIX MONTHS        SIX MONTHS
                                                                                        ENDED             ENDED
                                                                                    JUNE 30, 2002     JUNE 30, 2001
<S>                                                                                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
            Net loss                                                                $ (4,644,777)     $ (5,584,075)
Adjustments to reconcile net loss to net cash used
            for operating activities-
                Amortization and depreciation                                            620,769         2,118,801
                Original issue discount amortization                                     231,000           181,433
                Net issuance of common stock for dealers and employees                       -              22,770
                Impairment of fixed assets                                               536,597               -
                Amortization of warrants and stock issued under dealer stock
                      incentive plan                                                      76,423           123,008
                Write-off of acquisition expenses                                            -           1,022,290
                Changes in assets and liabilities-
                   Accounts receivables, net                                            (169,065)          221,920
                   Other current assets                                                  (58,652)         (259,793)
                   Accounts payable                                                     (112,577)       (1,288,178)
                   Accrued expenses, net of reclass due to settlement agreement          242,135           (96,918)
                   Accrued interest, net of reclass due to settlement agreement           75,376           287,768
                   Other long-term liabilities                                          (129,005)              -
                   Unearned revenue                                                        9,764           (31,313)
                                                                                    ------------------------------
                   Net cash used for operating activities                             (3,322,012)       (3,282,287)

CASH FLOWS FROM INVESTING ACTIVITIES:
            Purchase of fixed assets                                                    (900,220)         (656,917)
            Note receivable KC Acquisition Corp.                                             -            (667,504)
            Advance to KC Acquisition Corp.                                                  -            (500,000)
                                                                                    ------------------------------
                   Net cash used for investing activities                               (900,220)       (1,824,421)

CASH FLOWS FROM FINANCING ACTIVITIES:
            Proceeds from issuance of capital stock                                       60,000
            Write-off of FINOVA financing expenses                                           -             456,257
            Debt issuance deposit                                                            -            (500,000)
            Original issue discount paid                                                     -          (2,122,800)
            Payment of debt                                                             (973,928)      (16,583,080)
            Amounts due under settlement agreement                                     2,500,000               -
            Reclassification of debt due in SAFE settlement agreement                 (1,800,000)              -
            Reclassification of accrued interest & other expenses under
                      settlement agreement                                              (700,000)              -
            Proceeds from debt                                                               -          24,652,800
                                                                                    ------------------------------
                   Net cash (used for) provided by financing activities                 (913,928)        5,903,177

(DECREASE) INCREASE IN CASH                                                           (5,136,160)          796,469
CASH AND RESTRICTED CASH,  Beginning of Period                                         5,814,055            53,115
                                                                                    ------------------------------

CASH AND RESTRICTED CASH, End of Period                                             $    677,895      $    849,584
                                                                                    ==============================
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       5
<PAGE>

                     SECURITY ASSOCIATES INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

NOTE 1.  BASIS OF PRESENTATION

         The accompanying financial statements have been prepared by Security
Associates International, Inc. (SAI) without an audit, in accordance with
generally accepted accounting principles for interim financial information and
in compliance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. When SAI submitted the financial
statements included in SAI's Form 10-KSB filed on April 16, 2002, SAI had
suffered recurring losses from operations and had a net working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern.

         The results of operations for the six-month period ended June 30, 2002
are not necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with SAI's
financial statements and related notes in SAI's 2001 Annual Report on Form
10-KSB filed with the Securities and Exchange Commission.

         SAI's loss from operations for the six months ended June 30, 2002
decreased to $3,111,800 from $3,715,277 for the six months ended June 30, 2001.
The loss from operations for the six months ended includes a charge of $536,597
that relates to additional fixed assets identified in 2002 relating to the
restructuring plan announced in 2001 as well as a charge of $1,801,508 relating
to an incentive compensation program for certain executives and consultants. See
"Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources." As a result of this loss from operations, net cash used in
operating activities for the six months ended June 30, 2002 totaled $3,322,012.
SAI currently anticipates that it will continue to use cash in its operating
activities, however at a reduced rate.

         During the third quarter of 2001, management commenced a strategic
review of SAI's business operations and its corporate organizational structure
with a view to developing a business strategy that would place SAI in a stronger
position to deal with the changing business environment and challenges facing
SAI's core operations. The objectives of the review were to set out a plan to
realign the entire structure of the business operations in order to create a
more profitable, efficient organization with significantly improved marketing,
selling and servicing capabilities supported by upgraded management information
systems. The initial effects of the consolidation were realized in the three
months ended June 30, 2002. Operating unit margins for the three months ended
June 30, 2002 improved when compared to the same period of 2001 by $202,377.

                                       6
<PAGE>

         SAI currently anticipates that the Company will use approximately
$8,000,000 in cash during 2002, which includes approximately $2,266,000 in
principal repayments, capital expenditures of approximately $1,000,000, payments
relating to restructuring, severance and other related items range between
$1,400,000 and $1,500,000, and incentive compensation payments of approximately
$900,000. In addition, the aforementioned $8,000,000, includes SAFE settlement
payments of approximately $1,000,000 in cash and the remainder of the settlement
of approximately $700,000 will be satisfied by applying amounts due from SAFE
for past and future services. During the six months ended June 30, 2002, SAI
used approximately $2,748,000 in cash, relating to these items. Principal
payments amounted to approximately $974,000, capital expenditures amounted to
approximately $900,000 and restructuring, severance and other related items,
amounted to approximately $874,000.

         Cash used in investing activities for the six months ended June 30,
2002 amounted to $900,220. The cash was used to purchase fixed assets
principally related to SAI's ongoing central station upgrades and the new "web"
application that gives our dealers access to mission critical information on
their respective customers (subscribers).

         Cash used by financing activities for principal repayments on the
McGinn, Smith Acceptance Corp ("McGinn") financing agreement amounted to
$973,928 during the six months ended June 30, 2002. See "Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources."


NOTE 2.  RESTRICTED CASH

         Restricted cash at June 30, 2002 totaled $405,000, which represents the
principal and accrued interest due on the notes payable to McGinn at June 30,
2002. This amount was paid to McGinn on July 1, 2002. McGinn controls SAI's
lockbox and one cash account. The McGinn agreement calls for cash receipts,
beginning with the first business day of each month, to be set aside as unusable
funds. Once the cash balance in the account reaches 125% of the next month's
principal and interest payment due on the debt, SAI can use any amount that
exceeds the monthly cash requirement for general corporate purposes.

NOTE 3.  STATEMENTS OF CASH FLOWS

         The supplemental schedule of non-cash activities for the six months
ended June 30, 2002 and 2001, includes the following:

                                                        2002           2001
                                                        ----           ----

Supplemental schedule of cash flow information
    Cash paid during the period for interest         $1,296,074     $1,018,485


NOTE 4.  EARNINGS PER SHARE

         Basic earnings per share are calculated using the weighted average
number of shares outstanding during each period. Stock options, warrants and
convertible preferred stock have not been included in the calculation of net
loss per share as their effect would be antidilutive.


                                       7
<PAGE>

NOTE 5.  STOCK AND OPTIONS ISSUED

         During the three months ended June 30, 2002, SAI issued no shares of
common stock or stock options.

NOTE 6.  RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2001, The Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations". SFAS No. 141 supercedes prior guidance
and requires that all business combinations in the scope of this statement be
accounted for using the purchase method. The provisions of this statement apply
to all business combinations initiated after June 30, 2001, as well as business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001, or later. SAI adopted this statement as required on
July 1, 2001, and it did not have a material affect on the financial statements.

         In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 supercedes prior guidance and requires that
goodwill no longer be amortized to earnings, but instead be annually reviewed
for impairment. The impairment test under SFAS No. 142 is based upon a two-step
process involving: (i) comparing the estimated fair value of the related
reporting unit to its net book value, and (ii) comparing the estimated implied
fair value of goodwill to its carrying value. SAI has elected to adopt SFAS No.
142 in the first quarter of 2002. Accordingly, SAI did not record amortization
expense in 2002 based upon the amount of goodwill at December 31, 2001.

         Certain acquired intangible assets will not be reclassified and are
accounted for apart from goodwill upon transition to SFAS No. 142. FASB Staff
Announcement Topic No. D-100 states that the transition provisions do not allow
entities to "carve-out" from goodwill any intangible assets not identified and
measured at fair value in the initial rendering of a business combination and
subsequently accounted for separately from goodwill. SAI recognized its
relationships with its dealers, evidenced by dealer service agreements, and
goodwill as a single asset labeled "Goodwill". SAI has amortized the combined
assets over their useful lives ranging from three to fifteen years. According to
SFAS No. 142, a goodwill impairment loss is measured as the excess of the
carrying amount of goodwill (which includes the carrying value of the acquired
intangible assets) over the implied fair value of goodwill (which excludes the
fair value of the acquired intangible assets.) Thus, a future measured goodwill
impairment loss may be substantially larger than it would have been had the
acquired intangible assets been initially recognized apart from goodwill.

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long Lived Assets". Consistent with prior guidance,
SFAS No. 144 continues to require a three-step approach for recognizing and
measuring the impairment of assets to be held and used. Assets to be sold must
be stated at the lower of the assets carrying amount or fair value and
depreciation is no longer recognized. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected
to have a material impact on SAI's financial position or results of operations.


                                       8
<PAGE>

NOTE 7.  ACCOUNTING CHANGE

         SAI elected to adopt SFAS No. 142, "Goodwill and Other Intangible
Assets" in the first quarter of 2002. Accordingly, SAI will not record
amortization expense in fiscal 2002 based on the level of goodwill as of
December 31, 2001.

         A reconciliation of net loss and earnings per share, adjusted to
exclude amortization expense, net of tax, for the period prior to adoption and
the cumulative effect of the accounting change recognized in the current period,
is as follows:

<TABLE>
<CAPTION>
                              Three Months Ended                  Six Months Ended
                         -----------------------------     -----------------------------
                           June 30,         June 30,         June 30,         June 30,
                             2002             2001             2002             2001
                         ------------     ------------     ------------     ------------
<S>                      <C>              <C>              <C>              <C>
Net loss as reported     $(2,589,355)     $(3,342,100)     $(4,644,777)     $(5,584,075)
Amortization                   -              655,718            -            1,364,902
                         --------------------------------------------------------------
Adjusted net loss        $(2,589,355)     $(2,686,382)     $(4,644,777)     $(4,219,173)
                         ==============================================================
</TABLE>



<TABLE>
<CAPTION>
                                       Three Months Ended           Six Months Ended
                                     ----------------------      ----------------------
                                     June 30,      June 30,      June 30,      June 30,
                                       2002          2001          2002          2001
                                     --------      --------      --------      --------
<S>                                  <C>           <C>           <C>           <C>
Net loss per share as reported        $(0.28)       $(0.43)       $(0.51)       $(0.72)
Amortization                            -              .08          -              .18
                                     --------------------------------------------------
Adjusted net loss per share           $(0.28)       $(0.35)       $(0.51)       $(0.54)
                                     ==================================================
</TABLE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         Some of the information in this Quarterly Report may be forward-looking
statements under the federal securities laws. Such statements often contain
words such as "anticipates," "intends," "seeks," "believes," "estimates,"
"plans," and "expects." These statements discuss expectations for the future,
contain projections concerning the results of our operations or our future
financial condition or state other forward-looking information. Such statements
are subject to a number of risks and uncertainties. Our actual results,
performance or achievements could differ substantially from the results
expressed in, or implied by, those statements. We assume no responsibility for
revising forward-looking statements in light of future events or circumstances.
Certain of these risks and uncertainties which could affect us and our forward
looking statements can be found in the "Risk Factors" section in our Annual
Report on Form 10-KSB for the fiscal year ended 2001.


                                       9
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

         Net revenues for the three months ended June 30, 2002 decreased 8.9 %
to $4,756,050 from $5,220,253 for three months ended June 30, 2001. Net revenues
for the six months ended June 30, 2002 decreased 7.2 % to $9,836,266 from
$10,600,446 for six months ended June 30, 2001. The decline in net revenue for
both periods was primarily due to a decrease in the number of dealer accounts
monitored in SAI's central stations, partially offset by increases in the
average monthly recurring revenue per account monitored. The decline in the
number of accounts monitored reduced revenue by $670,587 and $1,195,635 for the
three months and six months ended June 30, 2002, respectively, when compared to
the prior periods. The increase in the average monthly revenue per account
monitored offset these decreases by increasing revenue by $206,384 and $431,455
for the three months and six months ended June 30, 2002, respectively, when
compared to the prior periods. During the three and six months ended June 30,
2002, SAI experienced a 5.6% and 9.6% attrition rate respectively in the number
of accounts monitored in its central stations. The increase in the attrition
rate is principally due to cancellations, which occurred during the
consolidation that SAI conducted in the first half of 2002. The consolidation is
now substantially complete.

         Operating unit expenses for the three months ended June 30, 2002
decreased by 16.2% to $3,439,243 from $4,105,823 for the three months ended June
30, 2001. This reduction of $666,580 was principally due to the impact of SAI's
consolidation effort. Operating unit expenses for the six months ended June 30,
2002 decreased by 8.3% to $7,556,421 from $8,236,582 for the six months ended
June 30, 2001. Several one-time type expenses were incurred during the six
months ended June 30, 2002. These one-time type expenses were incurred to
facilitate SAI's central station consolidation effort, which is designed to
increase operating margins by increasing the average number of accounts
monitored by each central station operator. Included in the operating expenses
are stay bonuses of approximately $114,000 and operator travel and other related
expenses of approximately $64,000 for hiring, training and transitioning
accounts during the consolidation to existing host locations.

         Amortization and depreciation expenses for the three-month period ended
June 30, 2002 decreased by $746,617 to $298,451 from $1,045,068. Amortization
and depreciation expenses for the six months ended June 30, 2002 decreased
$1,498,032 to $620,769 from $ 2,118,801. The decrease is primarily due to SAI
adopting the SFAS No.142 whereby amortization for goodwill is no longer
amortized and charged to expense. Amortization expense for the three months and
six months ended June 30, 2001 was $655,718 and $1,364,902, respectively.

         General and administrative expenses for the three months ended June 30,
2002 increased by $1,448,038 to $2,530,897 from $1,082,859 for the same period
of the prior year. General and administrative expenses for the six months ended
June 30, 2002 increased by $1,718,890 to $3,602,867 from $1,883,977. This
increase is primarily due to an accrual in the amount of $1,801,508 relating to
incentive compensation earned by certain members of management and consultants
under agreements they have with the SAI. See "Management's Discussion and
Analysis or Plan of Operation - Liquidity and Capital Resources." This increase
was partially offset by a decrease in expense as a result

                                       10
<PAGE>

of the realignment and downsizing of administrative and support services at the
company's headquarters operations in Arlington Heights, IL.

         Sales and marketing expense for the three months ended June 30, 2002
decreased $180,532 to $353,937 from $534,469. Sales and marketing expenses for
the six months ended June 30, 2002 decreased $422,661 to $631,412 from
$1,054,073. The reduction in these expenses is primarily attributed to
realignment of the personnel and a reduction in sales promotion expenses.

         Acquisition and other related charges of $1,022,290 for the three
months and six months ended June 30, 2001 are comprised of a $500,000 break-up
fee and the write-off of $522,290 of capitalized expenses related to the aborted
KC Acquisition transaction.

         Restructuring expense of $536,597 for the six months ended June 30,
2002 relates to additional impairment of fixed or long-lived assets which
included furniture, fixtures, and computer equipment identified for disposal in
2002 as a result of the restructuring plan discussed in our Annual Report on
Form 10-KSB for the fiscal year ended 2001.

         Interest expense for the three-month period ended June 30, 2002
decreased $48,967 to $722,877 from $771,844. The decrease is a result of SAI
entering into a settlement agreement with SAFE. Under the terms of the agreement
the $1,800,000 due SAFE no longer bears interest. See "Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources." Interest
expense for the six months ended June 30, 2002 decreased $335,821 to $1,532,977
from $1,868,798. The decrease is due to the write-off of the FINOVA Capital
Corporation financing expense of $456,257 in the six-month period ended June 30,
2001. This decrease was offset by an increase in interest expense due to the
McGinn financing agreement, which was completed during the first quarter of
2001. As of June 30, 2002, SAI had total debt of $21,304,013 compared to total
debt of $23,846,941 as of December 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

         During the first two quarters of 2002, SAI experienced a $5,136,160
decrease in its cash balance. The decrease was the result of cash used in
operating activities in the amount of $3,322,012, the purchase of fixed assets
in the amount of $900,220 and the payment of principal on the McGinn financing
agreement of $973,928 offset by proceeds from issuance of capital stock in the
amount of $60,000 relating to amounts due from KC Acquisition under it's
obligations due the company.

         On June 30, 1999, SAI sold its portfolio of 27,000 retail subscriber
accounts to Security Alarm Financing Enterprises ("SAFE") for $22,800,000. At
that time, SAI also entered into an agreement to refer additional purchase and
loan transactions during a specified period following the sale. If certain
minimum performance criteria were satisfied, a note to SAFE in the amount of
$1,800,000 bearing 8% interest was to have been deemed paid in full. A dispute
arose as to: (1) whether SAI had fulfilled its obligations under the agreement,
and (2) whether SAFE met all of its contractual commitments. SAI and SAFE have
entered into a binding arbitration process before the American Arbitration
Association in regard to these matters. SAFE filed its claim on July 3, 2001,
and SAI filed its response on August 1, 2001. SAFE claimed $2,500,000 as
principal and interest on the note (through April 15, 2002) plus $3,000,000 in
additional damages based on various other breaches of the asset purchase
agreement, relating to

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<PAGE>

reprogramming expenses and the adequacy of SAI's disclosures in addition to
unspecified consequential damages. SAI asserted that no amount is due under the
note and that SAI did not breach any of the provisions of the asset purchase
agreement as to which SAFE had made claims. SAI counterclaimed and was seeking
in excess of $2,000,000 in damages based on SAFE's breaches of its obligations
under the asset purchase agreement in failing to use SAI's central stations as
SAFE's preferred provider of monitoring services, failure to abide by certain
conditions related to SAI's monitoring agreement and failure to pay monitoring
and other fees.

         On June 11, 2002, SAI and SAFE settled all of the above claims for
$2,500,000. Of that amount, $1,800,000 will be paid by SAI in cash installments
over a twelve-month period. SAI will continue to monitor SAFE's accounts and the
parties have agreed that, rather than disburse funds to satisfy the amounts due
each other, the remainder of the settlement of $700,000 will be satisfied by
applying amounts due from SAFE for past and future services. At current revenue
levels the remaining $700,000 will be satisfied by November 2002. Additionally,
SAI must continue to reprogram accounts on to a telephone line owned by SAFE by
October 2002. The costs of such reprogramming expenses have been previously
provided for by SAI.

         SAI's total debt at December 31, 2001, was $23,846,941 compared to
$21,304,013 at June 30, 2002, a decrease of $2,542,928 which is comprised of
principal payments of $973,928 offset by amortization of the original issue
discount of $231,000 on the McGinn financing agreement and the reclassification
of the SAFE note of $1,800,000 to "Amounts due under settlement agreement". The
McGinn financing agreement contains certain covenants, including required
amounts of recurring monthly revenue ("RMR") and cash collections.

         During the third quarter of 2001 and the first and second quarter of
2002, SAI was not in compliance with certain covenants contained in the McGinn
financing agreement. The agreement required that the monitoring contracts used
to collateralize the financing must yield a defined level of RMR and a defined
level of cash collections. SAI obtained amendments or received waivers for the
covenants described above, which set out new minimum requirements or waived the
event of default. Under the most recent amendment, SAI must maintain an average
$1,600,000 RMR and required cash collections of $1,500,000 per month throughout
the term of the agreement. Currently, these monitoring contracts yield
approximately $1,590,000 RMR. As such, in June of 2002, we fell below the
minimum RMR covenant by approximately $10,000 and the minimum cash collection
requirement covenant by $153,800. We have asked for, and expect to receive a
reduction of the minimum RMR covenant and for a waiver of the minimum cash
collections requirement for the month of June, however, there can be no
assurance that a modification or a waiver will be obtained. If McGinn were to
declare a default under the loan, they may replace SAI as collection agent and
remove SAI as the central monitoring station, resulting in a loss of monitoring
fees and all associated net revenue after fees. We currently anticipate that as
a result of the consolidation and our affirmative actions to either correct or
cancel non-profitable accounts, it is likely that we may continue to fall below
the required RMR ($1,600,000 per month) and required cash collections
($1,500,000 per month) as required in accordance with the current amended
covenants. Management has undertaken the elimination of non-profitable accounts,
as it believes it will have a long-term positive effect on earnings, despite the
negative short-term impact on RMR and cash collections. However, management
believes it will obtain appropriate amendments or waivers for any future
violations in the loan covenants.

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<PAGE>

         In August 2001, the SAI's Board of Directors accepted and approved the
assignment of an agreement between Mr. Raymond Gross, Mr. Stephen Ruzika, Mr.
Paul Lucking and Mr. Thomas Salvatore. The agreement sets out that the first
three individuals would join SAI and hold the positions of Chief Executive
Officer, Vice Chairman of the Board and Chief Operating Officer, respectively.
In addition, the agreement also states that Mr. Salvatore would hold the
position of Chairman of the Board. These individuals, including Mr. Salvatore,
are charged with the responsibility of developing and executing a business
strategy designed to significantly improve SAI's overall financial condition,
strategic direction and growth objectives. In order to directly incentivize
these four individuals, SAI agreed to pay them collectively, in addition to
their base compensation and consulting fees, one hundred percent of the first
year's improvement in annualized Earnings Before Interest, Taxes, Depreciation,
and Amortization ("EBITDA") as measured for the quarter ended June 30, 2002,
versus the quarter ended June 30, 2001, with a "true-up" at December 31, 2002.
During the first quarter of fiscal 2002, SAI executed agreements with each of
the aforementioned individuals with respect to this incentive and their terms
and conditions of employment or consultancy. Included in the loss from
operations for the six months ended June 30, 2002 is a $1,801,508 charge
relating to the aforementioned incentive plan. Three of the four individuals
have agreed to accept notes from SAI in lieu of approximately one half of the
cash that will be due under this plan to them. These notes will accrue interest
at the rate of 11.5% per annum and will mature in March 2003. Additionally,
these individuals have further agreed that should SAI not be able to pay off the
notes on maturity, they will agree to extend the notes on terms to be agreed
upon at that time. The fourth individual has agreed to accept approximately
seventy-five percent of the payment due to him in the form of SAI common stock.
It is currently estimated that we will pay approximately $900,000 under this
plan during the third quarter of 2002.

         As of August 13, 2002, SAI has an unrestricted cash balance of
approximately $300,000. SAI believes that it will have the funds necessary to
satisfy operational obligations, such as the completion of the consolidation
plan, as well as normal course of business expenditures through the end of 2002,
but this may come into question if certain assumptions are not met. These
assumptions include: certain levels of revenue, which include new and cancelled
business, as well as telephone expenses and headcount reductions through
efficiencies in the three remaining facilities. However, without additional
capital injections or restructuring of existing debt payments, including
deferring existing principal payments on SAI's debt, the Company will not have
the ability to pay the EBITDA obligations to the management team or pay any
liability incurred as a result of the SAFE litigation. If SAI is unable to meet
these obligations, SAI may become a party to legal proceedings and our
operations may be adversely affected. In an effort to address the ongoing
liquidity needs described above, SAI is in discussions with TJS Partners, L.P.
(SAI's largest shareholder), our debt provider McGinn, certain key officers and
consultants, as well as other third parties regarding providing additional
capital resources or agreeing to defer payments which are due or may become due
during 2002. We are currently finalizing the documentation for a $3,000,000
revolving line of credit to be provided by TJS Partners, L.P. This line of
credit will allow us to borrow up to the $3,000,000 until June 30, 2003 and is
expected to bear interest at 11.5% per annum and will be due on July 1, 2003. To
date, TJS Partners, L.P. has advanced a total of $1,200,000 to SAI under this
yet to be finalized line of credit.

                                       13
<PAGE>

In connection with the line of credit, we are in the process of documenting an
agreement with McGinn, whereby the amount of the principal that we pay each
month for eighteen months will be reduced. The value of the reduced principal
payments over the eighteen months is approximately $1,580,000. There can be no
assurance, however, that the revolving line of credit or the reduction of the
monthly principal portion of our loan payments with McGinn will be consummated.
If these transactions are not consummated management believes it will not be
able to continue running operations at its current level. As previously stated
the four management individuals that are to receive bonuses based on the
increase in our EBITDA have agreed to accept notes or stock from SAI in lieu of
a majority of the cash payments due to them.

         On August 6, 2001, in a series of transactions with Foamart Limited and
SecurityVillage.com. accounted for as the issuance of various equity instruments
for cash and a note, SAI issued (a) 12,100 shares of Series A Preferred Stock
(convertible into 1,210,000 shares of SAI's common stock); (b) 1,210,000 shares
of SAI common stock; (c) warrants to purchase 1,815,000 shares of common stock
(at an exercise price of $3.50 per share), with lives of ten years; and (d)
assumed $1,100,000 of liabilities (of which $624,000 has been paid of this
liability through June 30, 2002) and issued 149,270 shares of common stock to
SecurityVillage.com employees for past services in exchange for $4,000,000 in
cash and a note receivable valued at $1,673,250. This note has matured and was
payable to SAI on December 31, 2001. In January 2002, this note was declared in
default and KC Acquisition Corp has made claims relating to the termination of
the proposed merger between SAI and KC Acquisition Corp that KC Acquisition Corp
believes nullifies the note receivable. SAI filed a counter-claim. Subsequently,
both parties have agreed to settle all claims against each other. KC Acquisition
Corp will pay to SAI $900,000 in installments of $20,000 per month beginning
April 15, 2002, through December 15, 2002, and will pay the balance of $720,000
on December 31, 2002. See the SAI's 2001 Annual Report on Form 10-KSB filed with
the Securities and Exchange Commission. As of this filing KC Acquisition has
made all the required payments to date.

         On October 3, 2001, SAI issued to EGI-Fund (01) Investors, L.L.C.,
20,000 shares of Series B Preferred Stock (convertible into 2,000,000 shares of
common stock) in exchange for $5,000,000 in cash and a warrant to purchase
2,500,000 shares of common stock at $2.50 per share with a life of four years in
exchange for $1,000.

         Expenses relating to the issue of the Series A and B Stock described
above amounted to approximately $495,000.

         SAI's loss from operations for the three months ended June 30, 2002
decreased to $2,589,355 from $3,342,100 for the three months ended June 30,
2001. The loss from operations for the three months ended June 30, 2002 includes
a charge of $1,651,508 relating to an incentive compensation program for certain
executives and consultants. See "Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources." The improvement in the loss from
operations is principally due to the impact in SAI's consolidation effort and
the realignment and downsizing of administrative and support services at the
company's headquarters and the adoption of SFAS No. 142 whereby amortization of
goodwill is no longer amortized and charged to expense. During the third quarter
of 2001, management of SAI commenced a strategic review of SAI's business
operations and its corporate organization structure with a view to developing a
business strategy that would place SAI in a stronger position to deal with the
changing business environment and

                                       14
<PAGE>

challenges facing SAI's core operations. The objectives of the review were to
set out a plan to improve the entire structure of the business operations in
order to create a more profitable, efficient organization with significantly
improved marketing, selling, and servicing capabilities supported by upgraded
management information systems. This review was completed during the fourth
quarter of 2001, and the implementation of a plan to consolidate our monitoring
centers to three facilities from six regional facilities commenced. As of June
30, 2002, the consolidation was principally complete, with the exception of
certain trailing redundant labor and telecommunications costs. Management
believes that these costs will be fully eliminated by the end of the third
quarter 2002. Notwithstanding the projected effects from the consolidation, SAI
currently anticipates that SAI will use approximately $8,000,000 in cash during
2002, which includes approximately $2,266,000 in principal repayments, capital
expenditures of approximately $1,000,000 and payments relating to restructuring,
severance and other related items range between $1,400,000 and $1,500,000, and
incentive compensation payments of approximately $900,000. In addition, the
aforementioned $8,000,000 includes SAFE settlement payments of approximately
$1,000,000 in cash and the remainder of the settlement of approximately $700,000
will be satisfied by applying amounts due from SAFE for past and future
services. During the six months ended June 30, 2002, SAI used approximately
$2,748,000 in cash relating to these items. Principal payments amounted to
approximately $974,000, capital expenditures amounted to approximately $900,000
and restructuring, severance and other related items, amounted to approximately
$874,000.

INFLATION

         Management does not believe that inflation had a significant impact on
its results of operations for the periods presented.

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings.

         On September 10, 1999, a Writ of Summons was issued against SAI North
Central Command Center, Inc., our wholly owned subsidiary, and Blair
Communications, Inc. (First Evangelical Lutheran Church vs. Blair
Communications, Inc. et al, No. 1999-04689 (Blair County, Pennsylvania)). The
case involves damages resulting from a fire at the First Evangelical Lutheran
Church. In June 2000, a complaint was filed asserting that SAI North Central was
liable for the damage to the church based on the theory that the installing
dealer was acting as SAI North Central's agent. Damages sought exceed
$4,000,000. SAI believes it has no liability in this matter and will vigorously
defend its position.

         On March 1, 2001, an amended Complaint against United Security Systems,
Inc., National Security Monitoring, United Video Security, Inc., Emergency
Response Center and Vector Security, was filed in the United States District
Court for the Eastern District of New York (CV 007487). Emergency Response
Center is an assumed name of one of our subsidiaries. The case involves damages
resulting from a fire at the Flushing Jewish Center, which occurred on December
5, 1996. The claim alleges breach of contract and breach of warranty by the
defendants in installing an alarm system that was inadequate and failing to
monitor or service the system. Damages sought are approximately


                                       15
<PAGE>

$1,000,000 which management believes will be fully covered by our insurance
should liability be found on our part. SAI will vigorously defend its position.

         On July 3, 2001, SAFE filed a claim with the American Arbitration
Association asserting certain claims associated with the sale of our retail
account portfolio to them in June of 1999 and SAI subsequently counterclaimed.
Subsequently both parties agreed to settle all claims against each other. See
"Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources."

         In January 2002, KC Acquisition Corp filed a complaint alleging certain
claims relating to the termination of the proposed merger between SAI and KC
Acquisition Corp including some that KC Acquisition believes nullifies the note
receivable. SAI filed a counter-claim. Subsequently both parties agreed to
settle all claims against each other. See "Management's Discussion and Analysis
or Plan of Operation - Liquidity and Capital Resources."

         From time to time we experience routine litigation in the normal course
of our business. We do not believe that any pending litigation will have a
material adverse affect on our financial condition or results of operations.

     Item 2. Changes in Securities and Use of Proceeds.

         None

     Item 3. Defaults Upon Senior Securities.

         During the third quarter of 2001 and the first and second quarter of
2002, SAI was not in compliance with two covenants contained in the McGinn
financing agreement. See "Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources."

         A dispute had arisen regarding a note issued by us to SAFE related to
the sale of assets by SAI to SAFE, which has been resolved in June of 2002. See
"Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources."

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

         There were no matters submitted to our security holders for a vote
during the second quarter of 2002.

     Item 5. Other Information.

         During August 2002, we dismissed Arthur Andersen LLP and engaged
McGladrey & Pullen, LLP as our independent audit firm.



                                       16
<PAGE>

     Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

None

(b) Reports on Form 8-K.

    We did not file any Current Reports on Form 8-K during the second quarter
of 2002.




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<PAGE>

                                   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.

                                        Security Associates International, Inc.

Date: August 14, 2002                   By: /s/ Raymond A. Gross
                                                Chief Executive Officer
                                                and President

                                        By: /s/ Karen B. Daniels
                                                Principal Financial Officer








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