<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   FORM 10-K

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

For the year ended December 31, 2000  Commission File Number 0-13617

                             LIFELINE SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

                    MASSACHUSETTS                          04-2537528
           (State or other jurisdiction of              (I.R.S. Employer
            incorporation or organization)             Identification No.)

111 LAWRENCE STREET, FRAMINGHAM, MASSACHUSETTS                      01702-8156
    (Address of principal executive offices)                        (Zip Code)

                                 (508) 988-1000
              (Registrant's telephone number, including area code)
              ----------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act:  NONE
Securities registered pursuant to Section 12(g) of the Act:

                          Common stock $0.02 par value
                          ----------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days.  Yes   X    No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [X]

As of February 28, 2001, 6,049,764 shares of the Registrant's Common Stock were
outstanding and the aggregate market value as of such date of such Common Stock
held by non-affiliates of the Registrant was approximately $81,701,000.

                               __________________

Exhibit index is located on pages 42 through 48 of this Report.
<PAGE>

                                     PART I


ITEM 1.  BUSINESS

  GENERAL

     Lifeline Systems, Inc. (the "Company") provides 24-hour personal response
  monitoring services to its subscribers, primarily elderly individuals with
  medical or age-related conditions as well as physically challenged
  individuals.  These subscribers communicate with the Company through products
  it designs and markets, consisting principally of a communicator which
  connects to the telephone line in the subscriber's home and a personal help
  button, which is worn or carried by the individual subscriber and which, when
  activated, initiates a telephone call from the subscriber's communicator to
  the Company's central monitoring facilities.  The Company believes it is a
  major provider of these services since it was monitoring approximately 313,000
  subscribers as of December 31, 2000 and estimates it serves, along with its
  customers, more than 400,000 subscribers in a North American personal
  emergency response services market estimated by the Company to serve between
  550,000 and 600,000 subscribers as of December 31, 2000.

  BUSINESS DEVELOPMENTS

     In February 2001, the Company signed a purchase and sale agreement to
  acquire the assets of SOS Industries, Inc., a personal response service
  provider with over 10,000 subscribers.  The transaction is expected to close
  in the second quarter of 2001.

     In September 2000, Lifeline Systems, Canada, a wholly owned subsidiary of
  the Company, completed the acquisition of the Argus Emergency Medical division
  of Microtec Enterprises Inc. of Quebec, Canada.  Argus provided personal
  response services similar to the services provided by the Company.  The
  purchase price was approximately $1.5 million of which $1.1 million was paid
  at the closing with the remainder to be paid during 2001 and 2002.  This
  acquisition was accounted for as a purchase transaction, and the resulting
  goodwill will be amortized over an estimated life of 10 years.

  INDUSTRY SEGMENTS

     The Company operates in one industry segment. Its operations consist of
  providing personal response services associated with those products it designs
  and markets.  Foreign revenues, from Canada, comprised less than 10% of the
  Company's total revenues in 2000, and the Company has no significant tangible
  assets in foreign countries.

  THE LIFELINE SERVICE

     The Company's principal offering, called LIFELINE(R), consists of a
  monitoring service utilizing equipment designed and marketed by the Company.
  The Company's monitoring service is a personal response service which provides
  24-hour monitoring and personalized support to elderly individuals with
  medical or age-related conditions and to physically challenged individuals
  throughout the United States and Canada.  Through use of the LIFELINE service,
  individuals in need of help are able to signal monitoring personnel in one of
  the Company's response centers.  These trained monitors identify the nature
  and extent of the subscriber's particular need and manage the situation by
  notifying

                                      -2-
<PAGE>

  the subscriber's friends, neighbors, and/or emergency personnel, as set forth
  in a predetermined protocol established by the subscriber. In many situations,
  this service can also provide social support for elderly individuals who live
  alone since trained monitoring personnel are often in daily contact with these
  elders, which can be an important social connection for them.

     The Company also provides its local programs with a comprehensive set of
  monitoring and business support services, which reduces the program management
  responsibilities and administrative burden on a local hospital or other
  provider associated with offering the Lifeline service.

     The equipment used for the LIFELINE service includes a communicator, which
  connects to the telephone line in the subscriber's home and a personal help
  button, which is worn or carried by the individual subscriber.  When pressed,
  the personal help button sends a radio signal to the communicator; the
  communicator automatically dials a response center where monitoring personnel
  answer the call and dispatch the designated responders, typically a friend or
  relative of the subscriber and/or emergency service, when help is needed.
  Most of the time, however, subscribers' calls do not require Lifeline to
  dispatch a responder but instead require Lifeline to provide reassurance and
  support as a result of the subscriber's isolation or loneliness.

     The Company's primary monitoring center in Framingham, Massachusetts is
  supported by its proprietary CareSystem call center platform.  This call
  center platform is a specially designed computer and telecommunications
  hardware and software system used to identify, track and respond to subscriber
  calls. CareSystem receives incoming signals from subscribers' communicators,
  matches and retrieves the appropriate subscriber data records from a central
  database, and routes both the call and the data record to monitoring personnel
  in the Lifeline Call Center.

     The Company offers its customers, typically healthcare providers which
  establish their own Lifeline programs, two alternatives for providing the
  LIFELINE monitoring service: they can utilize the Lifeline Call Centers to
  perform their monitoring or they can perform their own monitoring locally
  using equipment and software configured by the Company.  In 2001, the Company
  will be introducing a new version of equipment and software for customers who
  perform their own monitoring.  However, the Company encourages new providers,
  as well as providers who perform their own monitoring, to outsource their
  monitoring activities to a Lifeline Call Center to service their subscribers.
  Since the Lifeline Call Centers are dedicated to providing monitoring
  services, they offer benefits that might otherwise be unavailable to a
  customer.

  CUSTOMERS

     The Company primarily markets its services and products to hospitals and
  other service providers in a variety of healthcare related fields.  Hospitals,
  however, have historically been the Company's primary market.  The Company
  believes that hospitals offer Lifeline's services and products to capture
  revenues from the sale of the service, improve healthcare for the communities
  they serve, enhance community relations, market other hospital services to the
  subscriber base, and/or contain healthcare costs by facilitating early
  discharge from the hospital, reducing the need for nursing home care and
  thereby allowing subscribers to remain in their own homes.

  SALES AND MARKETING

     The Company sells its services and products through its sales organization
  in the United States and Canada.

                                      -3-
<PAGE>

     In support of the sales effort, the Company's sales professionals assist
  the Company's customers in developing a marketing plan for the Lifeline
  program, monitoring progress against that plan, and providing training to the
  provider's staff on the management of their local Lifeline program.  Programs'
  marketing plans typically address the introduction of Lifeline's services to
  the service provider's key decision makers; the planning and delivery of
  presentations to community responders such as police, fire, and medical
  emergency professionals; and the development of local referral networks of
  elder care and other service organizations to position the LIFELINE service as
  part of a continued care plan.  Lifeline personnel also provide continuing
  operational support, ongoing consultation, and program evaluations.

  SOURCE OF RAW MATERIALS

     Prior to 1999, the Company had manufactured all of its products, relying on
  outside vendors for components and enclosures.  As previously disclosed,
  during the third quarter of 1999, the Company completed the outsourcing of the
  manufacturing of its personal response equipment to the Ademco Group, a
  division of Honeywell International, Inc.  Ademco is an international
  manufacturer of electronic equipment.  There can be no assurance that Ademco
  will not incur delays in manufacturing products for the Company as a result of
  process difficulties, component shortages or for other reasons.  Any such
  delay could have a material adverse effect on the Company's business,
  financial condition, or results of operations.

  PATENTS, LICENSES AND TRADEMARKS

     The Company considers its proprietary know-how with respect to the
  development and marketing of its personal response services to be a valuable
  asset.  Due to rapid technological changes that characterize the industry, the
  Company believes that continued development of new services and products, the
  improvement of existing services and products, and patent and license
  protection are important in maintaining a competitive advantage.

     Although the Company owns numerous patents and patent applications in the
  United States, Canada, and other countries, the Company does not believe that
  its business as a whole is or will be materially dependent upon the protection
  afforded by its patents.

     The Company's LIFELINE trademark and servicemark are registered at the
  United States Patent and Trademark Office and in most states and some foreign
  countries.  The Company also has a number of other trademarks.

  RESEARCH AND DEVELOPMENT

     Research and development efforts are geared towards enhancing and
  augmenting the Company's products and services.  Research and development
  expenses were $1,515,000, $1,565,000, and $1,470,000, for the years ended
  December 31, 2000, 1999, and 1998, respectively.

  BACKLOG/SEASONALITY

     Because of the nature of the Company's products, the Company endeavors to
  minimize the time that elapses from the receipt of a purchase order to the
  date of delivery of the products.  Accordingly, the Company's backlog as of
  the end of any period represents only a portion of the Company's expected
  sales for the succeeding period and is not significant in understanding the
  Company's business.  The Company does not believe that the industry in which
  it operates is seasonal.

                                      -4-
<PAGE>

  GOVERNMENT REGULATION

     The Company's products are registered with the Federal Communication
  Commission ("FCC") and comply with FCC regulations pertaining to radio
  frequency devices (Part 15) connected to the telephone system (Part 68).  The
  Company has also received registrations of equipment from Canadian agencies.
  As new models are developed, they are submitted to appropriate agencies as
  required.

     The Company has registered its communicator products with the United States
  Food and Drug Administration.

     None of the Company's business is subject to re-negotiation of profits or
  termination of contract by the government, nor is it impacted by any existing
  environmental laws.

  COMPETITION

     The Company believes that it is a major provider of personal response
  services and products since it was monitoring approximately 313,000
  subscribers as of December 31, 2000 and estimates it serves, along with its
  customers, more than 400,000 subscribers in a North American personal
  emergency response services market estimated by the Company to serve between
  550,000 and 600,000 subscribers as of December 31, 2000.  Other companies
  offer services and products competitive with those offered by the Company.
  These companies offer personal response services on a regional or national
  basis through both healthcare providers and directly to the subscribers
  themselves.

     Although price is a competitive factor, the Company believes that its
  customers' main considerations in choosing a personal response service are the
  high quality of service and product performance and reliability; customer
  support and service; and reputation and experience in the industry.  The
  Company believes it competes favorably with respect to these factors.

  EMPLOYEES

     As of February 28, 2001 the Company employed approximately 700 full-time
  and 75 permanent part-time employees.  None of the Company's employees is
  represented by a collective bargaining unit, and the Company believes its
  relations with its employees are good.

  ITEM 2. PROPERTIES

     The Company is party to a fifteen-year lease for an 84,000 square foot
  facility in Framingham, Massachusetts for its corporate headquarters,
  including its U.S. based monitoring operations.  Annual base rental payments
  under the lease approximate $814,000.  The initial lease term expires in 2013.
  The Company has two five-year renewal options contained within the lease.  The
  Company also leases facilities in other locations to support its field and
  Canadian operations.

                                      -5-
<PAGE>

ITEM 3.   Legal Proceedings

  The Company is not party to any material litigation.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None

  EXECUTIVE OFFICERS OF THE REGISTRANT

  The following table sets forth certain information regarding the executive
officers of the Company as of December 31, 2000:
<TABLE>
<CAPTION>

Name                                        Position                        Age
---------------------  ---------------------------------------------------  ---
<S>                    <C>                                                  <C>

L. Dennis Shapiro      Chairman of the Board                                 67
Ronald Feinstein       President, Chief Executive Officer
                       and Director                                          54
Dennis M. Hurley       Senior Vice President, Finance,
                       Chief Financial Officer, Treasurer                    54
Richard M. Reich       Senior Vice President and Chief Information Officer   54
Donald G. Strange      Senior Vice President, Sales                          54
Robert A. Bushnell     Vice President, Marketing                             41
Barbara A. Trimble     Vice President, Customer Care                         49
Leonard E. Wechsler    Vice President and President, Lifeline Canada         44
Jeffrey A. Stein       Clerk                                                 42
</TABLE>

  L. Dennis Shapiro, Chairman of the Board, has served the Company in this
capacity since 1978, and at various times, has served as President and Chief
Financial Officer.

  Ronald Feinstein became an employee of the Company in September 1992 and
became Executive Vice President and Chief Operating Officer in October 1992. He
was appointed President and Chief Executive Officer in January 1993.  Mr.
Feinstein has served as a director of the Company since 1985.

  Dennis M. Hurley is Senior Vice President, Finance; Chief Financial Officer;
and Treasurer.  He joined the Company in March 1995 as Vice President, Finance;
Chief Financial Officer; and Treasurer.  From November 1994 to February 1995,
Mr. Hurley was Corporate Controller for C.P. Clare Corp., which is an
electronics manufacturer.

  Richard M. Reich is Senior Vice President, Chief Information Officer.  He
became Vice President, Chief Information Officer in September 1999.  He had been
Vice President, Technology and Advanced Services since August 1994.  From June
1990 to August 1994, Mr. Reich had served as Vice President, Product Planning
and Development.  Since joining the Company in April, 1986 he had held the
position of Vice President, Engineering.

  Donald G. Strange is Senior Vice President, Sales.  He was Vice President,
Sales and Marketing from December 1996 to June 2000.  He joined the Company in
February 1993 as Vice President, Sales.

                                      -6-
<PAGE>

  Robert A. Bushnell is Vice President, Marketing.  He was Director of Marketing
from November 1996 to January 1998.  He was Marketing Manager, Products and
Services from January 1993 to November 1996.  Since joining the Company in
February 1988 as Product Marketing Manager, he had held the positions of
Marketing Manager, HealthCare and Product Planning and Development Manager.

  Barbara A. Trimble is Vice President, Customer Care.  She joined the Company
in September 1999 as Director of Subscriber Services.  From 1988 to 1999, Ms.
Trimble worked at Matthew Thornton Health Plan, a New Hampshire based HMO, where
she served various roles, among them, Vice President of Medical Services from
1994 to 1997.  She also consulted with various start up companies between 1997
and 1999.

  Leonard E. Wechsler is Vice President and President, Lifeline Systems, Canada.
He joined the Company in 1996 as President, Lifeline Systems Canada when the
Company purchased CareTel Inc. in July 1996.  CareTel provided monitoring
services similar to those offered by the Company.  From May 1993 to July 1996,
Mr. Wechsler was President, CareTel, Inc.

  Jeffrey A. Stein has been the Clerk of the Company since February 2000 when he
replaced Norman B. Asher who had been Clerk of the Company since July 1978.  Mr.
Stein has been a partner of the law firm of Hale and Dorr LLP since 1994, which
has been general counsel to the Company since 1976.


                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

Quarterly Market Information and Related Matters

The Company's common stock is traded on the Nasdaq Stock Market under the symbol
"LIFE." On February 28, 2001, the Company had 424 registered shareholders.

The table below reflects the high and low sales prices for 2000 and 1999.

                                               High           Low
1999  First Quarter                          $ 27.81         $ 22.50
      Second Quarter                           22.50           17.50
      Third Quarter                            20.00           13.75
      Fourth Quarter                           15.63           12.88

2000  First Quarter                          $ 15.00         $  7.50
      Second Quarter                           14.75            8.88
      Third Quarter                            16.94           11.00
      Fourth Quarter                           16.13           12.13

During the periods presented, the Company had not paid or declared any cash
dividends on its common stock. While the payment of dividends is within the
discretion of the Company's Board of Directors, the Company presently expects to
retain all of its earnings for use in financing the future growth of the
Company.

                                      -7-
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                      --------------------------------------------------
(In thousands, except per share data)    2000      1999      1998      1997      1996
                                         ----      ----      ----      ----      ----
<S>                                   <C>        <C>        <C>     <C>        <C>
OPERATING RESULTS

     Total revenues                     $81,489   $70,792   $64,884   $57,366   $50,595

     Income from operations               5,031     3,190     9,513     3,327     6,295

     Income before income taxes           5,304     4,176     9,976     3,921     7,078

     Net income                           3,185     2,506     5,986     2,298     4,176

     Net income per share, diluted       $ 0.51    $ 0.40    $ 0.95    $ 0.37    $ 0.67

     Diluted weighted average
          shares outstanding              6,223     6,299     6,309     6,232     6,197

FINANCIAL POSITION1
<CAPTION>
                                                           December 31,
                                        ---------------------------------------------------
                                          2000      1999      1998      1997      1996
                                          ----      ----      ----      ----      ----
<S>                                   <C>        <C>        <C>     <C>        <C>
     Working capital                    $ 9,994   $10,069   $13,026   $12,320   $14,003

     Total assets                        64,528    57,385    52,504    42,269    37,909

     Long-term obligations2               2,701     3,354        11        16        25

     Stockholder's equity                43,385    39,739    36,291    29,717    27,620

</TABLE>
1 There were no cash dividends paid or declared during any of the periods
presented.

2 Excludes current portion of long-term obligations.

                                      -8-
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
          FINANCIAL CONDITION

This and other reports, proxy statements, and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements.  There are a number of factors of which the Company is aware that
may cause the Company's actual results to vary materially from those forecast or
projected in any such forward-looking statement.  These factors include, without
limitation, those set forth below under the caption "Certain Factors That May
Affect Future Results."  The Company's failure to successfully address any of
these factors could have a material adverse effect on the Company's future
results of operations.

RESULTS OF OPERATIONS

2000 Compared with 1999

Total revenues for the year ended December 31, 2000 were $81.5 million, an
increase of 15% compared with the $70.8 million recorded in 1999.

Service revenues continue to grow and rose by 19% to $56.2 million for the year
ended December 31, 2000 compared to $47.0 million for the prior year.  Service
revenues comprised 69% of the Company's total 2000 revenues, compared to 66% in
1999.  The Company's growth in its service business segment has continued
because of its strategy of packaging products and services into a single service
offering, which results in higher per-subscriber service revenue.  However, the
Company believes that the growth it experienced in 2000 was impacted by issues
it faced in the second half of 1999, including the introduction of its new
CareSystem call center platform.  As a result, the Company experienced a slower
growth rate in 2000 as the number of subscribers grew by 13%, compared to 21% in
1999, to approximately 313,000 at December 31, 2000 from nearly 278,000 at
December 31, 1999. The Company's ability to sustain or increase the current
level of service revenue growth depends on its ability to continue to make
improvements in service delivery, expand the market for its personal response
services, convert community hospital programs to service provided by the Company
and increase its focus on referral development and innovative partner
relationships in new channels of distribution.  The Company believes that the
high quality of its services and its commitment to providing caring and rapid
response to the at-risk elderly and the physically challenged will be factors in
meeting this challenge.

Net product revenues improved 7% to $23.9 million for 2000, from $22.2 million
in 1999.  This increase during 2000 has been a result of an improvement in the
Company's service performance, after a challenging second half of 1999 where the
Company experienced lower equipment sales than it had expected.  Although the
Company believed it would have declining product sales in 1999, it believes that
challenges with its service during 1999 led to even lower than anticipated
product sales during that period, as customers were reluctant to purchase
equipment until the CareSystem platform implementation was completed.  As a
result, the Company experienced higher than expected product revenue growth in
2000 as customers resumed and in many cases increased their purchasing of
equipment that they had curtailed in 1999.  The Company still expects declining
product sales in future periods as it continues packaging products and services
into a single service offering.

                                      -9-
<PAGE>

Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, declined 6% to $1.4 million for the year ended
December 31, 2000 from the $1.5 million recorded in the previous year.  With the
Company's focus on its service business segment it expects finance income to
decline in future periods because leasing is directly related to its product
business.

Total recurring revenues, consisting of service revenues and finance income, was
$57.6 million for the year ended December 31, 2000, an increase of nearly 19% as
compared to $48.6 million for the year ended December 31, 1999.  As the Company
continues to focus on its service business, it expects its recurring revenues to
continue to increase in future periods.

Cost of services, as a percentage of service revenues, was 65% for the year
ended December 31, 2000 as compared to 62% for the year ended December 31, 1999.
Cost of services remains high due to a variety of reasons.  The Company incurred
a labor rate increase during 2000 for its employees in its Customer Care
organization in order to remain competitive in the tight labor market.  The
first full year of depreciation of its CareSystem call center platform also
impacted cost of services for 2000 as did related information technology
consulting expenses and information technology professionals hired for the
CareSystem platform.  The Company also incurred a full year of customer service
costs associated with TelCare Systems, Inc., which was purchased by the Company
in August 1999.  Additionally, the amortization of intangible acquisition costs
for agreements entered into with community hospitals for conversion to services
provided by the Company was significantly higher for 2000 as compared to 1999 as
it included amortization for all purchases during 1999 and 2000.

For the years ended December 31, 2000 and 1999, cost of product sales as a
percentage of product sales was 30%.  The Company completed the transition of
outsourcing its manufacturing operations to Ademco during the third quarter of
1999 and has been successful in maintaining its cost of sales at a consistent
percentage of net product sales.

Selling, general, and administrative expenses ("SG&A") as a percentage of total
revenues improved to 35% for the year ended December 31, 2000 compared to 39%
for the year ended December 31, 1999.  The Company's improved 2000 revenue
performance and its ability to control its SG&A expenses have resulted in
improved SG&A percentages for 2000.  The dollar increase for SG&A was due
primarily to expenditures for a total company quality initiative which was
introduced in 2000, increased costs associated with recruiting and consulting in
a very competitive employment market for information technology professionals
and increased sales and management bonuses relating to the improved 2000
performance.  The Company also experienced an increase in SG&A expenses as it
introduced new sales, marketing and business initiatives in 2000 that had been
delayed because of the implementation issues surrounding the CareSystem
platform.

Research and development expenses represented 2% of revenues in 2000 and 1999.
Research and development efforts are focused on ongoing product improvements and
developments.  The Company expects to maintain these expenses, as a percentage
of total revenues, at a relatively consistent level.

In October 2000, the Company recorded a pre-tax non-recurring charge of $150,000
to write off an abandoned partnership with a senior living vendor.

In September 2000, the Company recorded a pre-tax non-recurring charge of
approximately $2.7 million for costs it expects to incur to address a battery-
related issue with some of its personal help buttons. Included in the non-
recurring charge are anticipated material and mailing costs for exchanging
buttons, providing hospital programs with higher inventory levels for the
planned swap, and the cost of installer visits to subscriber homes to replace
the buttons.

                                      -10-
<PAGE>

On September 2, 1999, the Company and Protection One mutually agreed to
terminate their proposed merger and therefore the Company recorded a pre-tax
charge of $423,000 for unreimbursed costs incurred in connection with the
proposed merger.  During the fourth quarter of 2000, the Company reversed
$134,000 of unpaid, unreimbursed costs which were associated with the
termination of the merger agreement with Protection One.

In June 1999, the Company recorded a pre-tax restructuring charge of
approximately $2.2 million as a result of the outsourcing of the Company's
equipment manufacturing operations to Ademco and a change to the Company's
original estimates for the cost of its corporate headquarters' relocation.

In February 1999, the Company negotiated a buyout of its old corporate
headquarters facility lease.  Pursuant to the arrangement, payments were made to
the Company during 1999 dependent on space becoming available in the old
facility.   The Company received a payment of approximately $0.5 million during
the first quarter of 1999, net of applicable negotiation fees, and recorded this
payment as other income.  During the third quarter of 1999, the Company received
a final payment of approximately $0.3 million, net of applicable negotiation
fees and also recorded this payment as other income.

The Company's effective tax rate was 40.0% for 2000 and 1999.

1999 Compared with 1998

Total revenues for the year ended December 31, 1999 were $70.8 million, an
increase of 9% compared with the $64.9 million recorded in 1998.

Service revenues grew 21% to $47.0 million for the year ended December 31, 1999
and comprised 66% of the Company's total 1999 revenues, compared to 60% in 1998.
This increase reflected the continued success of the Company's strategy to focus
on subscriber growth and recurring service revenues.  Accordingly, there was a
21% growth in the number of subscribers the Company monitored at December 31,
1999 to approximately 278,000 from approximately 229,000 at December 31, 1998.
The increase in service revenues continued to be favorably impacted by the
Company's strategy of packaging products and services into a single service
offering, which resulted in higher per-subscriber service revenue.

Net product revenues decreased 9% to $22.2 million during 1999, from net product
revenues in 1998 of $24.5 million.  During 1999, product sales declined as a
result of the Company's strategy of combining service and hardware offerings to
support its service business segment.  Also, challenges with its service during
1999 led to even lower than anticipated product sales during that period, as
customers were reluctant to purchase equipment until the CareSystem platform
implementation was completed.

Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, increased 10% to $1.5 million for the year ended
December 31, 1999 as compared to the $1.4 million recorded in the previous year.
While the Company's leasing portfolio continued to grow for its internally
managed and funded leasing program, this growth had slowed in 1999 as a result
of the Company's focus on its service business segment.

                                      -11-
<PAGE>

Total recurring revenues, consisting of service revenues and finance income, was
$48.6 million for the year ended December 31, 1999, an increase of nearly 20% as
compared to $40.4 million for the year ended December 31, 1998.  The increase in
recurring revenue reflected the continued expansion of the Company's service
business segment with its focus on expanding the Company's recurring revenue
base.

Cost of services, as a percentage of service revenues, increased to 62% for the
year ended December 31, 1999 from 57% for the year ended December 31, 1998.  The
Company completed the transition of its subscribers to its new CareSystem call
center platform in the third quarter of 1999.  The conversion to this new
platform took longer than originally planned and resulted in higher costs during
the transition period due to extra staffing needed in the Company's response
centers and the costs of operating duplicate facilities.  Cost of services also
included additional costs of employee retention, continued investments in
personnel, and recruiting initiatives due to the tight labor market.  These
initiatives were principally associated with the delay in the implementation of
the CareSystem platform and relocation of the Company's monitoring facility as
part of its 1999 move to new corporate headquarters in Framingham,
Massachusetts.  Higher costs were also incurred during the first three quarters
of 1999 from systems enhancements and support to maintain the Company's former
monitoring service infrastructure while it finalized the implementation of its
CareSystem call center platform.  The depreciation of the capital expenditures
for the CareSystem call center platform had also impacted results of operations
for 1999.  In addition, the Company incurred a full year of customer service
costs associated with AlertCall, Inc. of Amherst, New York which was purchased
by the Company in November 1998.

For the year ended December 31, 1999, cost of product sales as a percentage of
product sales was 30%, versus 29% in the prior year.  The Company completed the
transition of outsourcing its manufacturing operations to Ademco during the
third quarter of 1999.  While the Company continued to strive to maintain its
cost of sales at a consistent percentage of net product sales, there were
additional costs incurred during 1999 associated with the outsourcing of the
manufacturing function.  These additional costs, including higher temporary
help, were offset, in part, by a reduction in material costs and the
efficiencies created during the first half of 1999 by higher than expected
production in anticipation of the outsourcing to Ademco.

SG&A expenses as a percentage of total revenues were 39% for the years ended
December 31, 1999 and 1998.  While the Company had been able to successfully
control many of its costs included within SG&A expenses, the Company did incur
some higher costs during 1999.  Specifically, the Company incurred higher costs
for its increased recruiting initiatives for its growing employee base and for
its 1999 customer conference which it did not have in 1998.  The Company also
incurred moving costs in connection with its relocation to new corporate
headquarters. These higher costs were offset, in part, by savings it has
experienced in operating costs of its new corporate headquarters as well as
lower expenditures in the areas of market and product development and
promotional strategies aimed at the healthcare channel.  In addition, 1998 was
also impacted by compensation expense that was incurred for certain stock
options that became exercisable during 1998.  No compensation expense was
recorded in 1999 for these stock options.

Research and development expenses represented 2% of revenues in 1999 and 1998.
Research and development efforts are focused on ongoing product improvements and
developments.

The Company's effective tax rate was 40.0% for 1999 and 1998.

                                      -12-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 2000, the Company's portfolio of cash, cash
equivalents, and investments increased $3.0 million to $4.4 million at December
31, 2000 from $1.4 million at December 31, 1999.  The increase was mainly
attributable to profitable operations of $13.7 million.  Enhanced collection
efforts during 2000 on its accounts receivable portfolio and borrowings of $2.7
million under the Company's line of credit also attributed to the increase.
Also, during 1999, the Company generated a higher than normal increase of
inventory in anticipation of the outsourcing of its manufacturing function.  As
a result, the oversupply of inventory at the end of 1999 resulted in lower
expenditures needed for inventory purchases during 2000.  Offsetting these
increases were expenditures incurred by the Company during 2000, which included
payments of approximately $3.7 million related to outstanding debt obligations
and $5.9 million to community hospitals and distributors of its personal
response products and services in connection with the rights to service and/or
manage the personal response programs.  The Company also acquired the Argus
Emergency Medical division of Microtec Enterprises Inc. of Quebec, Canada and
paid $1.1 million at the closing.  The Company also had expenditures of $2.7
million for Company-owned equipment provided directly to customers under
comprehensive service agreements and to subscribers not serviced by local
Lifeline programs.

In September 2000, Lifeline Systems, Canada, a wholly owned subsidiary of the
Company, completed the acquisition of the Argus Emergency Medical division of
Microtec Enterprises Inc. of Quebec, Canada.  Argus provided personal response
services similar to the services provided by the Company.  The purchase price
was approximately $1.5 million of which $1.1 million was paid at the closing
with the remainder to be paid during 2001 and 2002.  This acquisition was
accounted for as a purchase transaction, and the resulting goodwill is being
amortized over an estimated life of 10 years.

During 2000, the Company paid approximately $5.9 million to community hospitals
and distributors of its personal response products and services in connection
with the purchase by the Company of the rights to service and/or manage the
personal response systems program being operated by these entities.  The
majority of the purchase price related to these agreements has been allocated to
intangible assets.  These agreements allow the Company to monitor and provide
other related services to existing and future subscribers over the term of the
agreements.  The Company amortizes the intangible assets over the life of the
agreements, which is typically five years.

In April 2000, the Company loaned $250,000 to its Chief Executive Officer,
pursuant to a collateralized promissory note.  The note, which bears interest at
a rate of 6.94%, payable annually in arrears, is due April 5, 2005 and is
collateralized by 25,641 shares of common stock of the Company.

The Company is party to Master Lease Agreements for up to $5.6 million for
furniture, computers, security systems and other related equipment purchases.
For financial reporting purposes, these leases are recorded as capital leases
and accordingly the associated assets are being depreciated over their estimated
useful life.  As of December 2000 the Company had made purchases of
approximately $2.7 million under these agreements.

In June 1999, the Company entered into an amended $10.0 million line of credit
which was originally obtained in April 1998.  The agreement has two components,
the first of which is a working capital line of credit, the other, the ability
to convert up to five million dollars into a five-year fixed loan.  The working
capital line of credit's interest rate is based on the London Interbank Offered
Rate (LIBOR), while the fixed loan is at the bank's prime interest rate. The
agreement contains several covenants,

                                      -13-
<PAGE>

including the Company maintaining certain levels of financial performance and
capital structure. These financial covenants include a requirement for a current
ratio of at least 1.5 to 1.0 and a leverage ratio of no more than 1.0 to 1.0. In
addition, there are certain negative covenants that include limitations on the
Company's capital and other expenditures, restrictions on the Company's capacity
to obtain additional debt financing, restrictions on the disposition of the
Company's assets, and restrictions on its investment portfolio. The Company was
not in compliance with certain financial covenants during the first and third
quarters of 2000. It obtained waivers from its bank for these covenants for the
quarters ended March 31, 2000 and September 30, 2000. This line of credit
matures on June 30, 2002, and as of December 31, 2000 the Company had $1.6
million outstanding under this line.

The Company expects that funding requirements for operations and in support of
future growth are expected to be met primarily from operating cash flow,
existing cash and marketable securities and its $10.0 million line of credit.
The Company expects these sources will be sufficient to finance the cash needs
of the Company through the next twelve months. This includes the continued
investment in its new response center platform, the requirements of its
internally funded lease financing program, any potential acquisitions and other
investments in support of its current business.

In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101, Revenue
Recognition in Financial Statements.  SAB 101 clarifies the SEC's views related
to revenue recognition and disclosure.  The Company adopted SAB 101 for fiscal
year ending December 31, 2000, and it did not have a material impact on the
Company's financial position or results of operations.

In September 2000, the Emerging Issues Task Force ("EITF") of the FASB reached a
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all shipping and handling amounts billed to
a customer in a sale transaction should represent revenues earned for the goods
provided and therefore be classified as revenue. The Company adopted EITF Issue
00-10 in the fourth quarter of 2000, and it did not have a material effect on
the Company's overall financial position or results of operations.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.

The Company completed the transition of its United States subscribers to its new
CareSystem call center platform during 1999 and experienced certain software
design deficiencies in connection with the transition, which it has worked to
resolve.  The Company may continue to experience problems associated with this
new information technology.  There can be no assurance that the Company will
realize the intended benefits from the new system.

The Company is currently experiencing a battery-related issue with some of its
personal help buttons worn by subscribers.  Certain personal help buttons are
erroneously transmitting low battery signals.  While the buttons that exhibit
this erroneous low battery condition still contain sufficient power to activate
the communicator when the button is pressed and do not place the Company's
subscribers at risk, the Company believes it is prudent to replace those buttons
exhibiting this condition.  The Company recorded a non-recurring charge of
approximately $2.7 million in the third quarter of 2000 for costs it expects to
incur to address this issue, including anticipated material and mailing costs
for exchanging

                                      -14-
<PAGE>

buttons, providing hospital programs with higher inventory levels for the
planned swap, and support for the cost of installer visits to subscriber homes
to replace the button. The Company cannot be certain that the charge it recorded
to address this issue will be sufficient to cover all of its associated
expenses, or that its reputation, business, financial condition or results of
operations will not be otherwise affected.

During the third quarter of 1999, the Company completed the outsourcing of the
manufacturing of its personal response equipment to the Ademco Group, a division
of Honeywell International, Inc.  This decision represented a change in the
Company's manufacturing strategy, as it no longer supports a manufacturing site
at its corporate location.  There can be no assurance that the Company will
realize the intended cost savings it anticipates, or that it will not experience
delays in obtaining products from Ademco as a result of process difficulties,
component shortages or for other reasons.  Any such delay could have a material
adverse effect on the Company's business, financial condition, or results of
operations.

The Company's results are partially dependent on its ability to develop services
and products that keep pace with continuing technological changes, evolving
industry standards, changing subscriber preferences and new service and product
introductions by the Company's competitors.  Lifeline's future success will
depend on its ability to enhance its existing services and products (including
accessories), to introduce new service and product offerings to meet and adapt
to changing customer requirements and emerging technologies on a timely basis
and to offer such products and services at competitive prices.  There can be no
assurance that Lifeline will be successful in identifying, developing,
manufacturing or marketing new services and products or enhancing its existing
services and products on a timely basis or that Lifeline will be able to offer
such services and products at competitive prices.  Also, there can be no
assurance that services, products or technologies developed by others will not
render Lifeline's services or products noncompetitive or obsolete.

The Company's growth is dependent on its ability to increase the number of
subscribers served by its monitoring centers. The Company's ability to continue
to increase service revenue is a key factor in its long-term growth, and there
can be no assurance that the Company will be able to do so.  The Company's
failure to increase service revenue could have a material adverse effect on the
Company's business, financial condition, or results of operations.

While the Company has experienced an increase in product revenue during 2000 as
compared to the prior year, product revenue had been declining as a result of
the Company's strategy of combining service and hardware offerings to support
the transition to a service oriented business.  As the Company continues growing
its service business segment to increase its recurring revenue, there can be no
assurance that service revenue will increase at a rate sufficient to offset the
expected decrease in higher margin product revenue both on a quarterly and
annual basis.  Moreover, the Company's product sales are ordinarily made to
healthcare providers that establish their own Lifeline programs.  These
healthcare providers typically rent, rather than sell, the Lifeline products to
subscribers and accordingly following such time as a product is no longer used
by a subscriber, it is returned to the healthcare provider and becomes available
for rent to another subscriber.  As a result of this use and reuse of the
Company's products, sales of such products are dependent on growth in the number
of subscribers and on the ability of the Company to encourage its healthcare
provider customers to replace their existing inventory by continuing to enhance
its products with new features.

The Company may expand its operations through the acquisition of additional
businesses.  There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional

                                      -15-
<PAGE>

businesses or successfully integrate any acquired businesses into the Company
without substantial expenses, delays or other operational or financial problems.
In addition, acquisitions may involve a number of special risks, including
diversion of management's attention, failure to retain key acquired personnel,
unanticipated events, contingent liabilities and amortization of acquired
intangible assets. There can be no assurance that the acquired businesses, if
any, will achieve anticipated revenues or earnings.

The Company's monitoring operations are concentrated principally in its
corporate headquarters facility.  Although the Company believes that it has
constructed safeguards to protect against system failures, the disruption of
service at its monitoring facility, whether due to telephone or electrical
failures, earthquakes, fire, or other similar events or for any other reason,
could have a material adverse effect on the Company's business, financial
condition, or results of operations.

The Company believes that its future success will depend in large part upon its
ability to attract and retain key personnel, especially in its information
technology department.  Although the Company believes it is making progress in
retaining and recruiting well-trained, highly capable people despite a very
competitive employment market, there can be no assurance that the Company will
continue to be successful in attracting and retaining such personnel.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has considered the provisions of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." The Company
had no holdings of derivative financial or commodity-based instruments or other
market risk sensitive instruments entered into for trading purposes at December
31, 2000.  As described in the following paragraphs, the Company believes that
it currently has no material exposure to interest rate and foreign currency
exchange rate risks in its instruments entered into for other than trading
purposes.

 Interest rates

The Company's balance sheet includes a revolving credit facility and a term loan
that are subject to interest rate risk. Both loans are priced at floating rates
of interest, with a base of LIBOR or prime rate at the Company's option.  As a
result of these factors, at any given time, a change in interest rates could
result in either an increase or decrease in the Company's interest expense.  The
Company performed sensitivity analysis as of December 31, 2000 to assess the
potential effect of a 100 basis point increase or decrease in interest rates and
concluded that near-term changes in interest rates should not materially affect
the Company's consolidated financial position, results of operations or cash
flows.

 Foreign currency exchange rates

The Company's earnings are affected by fluctuations in the value of the U.S.
Dollar as compared to the Canadian Dollar, as a result of the sale of its
products and services in Canada and translation adjustments associated with the
conversion of the Company's Canadian subsidiary into the reporting currency
(U.S. Dollar). As such, the Company's exposure to changes in Canadian exchange
rates could impact the Company's consolidated financial position, results of
operations or cash flows. The Company performed sensitivity analysis as of
December 31, 2000 to assess the potential effect of a 10% increase or decrease

                                      -16-
<PAGE>

in Canadian foreign exchange rates and concluded that near-term changes in
Canadian exchange rates should not materially affect the Company's consolidated
financial position, results of operations or cash flows.  The Company's
sensitivity analysis of the effects of changes in foreign currency exchange
rates did not factor in a potential change in sales levels or local prices for
its services/products.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
Quarterly Results of Operations
(Unaudited)                                                                Quarter Ended
(Dollars in thousands, except per share data)          Mar 31      Jun 30      Sep 30      Dec 31      Full Year
                                                       ------      ------      ------      ------      ---------
<S>                                                    <C>         <C>         <C>         <C>         <C>
2000  Total revenues                                   $18,679     $19,854     $21,017     $21,939     $81,489
      Gross profit                                       8,336       9,329       9,797      10,206      37,668
      Net income (loss)                                    923       1,018        (232)      1,476       3,185
      Net income (loss) per share, diluted              $ 0.15      $ 0.16     $ (0.04)     $ 0.24      $ 0.51

1999  Total revenues                                   $16,226     $17,575     $18,128     $18,863     $70,792
      Gross profit                                       8,746       9,269       8,362       8,478      34,855
      Net income                                         1,461         335         432         278       2,506
      Net income per share, diluted                     $ 0.23      $ 0.05      $ 0.07      $ 0.05      $ 0.40
</TABLE>


                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Lifeline Systems, Inc.:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 40 present fairly, in all material
respects, the financial position of Lifeline Systems, Inc. at December 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.  In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) on page 40 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.  These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Boston, Massachusetts
February 7, 2001

                                      -17-
<PAGE>

                             LIFELINE SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2000 and 1999
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                              2000              1999
                                                                                            --------          --------
<S>                                                                                      <C>                <C>
ASSETS
Current assets:
      Cash and cash equivalents                                                             $  4,417          $  1,415
      Accounts receivable, net of allowance for doubtful
          accounts of $449 in 2000 and $706 in 1999                                            9,223             9,247
      Inventories                                                                              1,641             2,605
      Net investment in sales-type leases                                                      2,909             2,310
      Prepaid expenses and other current assets                                                  873               832
      Prepaid income taxes                                                                       636             1,013
      Deferred income taxes                                                                    1,986             1,788
                                                                                            --------          --------
          Total current assets                                                                21,685            19,210

Property and equipment, net                                                                   26,406            26,852
Net investment in sales-type leases                                                            5,073             5,747
Goodwill and other intangible assets, net                                                     11,204             5,551
Other assets                                                                                     160                25
                                                                                            --------          --------
          Total assets                                                                      $ 64,528          $ 57,385
                                                                                            ========          ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                                                      $  2,576          $  1,801
      Accrued expenses                                                                         2,063             2,224
      Accrued payroll and payroll taxes                                                        2,985             2,133
      Accrued income taxes                                                                       232               140
      Deferred revenues                                                                          755               846
      Current portion of capital lease obligation                                                583               478
      Current portion of long term debt                                                          405               405
      Product warranty and other current liabilities                                             751               458
      Accrued restructuring and other non-recurring charges                                    1,341               656
                                                                                            --------          --------
          Total current liabilities                                                           11,691             9,141

Deferred income taxes                                                                          4,897             4,592
Deferred compensation                                                                            305               559
Long term portion of capital lease obligation                                                  1,531             1,779
Long term debt, net of current portion                                                         1,170             1,575
Accrued restructuring and other non-recurring charges, long term                               1,237              --
Other non-current liabilities                                                                    312              --
                                                                                            --------          --------
          Total liabilities                                                                   21,143            17,646

Commitments and contingencies

Stockholders' equity:
      Common stock, $0.02 par value, 20,000,000 shares authorized,
          6,641,554 shares issued in 2000 and 6,563,657 shares issued in 1999                    133               131
      Additional paid-in capital                                                              19,296            18,626
      Retained earnings                                                                       29,126            25,941
      Less: Treasury stock at cost, 621,089 shares in 2000 and 1999                           (4,556)           (4,556)
             Notes receivable - officer                                                         (550)             (400)
             Accumulated other comprehensive loss-cumulative translation adjustment              (64)               (3)
                                                                                            --------          --------
          Total stockholders' equity                                                          43,385            39,739
                                                                                            --------          --------
               Total liabilities and stockholders' equity                                   $ 64,528          $ 57,385
                                                                                            ========          ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -18-
<PAGE>

                            LIFELINE SYSTEMS, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                           AND COMPREHENSIVE INCOME
                    For the years ended December 31, 2000,
                                1999 and 1998
                    (In thousands except for per share data)

<TABLE>
<CAPTION>
                                                                2000              1999              1998
                                                            --------          --------          --------
<S>                                                     <C>                  <C>                <C>
Revenues
      Services                                              $ 56,169          $ 47,024          $ 39,012
      Net product sales                                       23,875            22,237            24,485
      Finance and rental income                                1,445             1,531             1,387
                                                            --------          --------          --------

           Total revenues                                     81,489            70,792            64,884
                                                            --------          --------          --------

Costs and expenses
      Cost of services                                        36,588            29,201            22,308
      Cost of sales                                            7,233             6,736             6,986
      Selling, general, and administrative                    28,421            27,477            25,617
      Research and development                                 1,515             1,565             1,470
      Restructuring and other non-recurring charges            2,701             2,623            (1,010)
                                                            --------          --------          --------

           Total costs and expenses                           76,458            67,602            55,371
                                                            --------          --------          --------

Income from operations                                         5,031             3,190             9,513
                                                            --------          --------          --------

Other income (expense)
      Interest income                                            646               219               591
      Interest expense                                          (345)             (129)              (47)
      Other income (loss)                                        (28)              896               (81)
                                                            --------          --------          --------

           Total other income, net                               273               986               463
                                                            --------          --------          --------

Income before income taxes                                     5,304             4,176             9,976
Provision for income taxes                                     2,119             1,670             3,990
                                                            --------          --------          --------

Net income                                                     3,185             2,506             5,986

Other comprehensive income (loss), net of tax
      Foreign currency translation adjustments                   (37)               53               (11)
                                                            --------          --------          --------

Comprehensive income                                        $  3,148          $  2,559          $  5,975
                                                            ========          ========          ========

Net income per weighted average share:
      Basic                                                 $   0.53          $   0.43          $   1.03
                                                            ========          ========          ========
      Diluted                                               $   0.51          $   0.40          $   0.95
                                                            ========          ========          ========

Weighted average shares:
      Basic                                                    5,986             5,892             5,817
                                                            ========          ========          ========
      Diluted                                                  6,223             6,299             6,309
                                                            ========          ========          ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -19-
<PAGE>

                            LIFELINE SYSTEMS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             For the Years Ended December 31, 2000, 1999 and 1998
                            (Dollars in thousands)


<TABLE>
<CAPTION>


                               Common Stock       Additional               Treasury Stock      Notes       Cumulative     Total
                               ----------------    Paid-in      Retained  -----------------   Receivable  Translation Stockholders'
                               Shares    Amount    Captial      Earnings   Shares     Amount   Officers   Adjustment   Equity
                               ---------------------------------------------------------------------------------------------------
<S>                            <C>       <C>      <C>           <C>         <C>      <C>        <C>        <C>       <C>
BALANCE, DECEMBER 31, 1997     5,783,202  $128     $16,340       $17,449    592,548   ($4,028)   ($100)      ($72)        $29,717

Exercise of stock options         37,364     1         386                                                                    387
Issuance of stock under
 employee stock purchase
 plan                             12,300               219                                                                    219
Cumulative translation
 adjustment                                                                                                   (18)            (18)
Net income                                                         5,986                                                    5,986
                               ---------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1998     5,832,866   129      16,945        23,435    592,548    (4,028)    (100)       (90)         36,291

Purchase of treasury stock       (29,541)                                    29,541      (535)                               (535)
Issuance of treasury stock         1,000                 7                   (1,000)        7                                  14
Exercise of stock options        138,243     2       1,674                                        (300)                     1,376
Cumulative translation
 adjustment                                                                                                    87              87
Net income                                                         2,506                                                    2,506
                               ---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999     5,942,568   131      18,626        25,941    621,089    (4,556)    (400)        (3)         39,739

Exercise of stock options         58,797     2         467                                                                    469
Issuance of stock under
 employee stock puchase
 plan                             19,100               203                                                                    203
Issuance of note to officer                                                                       (250)                      (250)
Repayment of loan by officer                                                                       100                        100
Cumulative translation
 adjustment                                                                                                   (61)            (61)
Net income                                                         3,185                                                    3,185
                               ---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000     6,020,465  $133     $19,296       $29,126    621,089   ($4,556)   ($550)      ($64)        $43,385
                               ===================================================================================================

</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.


                                     -20-
<PAGE>

                            LIFELINE SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 2000, 1999, and 1998
                            (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                2000              1999              1998
                                                                            --------          --------          --------
<S>                                                                   <C>                   <C>               <C>
Cash flows from operating activities:
      Net income                                                            $  3,185          $  2,506          $  5,986
      Adjustments to reconcile net income to net cash provided
          by operating activities:
          Write off of fixed assets and intangibles                              314               916               136
          Non-cash portion of restructuring charge                             2,700               380              (155)
          Depreciation and amortization                                        7,404             5,712             4,221
          Treasury stock issued for employee compensation                       --                  14              --
          Provision for bad debts                                                 16               528               138
          Deferred income tax provision                                          107             1,494             1,383
          Deferred compensation                                                  (23)                4               603
      Changes in operating assets and liabilities:
          Accounts receivable                                                    (15)           (2,231)             (145)
          Inventories                                                            964            (1,109)             (121)
          Net investment in sales-type leases                                     75              (452)           (1,520)
          Prepaid expenses, other current assets and other assets                200               528              (698)
          Accounts payable, accrued expenses and other liabilities               478              (914)            1,331
          Accrued payroll and payroll taxes                                      866              (581)              957
          Income taxes payable                                                    97            (1,152)            1,080
          Accrued restructuring and other non-recurring charges                 (778)             (587)           (1,306)
                                                                            --------          --------          --------

               Net cash provided by operating activities                      15,590             5,056            11,890
                                                                            --------          --------          --------

Cash flows from investing activities:
      Purchases of investments                                                  --              (3,145)          (24,319)
      Sales and maturities of investments                                       --               9,841            23,473
      Additions to property and equipment                                     (4,772)           (9,162)           (9,171)
      Business purchases and other                                            (7,167)           (5,383)           (1,581)
                                                                            --------          --------          --------
               Net cash used in investing activities                         (11,939)           (7,849)          (11,598)
                                                                            --------          --------          --------
Cash flows from financing activities:
      Principal payments under long-term obligations                          (3,661)             (353)             (226)
      Proceeds from issuance of long term debt                                 2,747             2,025              --
      Proceeds from stock options exercised and
          employee stock purchase plan                                           441               353               606
      Issuance of note to officer                                               (250)             --                --
      Repayment of loan from officer                                             100              --                --
      Purchase of treasury stock                                                --                (535)             --
                                                                            --------          --------          --------
               Net cash (used in) provided by  financing activities             (623)            1,490               380
                                                                            --------          --------          --------
Net increase (decrease) in cash and cash equivalents                           3,028            (1,303)              672
                                                                            --------          --------          --------
Effect of foreign exchange on cash                                               (26)               16                11
                                                                            --------          --------          --------
Cash and cash equivalents at beginning of year                                 1,415             2,702             2,019
                                                                            --------          --------          --------
Cash and cash equivalents at end of year                                    $  4,417          $  1,415          $  2,702
                                                                            ========          ========          ========
Non-cash activity:
      Issuance of note receivable for exercise of stock option              $   --            $    300          $   --
      Acquistion related obligation                                              670              --                --
      Capital leases                                                             365             2,257              --
      Deferred compensation                                                      231             1,023              --
      Issuance of treasury stock for compensation                               --                  14              --

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -21-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Lifeline Systems, Inc. (the "Company") provides 24-hour personal response
monitoring services to its subscribers, primarily elderly individuals with
medical or age-related conditions as well as physically challenged individuals.
These subscribers communicate with the Company through products designed and
marketed by the Company, consisting principally of a communicator which connects
to the telephone line in the subscriber's home and a personal help button, which
is worn or carried by the individual subscriber and which, when activated,
initiates a telephone call from the subscriber's communicator to either the
Company's central monitoring facilities or a local community hospital.

Principles of Consolidation

The consolidated financial statements include the accounts of Lifeline Systems,
Inc. and its wholly owned subsidiaries (the "Company").  All significant inter-
company balances and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

Cash, Cash Equivalents, and Investments
The Company considers all securities purchased with a maturity of three months
or less at the date of acquisition to be cash equivalents.

Inventories
Inventories are stated at the lower of cost or market, as determined by the
first-in, first-out method.

Property and Equipment
Property and equipment are carried at cost.  Depreciation and amortization are
computed principally by the straight-line method over the useful lives of the
assets, as follows:

Equipment                           3 to 10 years
Furniture and fixtures                    7 years
Equipment leased to others                5 years
Equipment under capital leases       3 to 7 years
Leasehold improvements             10 to 15 years

When assets are sold or retired, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income.  Expenditures for maintenance and repairs are charged to
expense as incurred; betterments are capitalized.

                                      -22-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Equipment Leased to Others

The Company provides its local programs with a comprehensive set of monitoring
and business support services, and as a result it rents its personal response
products to those programs' subscribers.  The Company records the products as
property and equipment at cost, and depreciation is computed by the straight-
line method over an estimated useful life of five years.

Goodwill and Other Intangible Assets

Goodwill is recorded at cost and amortized on a straight-line basis over its
estimated useful life. During 2000, the Company recorded $1.5 million of
goodwill in connection with the purchase of the assets of Argus Emergency
Medical and recorded approximately $6.3 million of intangible assets related to
agreements entered into with community hospitals for conversion to services
provided by the Company.  The intangible assets related to these agreements
consist of the cost of purchasing the rights to service and/or manage the
personal response systems program located in various stand-alone facilities.
These agreements allow the Company to monitor and provide other related services
to existing and future subscribers over the term of the agreements. The Company
amortizes the acquisitions costs over the life of the agreements, which is
typically five years.

Impairment of long-lived assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of," the Company evaluates the possible impairment of long-lived
assets, including goodwill and other intangible assets, whenever events or
circumstances indicate that the carrying value of the assets may not be
recoverable.

Product Warranty

The Company's products are generally under warranty against defects in material
and workmanship.  The Company provides an accrual for estimated warranty costs
at the time of sale of the related products.

Revenue Recognition

Service revenues are associated primarily with providing monitoring and
maintenance of personal response products and are recognized ratably over the
contractual period.  Revenues from the sale of personal response products are
recognized upon shipment.  Finance income attributable to sales-type lease
contracts is initially recorded as unearned income and subsequently recognized
under the interest method over the term of the leases.

Foreign Currency Translation

The financial statements of the Company's subsidiary outside the United States
are generally measured using the local currency as the functional currency.
Assets and liabilities of this subsidiary are translated at the rates of
exchange at the balance sheet date.  The resulting translation adjustments are
included in cumulative translation adjustment as a separate component of
stockholders' equity.  Income and expense items are translated at average
monthly rates of exchange.  Gains and losses from foreign currency transactions
of this subsidiary are included in net income.

                                      -23-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company accounts for income taxes under a liability approach.  Under this
approach, deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse.

Net Income Per Common Share

Net income per basic common share is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period.  Net income per diluted common share is computed based on the
weighted-average number of common and dilutive common equivalent shares
outstanding during each period.  Common equivalent shares consist of stock
options calculated in accordance with SFAS No. 128, "Earnings per Share."

Industry Segments

The Company is active in one business segment: designing, marketing, monitoring
and supporting its personal response units.  The Company maintains sales and
marketing operations in both the United States and Canada.  Foreign revenues,
from Canada, comprise less than 10% of the Company's total revenues, and the
Company has no significant tangible assets in foreign countries.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of
credit risk, include cash, cash equivalents, investments, and trade receivables.
The Company provides its services primarily to hospitals and other healthcare
institutions.  The Company performs ongoing credit evaluations of its customers
and, in the case of sales-type leases the leased equipment serves as collateral
in the transactions.  The Company has established guidelines relative to credit
ratings, diversification and maturities that maintain safety and liquidity.  The
Company has not experienced any significant losses on these financial
instruments.

Reclassification

Certain prior year balances have been reclassified to conform to the current
year presentation.

Newly Issued Accounting Standards

In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101, Revenue
Recognition in Financial Statements.  SAB 101 clarifies the SEC's views related
to revenue recognition and disclosure.  The Company adopted SAB 101 for fiscal
year ending December 31, 2000, and it did not have a material impact on the
Company's financial position or results of operations.

In September 2000, the Emerging Issues Task Force ("EITF") of the FASB reached a
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all shipping and handling amounts billed to
a customer in a sale transaction should

                                      -24-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

represent revenues earned for the goods provided and therefore be classified as
revenue. The Company adopted EITF Issue 00-10 in the fourth quarter of 2000, and
it did not have a material effect on the Company's overall financial position or
results of operations.

B.  INVENTORIES

Inventories consist of the following:

                                                           December 31,
                                                    ---------------------------
(Dollars in thousands)                                  2000          1999
-------------------------------------------------------------------------------

Purchased parts and assemblies                         $  --         $  100
Work in progress                                          --             10
Finished goods                                          1,641         2,495
-------------------------------------------------------------------------------
Total inventories                                      $1,641        $2,605
===============================================================================

C.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                           December 31,
                                                     --------------------------
(Dollars in thousands)                                  2000            1999
-------------------------------------------------------------------------------
Equipment                                            $22,608         $21,442
Furniture and fixtures                                   613             597
Equipment leased to others                            11,707          12,935
Equipment under capital leases                         3,535           3,170
Leasehold improvements                                 4,984           4,885
Capital in progress                                    1,230             786
                                                     --------------------------
                                                      44,677          43,815
Less: accumulated depreciation                       (18,271)        (16,963)
-------------------------------------------------------------------------------
Total property and equipment, net                    $26,406         $26,852
===============================================================================

                                      -25-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

C.  PROPERTY AND EQUIPMENT (continued)

During 2000, the Company wrote off nearly $3.9 million of fully depreciated
equipment leased to others which is no longer in use.  Accumulated depreciation
amounted to $9,705,000 and $7,920,000 on equipment leased to others and
$1,219,000 and $826,000 on equipment under capital leases at December 31, 2000
and 1999, respectively.  In total, depreciation expense amounted to $5,225,000,
$4,771,000, and $4,111,000 for the years ended December 31, 2000, 1999, and
1998, respectively.

D.  LEASING ARRANGEMENTS

As Lessor

The Company maintains an internally financed and operated leasing program and
leases its personal response products to customers principally under sales-type
leases.  As sales-type leases, the lease payments to be received over the term
of the leases are recorded as a receivable at the inception of the new lease.
Finance income attributable to the lease contracts is initially recorded as
unearned income and subsequently recognized as income under the interest method
over the term of the leases.  The lease contracts are generally for five-year
terms, and the residual value of the leased equipment is considered to be
nominal at the end of the lease period.

The components of the net investment in sales-type leases are as follows:

                                                        December 31,
                                                ----------------------------
(Dollars in thousands)                             2000            1999
----------------------------------------------------------------------------
Minimum lease payments receivable               $10,480         $10,745
Less:  Unearned interest                          2,291           2,541
       Allowance for doubtful accounts              207             147
----------------------------------------------------------------------------
                                                  7,982           8,057
Less:  Current portion                            2,909           2,310
----------------------------------------------------------------------------
Net investment in sales-type leases             $ 5,073         $ 5,747
============================================================================

Future minimum lease payments due under non-cancellable sales-type leases at
December 31, 2000 are as follows:

(Dollars in thousands)
2001                                                          $ 3,982
2002                                                            2,844
2003                                                            2,009
2004                                                            1,200
2005                                                              439
Thereafter                                                          6
----------------------------------------------------------------------
Total future minimum lease payments                           $10,480
======================================================================


As Lessee
In November 1997 the Company entered into a ten-year lease for a new corporate
facility in Framingham, Massachusetts which the Company occupied in 1999.  In
November 1999 this

                                      -26-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

D.   LEASING ARRANGEMENTS (continued)

lease was extended to fifteen years.  Annual rental payments under the lease
approximate $814,000. The lease includes scheduled base rent increases over
the term of the lease. The total amount of base rent payments is being charged
to expense on the straight-line method over the term of the lease. The Company
has recorded a deferred credit to reflect the excess of rent expense over cash
payments upon the commencement of the lease.  In addition, the Company pays a
monthly allocation of the building's operating expenses and real estate taxes.
The Company has two renewal options of five years each.

The Company also has several operating lease arrangements for sales offices and
office equipment that expire through 2005 and leases certain equipment under
capital leases which expire through 2007. Capital lease obligations are
collateralized by the related items. Capital leases total $3.5 million, which
are comprised of $2.2 million for furniture and $1.3 million for equipment.

Future minimum lease payments under capital and operating leases with initial or
remaining terms of one year or more are as follows for the years ended December
31,:

(Dollars in thousands)                         Capital Leases   Operating Leases
                                               ---------------------------------
2001                                                 $681           $1,223
2002                                                  592            1,208
2003                                                  356            1,188
2004                                                  302            1,283
2005                                                  302            1,209
Thereafter                                            130            8,741
-------------------------------------------------------------------------------
Total minimum lease payments                        2,363          $14,852
                                                             ==================
Less amount representing interest                     249
-------------------------------------------------------------
Present value of net minimum lease payments         2,114
Less current portion                                  583
-------------------------------------------------------------
Long-term obligation under capital leases          $1,531
=============================================================

Total rent expense under all operating leases was $1,358,000, $1,318,000, and
$1,506,000 for the years ended December 31, 2000, 1999, and 1998, respectively.

E.  STOCKHOLDERS' EQUITY

Net Income Per Common Share

In accordance with SFAS No. 128, "Earnings per Share" the Company presents basic
and diluted EPS.  Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period.

                                      -27-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.   STOCKHOLDERS' EQUITY (continued)

Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity.  A reconciliation of basic EPS to diluted EPS and dual
presentation on the face of the statement of income are also required.

Calculation of per share earnings is as follows:

(In thousands except per share figures)
                                                2000          1999         1998
                                                ----          ----         ----
Basic:
-----
Net income                                    $3,185        $2,506       $5,986
Weighted average common shares outstanding     5,986         5,892        5,817

Net income per share, basic                   $ 0.53        $ 0.43       $ 1.03
                                              ======        ======       ======

Diluted:
--------
Net income for calculating diluted earnings
   per share                                  $3,185        $2,506       $5,986

Weighted average common shares outstanding     5,986         5,892        5,817
Common stock equivalents                         237           407          492
                                             -------       -------      -------
Total weighted average shares                  6,223         6,299        6,309

Net income per share, diluted                 $ 0.51        $ 0.40       $ 0.95
                                             =======       =======      =======

For the year ended December 31, 2000 options to purchase 484,114 shares at an
average exercise price of $18.38 have not been included in the computation of
diluted net income per share as their effect would have been anti-dilutive.

Stock-Based Compensation Plans

The Company has adopted the disclosure requirements of SFAS No. 123 "Accounting
for Stock-Based Compensation."  The Company continues to recognize compensation
costs using the intrinsic value based method described in Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees," and FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation."

In July 2000, the Company's stockholders approved the 2000 Stock Incentive Plan
(the "2000 Plan").  The 2000 Plan provides that officers and key employees may
be granted either nonqualified or incentive stock options for the purchase of
the Company's common stock at the fair market value at the date of grant.  The
employee options granted generally become exercisable in three equal
installments beginning on the first anniversary of the date of grant.
Additionally, the 2000 Plan provides for an automatic annual grant to non-
employee directors.  The non-employee director options become exercisable in
three equal installments with the first installment exercisable on the date of
grant and an additional one-third becoming exercisable on each of the next two
anniversary dates.  The options expire ten years from date of grant.

                                      -28-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  STOCKHOLDERS' EQUITY (continued)

In February 2000, the Board of Directors of the Company approved the 2000
Employee Stock Option Plan (the "2000 Option Plan").  This plan was authorized
primarily to enable the Company to grant options in 2000 as part of its annual
stock option program.  No stockholder approval was sought for the 2000 Option
Plan.

The 1994 and 1991 Stock Option Plans also remain in effect, providing for
similar grants to officers and employees.  The employee options granted
generally become exercisable at a rate of 20% per year and expire ten years from
the date of grant.

Certain options, as originally granted, became exercisable only to the extent
the Company achieved specific financial goals.  During 1995 these options were
amended to provide for vesting on the earlier of the six-year anniversary of the
date of grant or the original vesting schedule upon the achievement of the
aforementioned financial goals.  In 1998 the Company achieved the specific
financial goals as outlined in the 1994 Plan and as such fully recognized the
related compensation expense.  No compensation expense was recorded in 2000 and
1999 while compensation expense of $603,000 was recorded in 1998.  Accumulated
deferred compensation was $305,000 and $559,000 at December 31, 2000 and 1999,
respectively.

In July 1998, the Company's Board of Directors adopted a Shareholder Rights Plan
in which common stock purchase rights were distributed as a dividend at the rate
of one Right for each share of the Company's Common Stock outstanding as of the
close of business on August 3, 1998.  This plan was adopted as a means of
deterring possible coercive or unfair takeover tactics and to prevent a
potential acquirer from gaining control of the Company without offering a fair
price to all of the Company's shareholders.  Unless the Rights are redeemed or
exchanged earlier, they will expire on July 24, 2008.  No rights were exercised
through December 31, 2000.

At December 31, 2000 shares available for future grants under all option plans
were 340,411.

Net income and net income per share as reported in these financial statements
and on a pro forma basis for the years ended December 31, 2000, 1999 and 1998,
as if the fair value based method described in SFAS No. 123 had been adopted are
as follows (in thousands, except per share data):

                                               2000       1999       1998
                                               ----       ----       ----
Net income                    As Reported    $3,185     $2,506     $5,986
                              Pro Forma      $2,603     $1,887     $5,388

Basic net income per share    As Reported     $0.53      $0.43      $1.03
                              Pro Forma       $0.43      $0.32      $0.93

Diluted net income per share  As Reported     $0.51      $0.40      $0.95
                              Pro Forma       $0.42      $0.31      $0.87

                                      -29-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.   STOCKHOLDERS' EQUITY (continued)

The effect of applying SFAS No. 123 for the purpose of providing pro forma
disclosure may not be indicative of the effects on reported net income and net
income per share for future years.  The pro forma disclosures include the
effects of all awards granted after January 1, 1996 and additional awards in
future years are anticipated.

For the purpose of providing pro forma disclosures, the fair values of stock
options granted were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 2000, 1999 and
1998, respectively: a risk-free interest rate of 6.4%, 6.0% and 5.5%; an
expected life of 7 years in 2000 and 1999 and 6 years in 1998; expected
volatility of 36%, 33% and 35%, and no expected dividends.

The following table summarizes all stock option plan activity
for the years ended December 31:
<TABLE>
<CAPTION>

                                      2000                        1999                         1998
                              --------------------       ----------------------       ----------------------
                                         Wgtd. Avg.                  Wgtd. Avg.                  Wgtd. Avg.
                             Shares      Exer. Price      Shares     Exer. Price       Shares    Exer. Price
                            -------      -----------      ------     -----------       ------    -----------
<S>                         <C>             <C>          <C>          <C>             <C>           <C>
Outstanding
at beginning of year         909,523        $12.66        924,550        $10.71        831,410       $ 8.37
       Granted               209,500         11.52        134,000         18.00        163,084        23.69
       Exercised             (58,797)         4.33       (138,243)         4.60        (37,364)       10.36
       Cancelled or lapsed   (69,511)        16.66        (10,784)        15.51        (32,580)       16.28
                           ----------                  -----------                    ---------
Outstanding at end of year   990,715        $12.63        909,523        $12.66        924,550       $10.71
                           ==========                  ===========                    =========
Options exercisable
at year end                  615,926        $11.39        554,866         $9.86        542,090        $7.54

Weighted average fair value
of options granted at fair
market value durin the year                 $5.54                         $7.90                      $10.58
</TABLE>


                                      -30-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.   STOCKHOLDERS' EQUITY (continued)

The following table summarizes information about stock
options outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                          Options Outstanding                                    Options Exercisable
-----------------------------------------------------------------------     -------------------------------
                       Number       Weighted Average                          Number
   Range of         Outstanding         Remaining       Weighted Average    Exercisable    Weighted Average
Exercise Prices     at 12/31/00     Contracutal Life     Exercise Price     at 12/31/00     Exercise Price
---------------     -----------     ----------------     --------------     -----------     --------------
<S>               <C>               <C>                 <C>               <C>              <C>
  $3.00-$5.00         191,897             2.1               $ 3.78           191,897            $ 3.78
   5.50-10.00         210,424             5.9                 7.94            96,434              6.81
  11.19-14.81         249,780             6.5                13.15           134,114             12.47
  16.19-19.88         207,320             7.1                17.83           101,854             17.49
  21.13-24.00         131,294             7.1                23.86            91,627             23.82
                    -----------                                             ----------
 $3.00-$24.00         990,715             5.7               $12.63           615,926            $11.39
                   ============                                             ==========
</TABLE>

In July 2000, the stockholders of the Company approved the 2000 Employee Stock
Purchase Plan ("ESPP") whereby eligible employees may invest up to 10% of their
base salary in shares of the Company's common stock.  The purchase price of the
shares is 85% of the fair market value of the stock on either the commencement
date or the date of purchase whichever is lower.  Under the Plan, 200,000 shares
of common stock are available for purchase over ten offering periods through May
2005, of which approximately 189,233 shares remain available.  During 2000 a
total of 10,767 shares were issued under the ESPP.

In May 1995 the stockholders approved the 1995 ESPP similar to the 2000 ESPP
noted above.  The purchase price of the shares under this plan was 90% of the
fair market value of the stock on either the commencement date or the date of
purchase whichever was lower.  Under the plan, 200,000 shares of common stock
were available for purchase over ten offering periods through April 2000.
Shares purchased under this plan totaled 8,333, 0 and 12,300 in 2000, 1999 and
1998, respectively.  The weighted-average grant-date fair value of shares
purchased under the 2000 ESPP and 1995 ESPP was $14.38 in 2000, and $19.80 in
1998.  Approximately 141,483 shares remained under the 1995 ESPP when the plan
terminated in April 2000.

For the purpose of providing pro forma disclosures, the fair values of shares
purchased were estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for purchases in 2000 and 1998:  a
risk free interest rate of 5.9% and 5.2%; an expected life of 6 months in each
year; expected volatility of 39% and 30%; and no expected dividends.

Common Stock

In April 2000, the Company loaned $250,000 to its Chief Executive Officer,
pursuant to a collateralized promissory note.  The note, which bears interest at
a rate of 6.94%, payable annually in arrears, is due April 5, 2005 and is
collateralized by 25,641 shares of

                                      -31-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  STOCKHOLDERS' EQUITY (continued)

common stock of the Company.

In August 1999, the Company loaned $300,000 to its Chief Executive Officer,
pursuant to a collateralized promissory note, for the exercise of a stock option
which was to expire.  The note, which bears interest at a rate of 6.77% per
annum, payable annually in arrears, is due August 23, 2004 and is collateralized
by 16,552 shares of common stock of the Company. The Chief Executive Officer has
the right to put the shares back to the Company at a price equal to $16.3125
commencing April 30, 2001 for a period of eighteen months expiring October 30,
2002.

On September 11, 1995 the Company issued 8,939 shares of its common stock at a
price of $11.188, which represented the fair market value of the common stock on
that date, to an officer of the Company in exchange for a collateralized
promissory note in the amount of $100,000 at an annual interest rate of 6.3%.
The officer repaid the full promissory note on October 31, 2000.

F.   INCOME TAXES

The components of income before income taxes consists of the following:

                                              For the years ended December 31,
                                             ----------------------------------
(Dollars in thousands)                          2000        1999        1998
-------------------------------------------------------------------------------
Domestic                                      $4,198      $3,323      $9,480
Foreign                                        1,106         853         496
                                             ----------------------------------
                                              $5,304      $4,176      $9,976
                                             ==================================


The provision (benefit) for income taxes was computed as follows:

                                           For the years ended December 31,
                                          ----------------------------------
(Dollars in thousands)                      2000        1999        1998
----------------------------------------------------------------------------
Federal income taxes:
     Current                              $1,242       ($110)     $2,036
     Deferred                                 92       1,316       1,120
----------------------------------------------------------------------------
                                           1,334       1,206       3,156
----------------------------------------------------------------------------
State income taxes:
     Current                                 347          22         538
     Deferred                                 15         178         263
----------------------------------------------------------------------------
                                             362         200         801
----------------------------------------------------------------------------
Foreign income taxes                         423         264          33
----------------------------------------------------------------------------
Provision for income taxes                $2,119      $1,670      $3,990
============================================================================


                                      -32-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F.   INCOME TAXES (continued)

Total deferred tax assets (liabilities) are as follows at December 31:

(Dollars in thousands)                                       2000       1999
-------------------------------------------------------------------------------
Total deferred tax assets                                  $ 1,986    $ 1,788
Total deferred tax liabilities                              (4,897)    (4,592)
-------------------------------------------------------------------------------
Net deferred tax liability                                ($ 2,911)  ($ 2,804)
===============================================================================

Deferred tax assets (liabilities) are comprised of the following
significant items at December 31:
                                                             2000       1999
                                                           -------    -------
Current deferred tax assets:
  Inventory and warranty reserves                          $   667    $   579
  Restructuring reserve                                        584        253
  Deferred compensation                                        121        216
  Deferred revenue                                             188        260
  Accounts receivable reserves                                 213        315
  Accrued vacation and other reserves                          213        165
-------------------------------------------------------------------------------
Net current deferred tax asset                               1,986      1,788
-------------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
  Sales type leases                                         (4,144)    (4,142)
  Restructuring reserve                                        490         --
  Depreciation                                              (2,552)    (1,286)
  Amortization                                               1,309        836
-------------------------------------------------------------------------------
Net noncurrent deferred tax liability                       (4,897)    (4,592)
-------------------------------------------------------------------------------
Net deferred tax liability                                ($ 2,911)  ($ 2,804)
===============================================================================

The differences between the statutory U.S. federal income tax rate and the
Company's effective tax rate are as follows:

                                             For the years ended December 31,
                                            ----------------------------------
(Dollars in thousands)                          2000       1999       1998
------------------------------------------------------------------------------
Provision at statutory rate                   $1,803     $1,420     $3,457
State income tax, net of federal tax effect      239        188        529
Tax exempt income                                 --         (2)       (34)
Goodwill                                          75         51         26
Foreign rate differences                          99         40         30
Other, net                                       (97)       (27)       (18)
-------------------------------------------------------------------------------
Provision for income taxes                    $2,119     $1,670     $3,990
===============================================================================

                                      -33-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

G.  EMPLOYEE BENEFIT PLAN

The Company has a 401(k) defined contribution savings plan covering
substantially all of its employees.  The Company's contributions, which are
included in selling, general and administrative expenses, were $471,000,
$434,000, and $372,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.

H.  SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes amounted to $2,678,000, $2,134,000, and $1,624,000
during 2000, 1999 and 1998, respectively.  Interest paid was $334,000, $129,000,
and $47,000 during 2000, 1999 and 1998, respectively.

I.  GOODWILL AND INTANGIBLES

During 2000, the Company recorded approximately $6.3 million of intangible
assets related to agreements entered into with community hospitals for
conversion to services provided by the Company.  At December 31, 2000,
approximately $0.4 million remained to be paid by the Company under these
agreements.  The intangible assets related to these agreements consist of the
cost of purchasing the rights to service and/or manage the personal response
systems program located in various stand-alone facilities.  These agreements
allow the Company to monitor and provide other related services to existing and
future subscribers over the term of the agreements. The Company amortizes the
acquisition costs over the life of the agreements, which is typically five
years.

In September 2000, Lifeline Systems, Canada, a wholly owned subsidiary of the
Company, completed the acquisition of the Argus Emergency Medical division of
Microtec Enterprises Inc. of Quebec, Canada.  Argus provided personal response
services similar to the services provided by the Company.  The purchase price
was approximately $1.5 million of which $1.1 million was paid at the closing
with the remainder to be paid during 2001 and 2002.  This acquisition was
accounted for as a purchase transaction, and the resulting goodwill is being
amortized over an estimated life of 10 years.   The results of the acquired
business are included in the Company's consolidated financial statements from
the date of acquisition and did not have a material impact on 2000 operating
results.

In August 1999 the Company completed the acquisition of TelCARE Systems, Inc. of
Denver, Colorado.  TelCARE provides personal response services.  The purchase
price was approximately $943,000 which was financed by borrowing $0.9 million on
a pre-existing line of credit.  The acquisition was accounted for as a purchase
transaction and, as a result, the Company recorded goodwill of approximately
$913,000 to be amortized over an estimated life of five years.

Goodwill and intangible amortization expense was $2,171,000,  $954,000, and
$110,000, for the years ended 2000, 1999 and 1998, respectively.  Accumulated
goodwill and intangible amortization amounted to $3,225,000 and $1,054,000 as of
December 31, 2000 and 1999, respectively.

                                      -34-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

J.  RESTRUCTURING AND NON RECURRING CHARGES

In December 1997, the Company approved a restructuring plan to improve operating
efficiencies and reduce costs, and recorded a pre-tax restructuring charge of
$4.3 million. This charge was established to provide for a business
reorganization which included relocation of the Company's corporate
headquarters, work force reduction and write down of impaired assets in
accordance with SFAS 121.

During 1998 and 1999, certain events occurred which resulted in changes to the
Company's original estimates.  In the second quarter of 1998, the Company made a
determination to retain certain employees originally scheduled to be terminated.
As a result, it reversed approximately $200,000 of the original severance
reserve. In February 1999, the Company negotiated a buyout of its old corporate
headquarters facility lease, which eliminated the requirement for rental
commitment payments of $655,000.  In addition, the delay of the Company's move
to its new corporate headquarters extended the period of depreciation expense of
its fixed assets related to its old corporate headquarters and reduced the net
book value write off at the abandonment date amounting to $155,000.

In June 1999, the Company recorded a pre-tax restructuring charge of
approximately $2.2 million. Nearly $1.7 million was recorded as a result of the
outsourcing of the Company's equipment manufacturing operations to Ademco, an
international manufacturer of electronic equipment and a division of Honeywell
International, Inc. This charge included approximately $1.3 million of costs
related to the reduction in the Company's manufacturing workforce, and nearly
$379,000 of costs associated with the write down of certain manufacturing fixed
assets. During the second quarter of 1999, certain events occurred which
resulted in changes to the Company's original estimates for the cost of its
corporate headquarters' relocation. As a result, the restructuring charge
includes approximately $520,000 of costs not reflected in the Company's December
1997 restructuring charge (described above) associated with closing the
Company's operations located in Cambridge, Massachusetts.

On September 2, 1999, the Company and Protection One mutually agreed to
terminate their proposed merger agreement.  In September 1999, the Company
recorded a pre-tax charge of $423,000 for unreimbursed costs incurred in
connection with the proposed merger.  These costs included such items as
investment banker, legal and independent accountant fees.  During the fourth
quarter of 2000, the Company reversed $134,000 of these unpaid, unreimbursed
costs.

In September 2000, the Company recorded a pre-tax non-recurring charge of
approximately $2.7 million for costs it expects to incur to address erroneous
low-battery signals  in some of its personal help buttons. Included in the non-
recurring charge are anticipated material and mailing costs for exchanging
buttons, providing hospital programs with higher inventory levels for the
planned swap, and the cost of installer visits to subscriber homes to replace
the buttons.

At December 31, 2000, accrued restructuring and other non-recurring charges of
nearly $2,578,000 included approximately $85,000 of total remaining severance
costs and $2.5 million of costs associated with the anticipated cost of
addressing erroneous low-battery signals in personal help buttons.

                                      -35-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

J. RESTRUCTURING AND NON RECURRING CHARGES (continued)

The following is a summary of activity for 2000:
<TABLE>
<CAPTION>
                                                        December 31,   Amounts    Amounts      Amounts     December 31,
                                                           1999        Recorded   Utilized     Reversed       2000
                                                     ---------------------------------------------------------------------
<S>                                                     <C>            <C>        <C>          <C>          <C>
Reduction of workforce                                     $522                   ($437)                     $   85
 and other cash flows

Unreimbursed merger costs                                   134                                 ($134)            -

Erroneous low battery                                         -        $2,700      (207)                       2,493
 signals
                                                     ----------------------------------------------------------------------

Total                                                      $656        $2,700     ($644)         ($134)       $2,578
                                                     ======================================================================
</TABLE>

                                      -36-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K.  LONG TERM DEBT

In June 1999, the Company entered into an amended and restated $10.0 million
line of credit which was originally obtained in April 1998.  The agreement
contains several covenants, including the Company maintaining certain levels of
financial performance and capital structure.  These financial covenants include
a requirement for a current ratio of at least 1.5 to 1.0 and a leverage ratio of
no more than 1.0 to 1.0.   In addition, there are certain negative covenants
that include limitations on the Company's capital and other expenditures,
restrictions on the Company's capacity to obtain additional debt financing,
restrictions on the disposition of the Company's assets, and restrictions on its
investment portfolio.  The Company was not in compliance with certain financial
covenants during the first and third quarters of 2000.  It obtained waivers from
its bank for these covenants for the quarters ended March 31, 2000 and September
30, 2000.  This line of credit matures on June 30, 2002, and as of December 31,
2000 the Company had $1.6 million outstanding under this line.

The agreement has two components, the first being a working line of credit.
Borrowings under this portion of the line of credit are based on the London
Interbank Offered Rate (LIBOR) interest rate plus 0.75%.   The other component
of this agreement is the ability to convert up to $5 million dollars into a five
year fixed loan at the Bank's prime interest rate at the date of conversion.  As
of December 31, 2000 the Company had $1.6 million outstanding under this line at
an interest rate of approximately 7.5%.   Principal payments are to be made in
monthly installments.

Future line of credit loan payments at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)

<S>                                               <C>
2001                                               $509
2002                                                478
2003                                                447
2004                                                371
--------------------------------------------------------
Total                                             1,805
Less amount representing interest                   230
--------------------------------------------------------
Total principal payments                          1,575
Less current portion                                405
--------------------------------------------------------
Total long-term principal payments               $1,170
========================================================
</TABLE>

L.    SEGMENT INFORMATION

The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131).  SFAS 131 establishes standards
for reporting information regarding operating segments and related disclosures
about products and services, geographic areas and major customers.

                                      -37-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L.  SEGMENT INFORMATION (continued)

The Company is active in one business segment: designing, marketing, monitoring
and supporting its personal response units.  The Company maintains sales and
marketing operations in both the United States and Canada.

GEOGRAPHIC SEGMENT DATA

Net revenues to external customers are based on the location of the customer.
Geographic information as of December 31, 2000, 1999 and 1998 and for the years
then ended is presented as follows:


<TABLE>
<S>                         <C>               <C>             <C>
                                        2000            1999          1998
                          ------------------------------------------------
Net Sales:
    United States                    $75,199         $65,579       $60,523
    Canada                             6,290           5,213         4,361
                          ------------------------------------------------
                                     $81,489         $70,792       $64,884
                          ================================================

Net Income (Loss):
    United States                    $ 2,502         $ 2,305       $ 6,096
    Canada                               683             201          (110)
                          ------------------------------------------------
                                     $ 3,185         $ 2,506       $ 5,986
                          ================================================
</TABLE>

<TABLE>
<CAPTION>
Total Assets:
<S> <C>                     <C>               <C>             <C>
    United States                    $58,725         $53,970       $49,348
    Canada                             5,803           3,415         3,156
                          ------------------------------------------------
                                     $64,528         $57,385       $52,504
                          ================================================
</TABLE>



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.

                                      -38-
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The information under the heading "Election of Directors" in the Company's
definitive proxy material for its 2001 annual meeting of stockholders is
incorporated herein by reference. Information concerning officers of the Company
appears in Part I of this Annual Report on Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

  The information under the heading "Executive Compensation," excluding the
"Compensation Committee Report on Executive Compensation" and the Stock Price
Performance Graph in the Company's definitive proxy material for its 2001 annual
meeting of stockholders, is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a)  Security ownership of certain beneficial owners:  The information
          under the heading "Beneficial Ownership of Common Stock" in the
          Company's definitive proxy material for its 2001 annual meeting of
          stockholders is incorporated herein by reference.

     (b)  Security ownership of management:  The information under the heading
          "Beneficial Ownership of Common Stock" in the Company's definitive
          proxy material for its 2001 annual meeting of stockholders is
          incorporated herein by reference.

     (c)  Changes in control:  None known.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information under the heading "Certain Relationships and Related
Transactions," in the Company's definitive proxy material for its 2001 annual
meeting of stockholders is incorporated herein by reference.

                                      -39-
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)(1)  FINANCIAL STATEMENTS

     The following consolidated financial statements of LIFELINE SYSTEMS, INC.
and the report of independent accountants relating thereto, are set forth in
Item 8 of this Annual Report on Form 10-K on the pages indicated.
<TABLE>
<CAPTION>

                                                                Pages
                                                                -----
<S>                                                             <C>

Report of Independent Accountants                                  17

Consolidated Balance Sheets as of December 31, 2000 and 1999       18

Consolidated Statements of Income and Comprehensive Income
 for the years ended December 31, 2000, 1999, and 1998             19

Consolidated Statements of Stockholders' Equity
  for the years ended December 31, 2000, 1999, and 1998            20

Consolidated Statements of Cash Flows for the years
  ended December 31, 2000, 1999, and 1998                          21

Notes to Consolidated Financial Statements                      22-38
</TABLE>

(A)(2) FINANCIAL STATEMENT SCHEDULE

     The following financial statement schedule of LIFELINE SYSTEMS, INC. is
filed herewith and included in ITEM 14 (a)(2) on the pages indicated below.

                                                                 Pages
                                                                 -----

Schedule II - Valuation and Qualifying Accounts for
the years ended December 31, 2000, 1999 and 1998                    49


     All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.

(B)  REPORTS ON FORM 8-K

     The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the quarter ended December 31, 2000.

(C)  EXHIBITS

     The Exhibits which are filed with this Report or which are incorporated
herein by reference are set forth in the Exhibit Index, which appears on pages
42 through 48 hereof.

                                      -40-
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) 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.

                                         LIFELINE SYSTEMS, INC.


March 26, 2001                               By:  /s/ Ronald Feinstein
--------------                                    --------------------
Date                                          Ronald Feinstein
                                              Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature                             Capacity                     Date
------------------------  ---------------------------------   --------------
<S>                       <C>                                 <C>

/s/ L. Dennis Shapiro     Chairman of the Board               March 26, 2001
------------------------                                      --------------
L. Dennis Shapiro

/s/ Ronald Feinstein      Chief Executive Officer,            March 26, 2001
------------------------  President and Director (Principal   --------------
Ronald Feinstein          Executive Officer)


/s/ Dennis M. Hurley      Senior Vice President of Finance    March 26, 2001
------------------------  (Principal Financial and            --------------
Dennis M. Hurley          Accounting Officer)


/s/ Everett N. Baldwin    Director                            March 26, 2001
------------------------                                      --------------
Everett N. Baldwin

/s/ Joseph E. Kasputys    Director                            March 26, 2001
------------------------                                      --------------
Joseph E. Kasputys

/s/ Carolyn C. Roberts    Director                            March 26, 2001
------------------------                                      --------------
Carolyn C. Roberts

/s/ Gordon C. Vineyard    Director                            March 26, 2001
------------------------                                      --------------
Gordon C. Vineyard
</TABLE>

                                      -41-
<PAGE>

                                 EXHIBIT INDEX

  The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities and Exchange Act
of 1934 and are referred to and incorporated herein by reference to such
filings.
<TABLE>
<CAPTION>
EXHIBIT NO.   EXHIBIT                                                            SEC DOCUMENT REFERENCE
------------  --------------------------------------------------                 ---------------------------------------------------
<S>           <C>                                                                <C>
EXHIBIT 3.    ARTICLES OF INCORPORATION AND BY-LAWS

  3.1         Articles of Organization of Lifeline Systems,
              Inc., as amended.                                                  2-84060 Exhibit 3.1

  3.2         Articles of Amendment of Lifeline Systems, Inc.                    1987 10K Exhibit 3.4

  3.3         Restated By-Laws of Lifeline Systems, Inc.                         1990 10K Exhibit 3.4

EXHIBIT 4.    INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
              HOLDERS

  4.1         Specimen Stock Certificate.                                        2-84060 Exhibit 4.1

  4.2         Shareholder Rights Plan dated July 24, 1998                        8-K dated August 5, 1998

  4.3         Amendment Number 1 to Shareholder                                  10Q for the quarter ended
              Rights Plan dated October 18, 1998                                 September 30, 1998 Exhibit 4.3

EXHIBIT 10.   MATERIAL CONTRACTS

 10.01        Registrant's 1982 Incentive Stock Option Plan                      2-84060 Exhibit 10.19
              and form of Option Agreement.

 10.02        Registrant's 1982-A Incentive Stock Option Plan                    2-84060 Exhibit 10.20
              and form of Option Agreement.

 10.03        Medical Expense Reimbursement Plan.                                2-84060 Exhibit 10.21

 10.04        Registrant's 1986 Incentive Stock                                  33-12030 Exhibit 10.26
              Option Plan and form of Option Agreement

 10.05        Amendments to Registrant's 1986 Incentive                          1987 10K Exhibit 10.13
              Stock Option Plan.

 10.06        Registrant's 1982 Incentive Stock Option Plan,                     1988 10K Exhibit 10.14
              as amended.

 10.07        Registrant's 1982-A Incentive Stock Option Plan,                   1988 10K Exhibit 10.15
              as amended.

 10.08        Amendment to Registrant's 1986 Incentive                           Proxy Statement filed
              Stock Option Plan.                                                 April 13, 1989 (0-13617)

 10.09        Registrant's 1991 Stock Option Plan.                               1990 10K Exhibit 10.37
</TABLE>

                                      -42-
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.  EXHIBIT                                                SEC DOCUMENT REFERENCE
-----------  --------------------------------------------------     ---------------------------------------------------
<S>           <C>                                                   <C>
 10.10       Form of Non-statutory Stock Option Agreement
             for Registrant's 1991 Stock Option Plan.               1992 10K Exhibit 10.32

 10.11       Form of Special Non-statutory Stock Option
             Agreement for Registrant's 1991 Stock Option Plan.     1992 10K Exhibit 10.33

 10.12       Lease Agreement between the Registrant and
             the Massachusetts Institute of Technology,
             dated April 3, 1992.                                   1992 10K Exhibit 10.34

 10.13       First Amendment to Lease Agreement dated April 3,
             1999 between the Registrant and the Massachusetts
             Institute of Technology, dated August 25, 1992.        1992 10K Exhibit 10.35

 10.14       Amended Employment and Noncompetition Agreement
             between Ronald Feinstein and the Registrant,
             dated August 27, 1992.                                 1992 10K Exhibit 10.36

 10.15       Secured Promissory Note between Ronald Feinstein
             and the Registrant, dated September 1, 1992.           1992 10K Exhibit 10.37

 10.16       Security and Pledge Agreement between
             Ronald Feinstein and the Registrant,
             date September 1, 1992.                                1992 10K Exhibit 10.38

 10.17       Non-statutory Stock Option Agreement, as amended,
             between Ronald Feinstein and the Registrant,
             dated August 27, 1992.                                 1992 10K Exhibit 10.39

 10.18       Special Non-statutory Stock Option Agreement, as
             amended, between Ronald Feinstein and the Registrant,
             dated August 27, 1992.                                  1992 10K Exhibit 10.40

 10.19       Second Amendment to Lease Agreement dated               10Q for the Quarter
             April 3, 1992 between the Registrant and                ended June 30, 1993
             the Massachusetts Institute of Technology,              Exhibit 10.42
             dated May 18, 1993.

 10.20       Amended and Restated Asset Purchase Agreement           10Q for the Quarter
             dated September 9, 1993 between the Registrant and      ended September 30,1993
             CarePartners, Inc.                                      Exhibit 10.43

 10.21       Second Amendment to Lease Agreement
             dated August 31, 1989 and Consent to
             Assignment of Lease between the Registrant
             and Tierrasanta 234 dated September 9, 1993.            1993 10K Exhibit 10.44

 10.22       Letter Agreement between Ronald Feinstein
             and the Registrant dated March 4, 1994.                 1993 10K Exhibit 10.45
</TABLE>
                                      -43-
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.   EXHIBIT                                               SEC DOCUMENT REFERENCE
------------  --------------------------------------------------    ---------------------------------------------------
<S>           <C>                                                   <C>
 10.23        Nonstatutory Stock Option Agreement between
              Ronald Feinstein and the Registrant dated
              February 11, 1994.                                    1993 10K Exhibit 10.46

 10.24        Third Amendment to Lease Agreement dated April 3,     10Q for the Quarter
              1992 between the Registrant and the Massachusetts     ended March 31, 1993
              Institute of Technology                               Exhibit 10.47

 10.25        Registrant's 1994 Stock Option Plan.                  1994 10K Exhibit 10.48

 10.26        Form of Non-statutory Stock Option Agreement
              for Registrant's 1994 Stock Option Plan.              1994 10K Exhibit 10.49

 10.27        Form of Special Non-statutory Stock Option
              Agreement for Registrant's 1994 Stock Option Plan.    1994 10K Exhibit 10.50

 10.28        Master Lease Agreement between Registrant and
              Bell Atlantic-TriCon Leasing Corporation              1994 10K Exhibit 10.51

 10.29        Master Lease Agreement between Registrant and
              U.S. Leasing Corporation                              1994 10K Exhibit 10.52

 10.30        Secured Promissory Note between Thomas E. Loper
              and the Registrant, dated September 11, 1995.         1995 10K Exhibit 10.30

 10.31        Security and Pledge Agreement between
              Thomas E. Loper and the Registrant dated
              September 11, 1995.                                   1995 10K Exhibit 10.31

 10.32        Asset Purchase Agreement dated May 17, 1995
              between the Registrant and Martha's Vineyard
              Hospital Foundation.                                  1995 10K Exhibit 10.32

 10.33        Form of the Non-statutory Stock Option
              Agreement to Registrant's 1991 Stock
              Option Plan                                           1995 10K Exhibit 10.33

 10.34        Form of the Non-statutory Stock Option
              Agreement to Registrant's 1994 Stock Option Plan      1995 10K Exhibit 10.34

 10.35        1995 Employee Stock Purchase Plan                     1995 10K Exhibit 10.35

 10.36        Revolving Credit Agreement between
              the First National Bank of Boston and the
              Registrant, dated November 30, 1995                   1995 10K Exhibit 10.36

</TABLE>
                                      -44-
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.   EXHIBIT                                             SEC DOCUMENT REFERENCE
------------  --------------------------------------------------  ---------------------------------------------------
<S>           <C>                                                 <C>
 10.37        Amended Employment Agreement between Ronald
              Feinstein and the Registrant,                       10Q for the quarter ended
              dated June 14, 1996                                 June 30, 1996, Exhibit 10.60

 10.38        Employment Agreement between Len Wechsler
              and Lifeline Systems (Canada), Inc.                 10Q for the quarter ended
              dated July 3, 1996                                  September 30, 1996, Exhibit 10.60

 10.39        Stock purchase agreement between
              Lifeline Systems (Canada), Inc. and                 10Q for the quarter ended
              Len Wechsler dated July 3, 1996                     September 30, 1996, Exhibit 10.61

 10.40        Stock purchase agreement between
              Lifeline Systems (Canada), Inc., and
              CareTel, Inc. and the stockholders of               10Q for the quarter ended
              CareTel, Inc., dated July 3, 1996                   September 30, 1996, Exhibit 10.62

 10.41        Amendment to Registrant's 1991
              Stock Option Plan                                   1996 10K Exhibit 10.41

 10.42        Amendment to Registrant's 1994                      1996 10K Exhibit 10.42
              Stock Option Plan

 10.43        First Amendment to Revolving Credit Agreement
              between the First National Bank of Boston
              and the Registrant dated November 29, 1996          1996 10K Exhibit 10.43

 10.44        Lease Agreement between the Registrant and
              Bishop/Clark Associates Limited Partnership
              dated November 11, 1997                             1997 10K Exhibit 10.44

 10.45        Second Amendment to Revolving Credit Agreement
              between the First National Bank of Boston
              and the Registrant dated December 31, 1997          1997 10K Exhibit 10.45

 10.46        Offer to Lease between CareTel, Inc. and
              Graduate Holdings Limited and Samuel Sarick
              Limited dated September 1, 1994                     1997 10K Exhibit 10.46

 10.47        Form of Lease Agreement between Lifeline Systems,
              Canada and Samuel Sarick Limited and Graduate
              Holdings Limited dated January 29, 1998             1997 10K Exhibit 10.47

 10.48        Master Agreement for Professional Services
              between Cambridge Technology Partners and
              the Registrant dated June 16, 1997                  1997 10K Exhibit 10.48

</TABLE>
                                      -45-
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.   EXHIBIT                                                               SEC DOCUMENT REFERENCE
------------  ------------------------------------------------------                ----------------------------------------------
<S>           <C>                                                                   <C>
 10.49        Form of Change in Control Agreement for
              for the following Named Executives:
              Mr. Richard Reich, Mr. Thomas Loper,
              Mr. Dennis Hurley, Mr. John Gugliotta                                 1997 10K Exhibit 10.49

 10.50        Fourth Amendment to Lease Agreement dated
              April 3, 1992 between the Registrant                                  10Q for the quarter ended
              and the Massachusetts Institute of Technology                         March 31, 1998 Exhibit 10.50

 10.51        Revolving Line of Credit between
              State Street Bank and Trust Company                                   10Q for the quarter ended
              and the Registrant, dated April 22, 1998                              June 30, 1998 Exhibit 10.51

 10.52        First amendment to lease agreement between
              Registrant and Bishop/Clark Associates                                10Q for the quarter ended
              Limited Partnership dated June 30, 1998                               June 30, 1998 Exhibit 10.52

 10.53        Lease agreement between the Registrant and                            10Q for the quarter ended
              Triangle Realty Trust dated August, 1998                              September 30, 1998 Exhibit 10.53

 10.54        Amended and Restated Agreement and Plan of
              Contribution and Merger dated
              October 28, 1998                                                      8-K dated October 30,1998

 10.55        Lease Termination Agreement between the Registrant
              and Massachusetts Institute of Technology
              dated January 29, 1999.                                               1998 10K Exhibit 10.55

 10.56        Sublease Agreement between the Registrant and
              Millennium Pharmaceuticals, Inc. dated January 29, 1999               1998 10K Exhibit 10.56

 10.57        Consent to Sublease and Agreement between the Registrant,
              Massachusetts Institute of Technology and Millennium
              Pharmaceuticals, Inc. dated January 29, 1999                          1998 10K Exhibit 10.57

 10.58        Notice of Termination of Lease dated January 29, 1999                 1998 10K Exhibit 10.58

 10.59        Asset Purchase Agreement dated November 13, 1998
              between the Registrant and Homemakers Upstate Group                   1998 10K Exhibit 10.59

 10.60        Master Lease Agreement between the Registrant and Andover             10Q for the quarter ended
              Capital Group dated March 11, 1999                                    March 31, 1999 Exhibit 10.60


 10.61        Loan Document Modification Agreement between
              State Street Bank and Trust Company                                   10Q for the quarter ended
              and the Registrant dated June 30, 1999                                September 30, 1999 Exhibit 10.61
</TABLE>

                                      -46-
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.   EXHIBIT                                                               SEC DOCUMENT REFERENCE
------------  ------------------------------------------------------                ----------------------------------------------
<S>           <C>                                                                   <C>
 10.62        Amended and Restated Note between State Street
              Bank and Trust Company and the                                        10Q for the quarter ended
              Registrant dated June 30, 1999                                        September 30, 1999Exhibit  10.62

 10.63        Secured Promissory Note between
              Ronald Feinstein and the Registrant,                                  10Q for the quarter ended
              dated August 23, 1999                                                 September 30, 1999 Exhibit 10.63

 10.64        Security and Pledge Agreement between Ronald                          10Q for the quarter ended
              Feinstein and the Registrant, dated August 23, 1999                   September 30, 1999 Exhibit 10.64

 10.65        The supply agreement between theAdemco Group
              a division of Honeywell International, Inc.,
              formerly the Pittway Corporation and the
              Registrant dated December 29, 1999                                    1999 10-K Exhibit 10.65

 10.66        Termination Agreement, Mutual Releases and
              Covenants Not to Sue between Protection One
              and the Registrant dated September 2, 1999                            1999 10-K Exhibit 10.66

 10.67        Second amendment to lease agreement between
              Registrant and Bishop/Clark Associates
              Limited Partnership dated November 18, 1999                           1999 10-K Exhibit 10.67

 10.68        Agreement for Purchase and Sale of
              Common Stock between Ronald Feinstein                                 10-Q for the quarter ended
              and the Registrant, dated August 23, 1999                             March 31, 2000 Exhibit 10.68

 10.69        Secured Promissory Note between Ronald                                10-Q for the quarter ended
              Feinstein and the Registrant, dated April 5, 2000                     March 31, 2000 Exhibit 10.69

 10.70        Security and Pledge Agreement between Ronald                          10-Q for the quarter ended
              Feinstein and the Registrant, dated April 5, 2000                     March 31, 2000 Exhibit 10.70

 10.71        Amended Employment Agreement bewteen Len Wechsler                     10-Q for the quarter ended
              and Lifeline Systems, Canada, dated July 2000                         June 30, 2000 Exhibit 10.71

 10.72        Registrant's 2000 Stock Incentive Plan                                10-Q for the quarter ended
                                                                                    June 30, 2000 Exhibit 10.72

 10.73        Registrant's 2000 Employee Stock Option Plan                          10-Q for the quarter ended
                                                                                    June 30, 2000 Exhibit 10.73
</TABLE>

                                      -47-
<PAGE>

<TABLE>
<CAPTION>

EXHIBIT NO.   EXHIBIT                                                               SEC DOCUMENT REFERENCE
------------  ------------------------------------------------------                ----------------------------------------------
<S>           <C>                                                                   <C>
Filed herewith:
10.74         Tax Increment Financing Agreement between
                   Registrant and Town of Framingham dated
                   October 25, 2000



EXHIBIT 21.   SUBSIDIARIES.

Filed herewith:
     21.1     Subsidiaries of Lifeline Systems, Inc.

EXHIBIT 23.   CONSENTS OF EXPERTS AND COUNSEL.

Filed herewith:
     23.1     Consent of PricewaterhouseCoopers LLP
</TABLE>

                                      -48-
<PAGE>

                            LIFELINE SYSTEMS, INC.

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

             For the years ended December 31, 2000, 1999, AND 1998
                             (Dollars in thousands)



<TABLE>
<CAPTION>
                                                           Additions
                                         Balance at        Charged to
                                         Beginning          Costs &                              Balance at
Description                               of Year           Expenses        Deductions/(1)/      End of Year
------------------------------------  ----------------    ------------    --------------------  -------------
<S>                                   <C>               <C>               <C>                   <C>
2000
------------------------------------
Allowance for doubtful receivables:
 Trade accounts receivable                 $706              $ 16                  $273             $449
 Lease receivables                          147                60                     -              207
                                           ----              ----                  ----             ----
  Total                                    $853              $ 76                  $273             $656

1999
------------------------------------
Allowance for doubtful receivables:
 Trade accounts receivable                 $239              $528                  $ 61             $706
 Lease receivables                          190                 -                    43              147
                                           ----              ----                  ----             ----
  Total                                    $429              $528                  $104             $853

1998
------------------------------------
Allowance for doubtful receivables:
 Trade accounts receivable                 $216              $138                  $115             $239
 Lease receivables                          190                 -                     -              190
                                           ----              ----                  ----             ----
  Total                                    $406              $138                  $115             $429
</TABLE>



1)  Uncollectible accounts and adjustments.

                                      -49-