UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

[ X ]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT

         For the quarterly period ended September 30, 2001


[   ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                For the transition period from ______ to _______

                         Commission File Number 0-28490

                          GUARDIAN INTERNATIONAL, INC.
        (Exact name of small business issuer as specified in its charter)

               Florida                                 58-1799634
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
                                             incorporation or  organization)

          3880 N. 28 Terrace                          (954) 926-5200
        Hollywood, Florida 33020                (Issuer's telephone number)
(Address of principal executive offices)


         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

         As of November 12, 2001, there were 8,096,441 shares of Class A Voting
Common Stock, par value $.001 per share ("Class A Common Stock"), and 634,035
shares of Class B Nonvoting Common Stock, par value $.001 per share, immediately
convertible into shares of Class A Common Stock on a one for one basis, of the
issuer outstanding.

           Transitional Small Business Disclosure Format (Check one):

                               YES        NO   X
                                   ----      -----

<PAGE>


                          GUARDIAN INTERNATIONAL, INC.

                                Table of Contents

                                                                        Page No.
PART I      FINANCIAL INFORMATION

Item 1.     Financial  Statements

            Consolidated Balance Sheets as of September 30, 2001 and
                 December 31, 2000                                           1

            Consolidated Statements of Operations for the Three and Nine
                 Months Ended September 30, 2001 and 2000                    2

            Consolidated  Statement of Changes in Shareholders'  Equity
           (Deficit) for the Nine Months Ended September 30, 2001            3

            Consolidated Statements of Cash Flows for the Nine Months
                 Ended September 30, 2001 and 2000                           4

            Notes to Consolidated Financial Statements                       5

Item 2.     Management's Discussion and Analysis                             10

PART II     OTHER INFORMATION

Item 6.     Exhibits and Reports on Form 8-K                                 19


<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                          GUARDIAN INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                 September 30,    December 31,
                                                                                      2001            2000
                                                                                  ------------    ------------
                                                                                  (Unaudited)
<S>                                                                               <C>             <C>
      ASSETS
Current assets
      Cash and cash equivalents                                                   $    377,222    $    722,575
      Accounts receivable, net of allowance for doubtful accounts
             of  $226,785 and $597,540, respectively                                 2,479,881       2,236,898
      Current portion of notes receivable                                               80,990          60,990
      Inventory                                                                        933,983         974,730
      Prepaid expense and other                                                        222,285          76,127
                                                                                  ------------    ------------
             Total current assets                                                    4,094,361       4,071,320

Property and equipment, net                                                          9,368,727       8,216,599
Customer accounts, net                                                              19,950,313      23,285,365
Goodwill and other intangible assets, net                                            1,609,066       1,591,125
Notes receivable, less current portion                                                  75,327          61,498
Deposits and other assets                                                              156,138          88,647
                                                                                  ------------    ------------
             Total assets                                                         $ 35,253,932    $ 37,314,554
                                                                                  ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
      Accounts payable and accrued expenses                                       $  3,415,106    $  4,332,344
      Current portion of unearned revenue                                            2,445,444       2,421,277
      Current portion of long term obligations                                         166,056         321,499
                                                                                  ------------    ------------
             Total current liabilities                                               6,026,606       7,075,120
Unearned revenue, less current portion                                               7,604,317       6,332,469
Long term obligations, less current portion                                         12,715,875      11,741,507
                                                                                  ------------    ------------
             Total liabilities                                                      26,346,798      25,149,096
                                                                                  ------------    ------------

Commitments and contingencies (Note 8)
Redeemable cumulative preferred stock,
      Series C preferred stock, 16,397 shares authorized, 8,397 and 16,397
      shares issued and outstanding, $8.4 million and $16.4 million
      liquidation preference, at September 30, 2001 and December 31,
      2000, respectively                                                             8,397,000      16,397,000

Shareholders' equity (deficit):
      Preferred stock, $.001 par value, 30,000 shares authorized
             Series D preferred stock, 11,369 and 10,725 shares issued and
             outstanding, $11.4 million and $10.7 million liquidation
             preference, at September 30, 2001 and December 31, 2000, respectively          11              11
      Preferred stock, $.001 par value, 16,397 shares authorized
             Series E preferred stock, 8,000 shares issued and outstanding at
             September 30, 2001, $8.0 million liquidation
             preference                                                                      8              --
      Class A voting common stock, $.001 par value, 100,000,000 shares
             authorized, 8,096,441 issued and outstanding                                8,096           8,096
      Class B non-voting common stock, $.001 par value, 1,000,000 shares
             authorized, 634,035 shares issued and outstanding                             634             634
      Additional paid-in capital                                                    26,578,238      20,087,116
      Accumulated deficit                                                          (26,076,853)    (24,327,399)
                                                                                  ------------    ------------
             Total shareholders' equity (deficit)                                      510,134      (4,231,542)
                                                                                  ------------    ------------
             Total liabilities and shareholders' equity (deficit)                 $ 35,253,932    $ 37,314,554
                                                                                  ============    ============
</TABLE>

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

                                       1

<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                  For the Three Months Ended         For the Nine Months Ended
                                                        September 30,                      September 30,
                                               ------------------------------      ------------------------------
                                                   2001              2000              2001              2000
                                               ------------      ------------      ------------      ------------
<S>                                            <C>               <C>               <C>               <C>
Revenues
     Monitoring                                $  3,302,964      $  3,227,456      $  9,875,951      $  9,518,266
     Installation and service                     2,122,575         1,405,073         5,850,367         3,932,690
                                               ------------      ------------      ------------      ------------
        Total revenues                            5,425,539         4,632,529        15,726,318        13,450,956
                                               ------------      ------------      ------------      ------------

Operating expenses
     Monitoring                                     491,027           499,354         1,517,737         1,499,841
     Installation and service                     1,723,956         1,173,893         4,815,123         3,251,701
     Selling, general and administrative          2,027,354         1,814,777         6,071,796         5,478,872
     Amortization of customer accounts            1,188,832         1,266,229         3,475,070         3,729,550
     Depreciation and amortization                  685,007           499,655         1,969,049         1,458,793
                                               ------------      ------------      ------------      ------------
        Total operating expenses                  6,116,176         5,253,908        17,848,775        15,418,757
                                               ------------      ------------      ------------      ------------

        Operating loss                             (690,637)         (621,379)       (2,122,457)       (1,967,801)

Interest and other expense, net                     228,116           344,384           848,617           942,684
                                               ------------      ------------      ------------      ------------

Net loss before cumulative effect of a
        change in accounting principle             (918,753)         (965,763)       (2,971,074)       (2,910,485)

Cumulative effect of a change in
        accounting principle (Note 1)                    --                --                --        (3,050,843)
                                               ------------      ------------      ------------      ------------

        Net loss                                   (918,753)         (965,763)       (2,971,074)       (5,961,328)

Preferred stock dividends                          (457,483)         (449,546)       (1,372,450)       (1,349,769)
Gain on exchange of preferred stock
(Note 7)                                                 --                --         2,594,070                --
                                               ------------      ------------      ------------      ------------

        Net loss applicable to
             common stock                      $ (1,376,236)     $ (1,415,309)     $ (1,749,454)     $ (7,311,097)
                                               ============      ============      ============      ============

Basic loss per common share:

Net loss before cumulative effect
        of a change in accounting principle    $      (0.16)     $      (0.16)     $      (0.20)     $      (0.48)

Cumulative effect of a change in
        accounting principle (Note 1)                    --                --                --             (0.34)
                                               ------------      ------------      ------------      ------------

Net loss                                       $      (0.16)     $      (0.16)     $      (0.20)     $      (0.82)
                                               ============      ============      ============      ============

Weighted average common shares                    8,730,476         8,730,476         8,730,476         8,876,578
                                               ============      ============      ============      ============
</TABLE>


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

                                       2

<PAGE>
                          GUARDIAN INTERNATIONAL, INC.
       CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                           Series D             Series E        Common Stock        Common Stock      Additional
                                        Preferred Stock      Preferred Stock       Class A            Class B           Paid-in
                                        Shares    Amount    Shares    Amount   Shares    Amount   Shares    Amount      Capital
                                      ---------------------------------------------------------------------------------------------
<S>                                      <C>       <C>      <C>        <C>    <C>        <C>      <C>        <C>     <C>
Balance at December 31, 2000             10,725    $ 11                       8,096,441  $ 8,096  634,035    $ 634   $ 20,087,116


   Exchange of Series C preferred
      stock for Series E preferred
      stock                                                 8,000      $ 8                                              5,335,992
   Issuance and accrual of
   additional
      Series D preferred shares as
      dividends                             644                                                                         1,155,130
   Series C preferred dividends
   Series D preferred dividends
   Series E preferred dividends
   Net loss

                                      ---------------------------------------------------------------------------------------------
Balance at  September 30, 2001           11,369    $ 11     8,000      $ 8    8,096,441  $ 8,096  634,035    $ 634   $ 26,578,238

===================================================================================================================================
</TABLE>


[RESTUBBED TABLE]
<TABLE>
<CAPTION>
                                      Accumulated
                                        Deficit          Total
                                      ----------------------------
<S>                                   <C>             <C>
Balance at December 31, 2000          $(24,327,399)   $(4,231,542)

   Exchange of Series C preferred
      stock for Series E preferred
      stock                              2,594,070      7,930,070
   Issuance and accrual of
   additional
      Series D preferred shares as
      dividends                                         1,155,130
   Series C preferred dividends           (620,843)      (620,843)
   Series D preferred dividends           (511,606)      (511,606)
   Series E preferred dividends           (240,001)      (240,001)
   Net loss                             (2,971,074)    (2,971,074)

                                      -----------------------------
Balance at  September 30, 2001        $(26,076,853)     $ 510,134

===================================================================
</TABLE>

                 The accompanying notes are an integral part of
                     this consolidated financial statement.

                                       3
<PAGE>


                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     For the Nine Months Ended September 30,
                                                                     ---------------------------------------
                                                                            2001               2000
                                                                        -----------        -----------
<S>                                                                     <C>                <C>
Cash Flows from Operating Activities:
     Net loss                                                           $(2,971,074)       $(5,961,328)
     Adjustments to reconcile net loss to net cash
     provided by operating activities:
            Cumulative effect of a change in accounting principle                --          3,050,843
            Depreciation and amortization                                 1,969,049          1,458,793
            Amortization of customer accounts                             3,475,070          3,729,550
            Amortization of deferred financing costs                        118,333             72,308
            Provision for doubtful accounts                                 423,709            399,034
            Provision for inventory losses                                   39,000             31,000
        Changes in assets and liabilities:
            Accounts receivable                                            (666,691)           259,271
            Inventory                                                         1,747           (375,851)
            Prepaid expenses and other                                     (146,158)           122,421
            Notes receivable                                                (33,829)            17,954
            Deposits and other assets                                       (67,491)           (18,587)
            Accounts payable and accrued expenses                          (273,714)           242,241
            Unearned revenue                                              1,296,014            924,023
                                                                        -----------        -----------
            Net cash provided by operating activities                     3,163,965          3,951,672
                                                                        -----------        -----------

Cash Flows from Investing Activities:
     Purchase of property and equipment                                    (385,169)          (495,295)
     Goodwill and other intangible assets, net                             (137,946)            (3,530)
     Purchase of customer accounts                                          (57,530)          (291,367)
     Purchase of customer premise systems                                (2,677,944)        (2,410,942)
                                                                        -----------        -----------
            Net cash used in investing activities                        (3,258,589)        (3,201,134)
                                                                        -----------        -----------

Cash Flows from Financing Activities:
     Debt financing costs                                                  (138,880)          (150,000)
     Payments on debt obligations                                        (2,119,559)        (2,517,434)
     Proceeds from line of credit                                         2,938,484          2,661,780
     Equity issuance costs                                                  (69,930)            (6,590)
     Acquisition of treasury shares                                              --           (206,076)
     Payment of cash dividends                                             (860,844)          (860,844)
                                                                        -----------        -----------
            Net cash used in financing activities                          (250,729)        (1,079,164)
                                                                        -----------        -----------

            Net decrease in cash and cash equivalents                      (345,353)          (328,626)

Cash and cash equivalents, beginning of period                              722,575            578,034
                                                                        -----------        -----------
Cash and cash equivalents, end of period                                $   377,222        $   249,408
                                                                        ===========        ===========

Supplemental disclosure:
     Interest paid                                                      $   911,207        $ 1,021,181
                                                                        ===========        ===========

Non-cash investing and financing activities:
     Retirement of Series C preferred stock                             $ 8,000,000        $        --
                                                                        ===========        ===========
     Issuance of Series E preferred stock                               $ 5,336,000        $        --
                                                                        ===========        ===========
     Preferred stock dividends                                          $ 1,155,130        $   605,433
                                                                        ===========        ===========
     Contract holdbacks applied against accounts written off            $    20,914        $    11,917
                                                                        ===========        ===========
</TABLE>

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

                                       4

<PAGE>


                          GUARDIAN INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ACCOUNTING POLICIES

     Basis of Presentation
     ---------------------
     The accompanying unaudited consolidated financial statements of Guardian
     International, Inc. (the "Company") have been prepared pursuant to the
     rules and regulations of the Securities and Exchange Commission (the
     "SEC"). In the opinion of management, the accompanying unaudited
     consolidated financial statements contain all adjustments (consisting only
     of normal and recurring adjustments) necessary to present fairly the
     Company's financial position and the results of its operations for the
     periods presented and the disclosures herein are adequate to make the
     information presented not misleading. Operating results for interim periods
     are not necessarily indicative of the results that can be expected for a
     full year. These interim consolidated financial statements should be read
     in conjunction with the Company's audited consolidated financial statements
     and notes thereto for the year ended December 31, 2000, included in the
     Company's Annual Report on Form 10-KSB.

     Revenue Recognition
     -------------------
     Installation Revenue. During the fourth quarter of 2000, as a result of new
     interpretations of accounting principles generally accepted in the United
     States by the SEC, through issuance of SEC Staff Accounting Bulletin No.
     101, "Revenue Recognition in Financial Statements" ("SAB No. 101"), the
     Company was required to change its accounting policy for revenue
     recognition of security and fire systems installations, as of January 1,
     2000. Accordingly, the accompanying 2000 consolidated financial statements
     have been restated to reflect this change and the cumulative effect of a
     change of accounting principle of a charge of approximately $3.1 million
     was recorded as of January 1, 2000.

     Under SAB No. 101, on installations for which the Company retains title to
     the electronic security systems or provides monitoring services subsequent
     to the installation, the installation revenue is deferred and amortized
     over the longer of the term of the service agreement or the estimated life
     of the customer relationship. All other installation revenues are
     recognized in the period in which the installation is completed.

     Monitoring and Service Revenue. Customers are billed for monitoring and
     maintenance services primarily on a monthly or quarterly basis in advance
     of the period in which such services are provided. Unearned revenues result
     from billings in advance of performance of services. Contracts for
     monitoring services are generally for an initial non-cancelable term of
     three to five years with automatic renewal on an annual basis thereafter,
     unless terminated by either party. A substantial number of contracts are on
     an automatic renewal basis.

     Cost Accounting
     ---------------
     All direct installation costs, which include materials, direct labor and
     commissions, related to installations that result in deferred revenue, are
     capitalized on an agreement-by-agreement basis to the extent such costs do
     not exceed the total of deferred installation revenue and expected margin
     from monitoring services during the initial service contract term. To the
     extent such costs do exceed the total of deferred installation revenue and
     expected margin from monitoring services during the initial service
     contract term, they are expensed in the period in which the installation is
     completed. Capitalized installation costs, to the extent of deferred
     installation revenues, are amortized over the longer of the term of the
     service agreement or the estimated life of the customer relationship. Any
     capitalized installation costs in excess of deferred installation revenues
     are amortized over the initial term of the service agreement. Capitalized
     materials and direct labor costs are expensed as depreciation; capitalized
     commissions are expensed as cost of sales. When an account cancels, the
     deferred revenue balance and the capitalized cost balance are recognized.

                                       5

<PAGE>


     Comprehensive Loss
     ------------------
     The Company has no comprehensive loss components for the three and nine
     month periods ended September 30, 2001 and 2000, therefore, comprehensive
     loss is the same as net loss for all periods.

     Accounting for Derivative Instruments and Hedging Activities
     ------------------------------------------------------------
     In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
     for Derivative Instruments and Hedging Activities". SFAS 133 is effective
     for all fiscal years beginning after June 15, 2000. Additionally, in June
     2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative
     Instruments and Certain Hedging Activities - an amendment of FASB Statement
     No. 133", which needs to be adopted concurrently with Statement 133. The
     Company adopted SFAS 133 and 138 as of January 1, 2001 and no adjustments
     to the consolidated financial statements were required upon adoption of
     these statements.

     Reclassifications
     -----------------
     Certain 2000 amounts in the consolidated financial statements have been
     reclassified to conform to the 2001 presentation.

2.   CUSTOMER ACCOUNTS, NET

     The following is an analysis of the changes in acquired customer accounts:

<TABLE>
<CAPTION>
                                                                        Nine Months Ended           Year Ended
                                                                           September 30,           December 31,
                                                                               2001                    2000
                                                                          -------------            -------------
<S>                                                                       <C>                      <C>
     Balance, beginning of period                                         $  23,285,365            $  27,364,201
           Purchase of customer accounts from dealers                            57,530                  397,139
           Charges against contract holdbacks                                  (20,914)                 (15,889)
           Amortization of customer accounts                                (3,475,070)              (4,702,478)
           Other                                                                103,402                  242,392
                                                                          -------------            -------------
     Balance, end of period                                               $  19,950,313            $  23,285,365
                                                                          =============            =============
</TABLE>

     In conjunction with certain purchases of customer contracts and accounts,
     the Company withholds a portion of the price as a credit to offset
     qualifying attrition of the acquired customer accounts and for purchase
     price settlements of assets acquired and liabilities assumed. The Company
     had a total balance withheld of $43,834 and $145,223 at September 30, 2001
     and December 31, 2000, respectively, as contract holdbacks in connection
     with the acquisition of customer accounts which are included in accounts
     payable and accrued expenses in the accompanying consolidated balance
     sheets.

                                       6

<PAGE>


3.   GOODWILL AND OTHER INTANGIBLE ASSETS, NET

     Goodwill and other intangible assets, net, consist of the following:

<TABLE>
<CAPTION>
                                                      Amortization                 September 30,            December 31,
                                                         Period                        2001                    2000
                                                  ---------------------             -----------             ------------
<S>                                                           <C>                   <C>                     <C>
           Goodwill                                           10 years              $ 2,043,210             $  1,898,100
           Deferred financing costs                            2 years                1,131,409                  992,529
           Other                                          5 - 10 years                  359,066                  366,233
                                                                                    -----------               ----------
                                                                                      3,533,685                3,256,862
           Accumulated amortization                                                 (1,924,619)              (1,665,737)
                                                                                    ----------              -----------
                                                                                    $ 1,609,066             $ 1,591,125
                                                                                    ===========             ===========
</TABLE>

4.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                           September 30,            December 31,
                                                              2001                     2000
                                                           -----------              -----------
<S>                                                        <C>                     <C>
     Trade accounts payable                                $ 1,147,001             $    992,050
     Contract holdbacks                                         43,834                  145,223
     Preferred dividends payable                               286,944                  930,471
     Customer deposits                                         856,027                1,068,966
     Accrued expenses                                        1,081,300                1,195,634
                                                           -----------             ------------
                                                           $ 3,415,106             $  4,332,344
                                                           ===========             ============
</TABLE>

5.       LONG TERM OBLIGATIONS

     Long term obligations consist of the following:

<TABLE>
<CAPTION>
                                                           September 30,            December 31,
                                                              2001                     2000
                                                           -----------              -----------
<S>                                                        <C>                      <C>

     Credit facility with financial institution            $12,366,444             $11,433,165
     Capital lease obligations                                 182,458                 160,498
     Equipment notes payable and other                         333,029                 469,343
                                                           -----------             -----------
                                                            12,881,931              12,063,006
     Less : current portion                                  (166,056)               (321,499)
                                                           -----------             -----------
                                                           $12,715,875             $11,741,507
                                                           ===========             ===========
</TABLE>

     Under the Renewed Credit Facility, borrowings bear interest at floating
     rates, either at Prime plus 1 3/4% or, at the Company's election, LIBOR
     plus 3 1/2%. At September 30, 2001, the debt was bearing interest at a
     weighted average rate of 7%.

     In June 2001, the Renewed Credit Facility was amended to extend the
     expiration date to April 3, 2003 from June 30, 2002. Under the terms of the
     Renewed Credit Facility, certain financial performance covenants were
     modified. The Company is in compliance with all such covenants as of
     September 30, 2001. At September 30, 2001, $7.6 million was available under
     the Renewed Credit Facility.

                                       7

<PAGE>
7.   EQUITY TRANSACTIONS

     On April 16, 2001, Richard Ginsburg, then president and chief executive
     officer of the Company, was named chief executive officer and a member of
     the Board of Directors of Protection One, Inc. ("Protection One"), an
     85%-owned subsidiary of Westar Industries.

     In connection with the changes described above, Westar Investments, Inc., a
     wholly-owned subsidiary of Westar Industries, and the holder of all
     outstanding shares of Guardian's preferred stock, exchanged $8 million
     principal amount of Series C 7% redeemable preferred stock of the Company
     for $8 million principal amount of a newly issued Series E 7% preferred
     stock which is redeemable after October 21, 2001 at the Company's option,
     and is classified as equity in the Company's consolidated balance sheet.
     This transaction has undergone a third party appraisal, and as a result of
     this appraisal, the Company recorded a gain of approximately $2.6 million
     during the quarter ended June 30, 2001 which is reflected in shareholders'
     equity (deficit) and is allocated to common shareholders in the loss per
     share calculation.

     Protection One also granted Guardian a warrant to purchase 250,000 shares
     of its common stock at an exercise price based on the average closing price
     for the twenty days immediately preceding the date of grant ($1.31 per
     share). The warrant vests one-third annually over three years and has a
     ten-year term. This warrant and the related gain are being recorded ratably
     over the vesting period as non-operating other income based on the variable
     valuation of the warrant using the Black Scholes model at each quarter-end.
     As a result of this transaction, income of approximately $48,000 and
     $67,000 was recorded in the quarter and nine months ended September 30,
     2001, respectively.

     In October 1998, the Company issued its Series D preferred stock. This
     series of preferred stock allows for the annual dividend obligation,
     payable on January 1st of each year, to be satisfied in either cash or
     additional Series D preferred stock, at the option of the Company. To date,
     the Company has elected to issue additional preferred stock to satisfy the
     dividend. Each quarter, the Company recorded this obligation as a liability
     on its consolidated balance sheet. During the quarter ended June 30, 2001,
     the Company reclassified dividends payable into Additional Paid-in Capital
     in the shareholders' equity (deficit) section of the consolidated balance
     sheet for shares issued on dividends accrued for the period January 1, 2000
     through December 31, 2000. As it is the Company's intent to continue to pay
     the dividend on Series D preferred stock in additional preferred shares,
     during the six months ended June 30, 2001, the Company has reclassified
     dividends payable recorded from January 1, 2001 through June 30, 2001 into
     additional paid-in capital in the shareholders' equity (deficit) section of
     the consolidated balance sheet and will continue to record dividends for
     subsequent periods into additional paid-in capital in the shareholders'
     equity (deficit) section of the consolidated balance sheet until such time
     that it decides to pay the dividend in cash.

8.   COMMITMENTS AND CONTINGENCIES

     The Company is a party to claims and matters of litigation incidental to
     the normal course of its business. Additionally, the Company has received
     notices from consumer complaints filed with various state agencies. The
     Company has developed a dispute resolution process for addressing these
     administrative complaints. The ultimate outcome of such matters cannot
     presently be determined; however, in the opinion of management of the
     Company, the resolution of such matters will not have a material adverse
     effect upon the Company's consolidated financial position, results of
     operations or cash flows.

                                       8
<PAGE>


9.   RECENT PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 141 ("SFAS 141") "Business
     Combinations". SFAS 141 addresses financial accounting and reporting for
     business combinations and supercedes Accounting Principles Board Opinion
     No. 16, "Business Combinations" and Statement of Financial Accounting
     Standards No. 38 "Accounting for Preacquisition Contingencies of Purchased
     Enterprises." All business combinations in the scope of SFAS 141 are to be
     accounted for under the purchase method. SFAS 141 is effective for business
     combinations occurring after June 30, 2001.

     In July 2001, the FASB also issued Statement of Financial Accounting
     Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS
     142 addresses financial accounting and reporting for intangible assets
     acquired individually or with a group of other assets (but not those
     acquired in a business combination) at acquisition. SFAS 142 also addresses
     financial accounting and reporting for goodwill and other intangible assets
     subsequent to their acquisition. With the adoption of SFAS 142, goodwill is
     no longer subject to amortization. Rather, goodwill will be subject to at
     least an annual assessment for impairment by applying a fair-value based
     test. The impairment loss is the amount, if any, by which the implied fair
     value of goodwill and other intangible assets is less than the carrying or
     book value. SFAS 142 is effective for fiscal years beginning after December
     15, 2001. Impairment loss for goodwill and other intangible assets arising
     from the initial application of SFAS 142 is to be reported as resulting
     from a cumulative effect of a change in accounting principle. The Company
     has not yet assessed the impact of adopting SFAS 142.




                                       9

<PAGE>

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

Introductory Note

FORWARD-LOOKING STATEMENTS.

         In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby providing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
made herein. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, identified through the use of words or
phrases such as the Company or management "believes," "expects," "anticipates,"
"hopes," words or phrases such as "will result," "are expected to," "will
continue," "is anticipated," "estimated," "projection" and "outlook," and words
of similar import) are not historical facts and may be forward-looking.

         Such forward-looking statements involve risks and uncertainties, and,
accordingly, actual results could differ materially from those expressed in the
forward-looking statements. Such forward-looking statements involve estimates,
assumptions, and uncertainties, and, accordingly, actual results could differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among others, the following: (1) the ability of the
Company to add additional customer accounts to its account base through
acquisitions from third parties, through internal sales efforts and through
strategic alliances; (2) the level of subscriber attrition; (3) the availability
of capital to the Company relative to certain larger companies in the security
alarm industry which have significantly greater capital and resources; (4)
increased false alarm fines and/or the possibility of reduced public response to
alarm signals; (5) changes in local, state and federal regulations; (6)
availability of qualified personnel; (7) competitive factors in the industry,
including additional competition from existing competitors or future entrants to
the industry; (8) social and economic conditions; (9) natural disasters; and
(10) other risk factors described in the Company's reports filed with the SEC
from time to time.

         Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

Overview

         The majority of the Company's revenue is derived from recurring
payments for the monitoring, maintenance and leasing of security and fire
systems, pursuant to contracts with initial terms typically ranging from one to
five years. The remainder of the Company's revenue is derived from the sale and
installation of security and fire systems and the servicing and upgrades of such
installed systems. Monitoring and service revenues are recognized as the service
is provided. On installations for which the Company retains title to the
electronic security systems or provides monitoring services subsequent to the
installation, the installation revenue is deferred and amortized over the longer
of the term of the service agreement or the estimated life of the customer
relationship. All other installation revenues are recognized in the period in
which the installation is completed.

         The Company has never had any net income from operations and has a
history of consistent and sometimes significant net losses from operations. The
Company has two core strategies: (1) generating monitoring contracts through its
own sales and installation efforts, and (2) acquiring alarm monitoring
contracts. The first core strategy requires a cost infrastructure that results
in lower operating margins than are achievable by companies that only acquire

                                       10

<PAGE>

and service alarm monitoring contracts. In order to pursue the second core
strategy of acquiring alarm monitoring contracts, the Company has chosen to
issue yield-bearing instruments (such as senior debt or preferred stock). The
Company's present amortization policy for those acquired contracts results in
significant amortization costs. The issuance of yield-bearing instruments
results in related interest and dividend expense. The Company believes that
these strategies, which emphasize creating long-term value over short-term net
income, will result in the Company's recording of net losses until such time as
(1) the Company's cash flow from its increased customer base allows it to reduce
significantly its indebtedness and related interest costs; and (2) the Company's
amortization expense, through the passage of time and recognition of account
losses, is reduced.

         Alarm monitoring revenues generate favorable gross margins. The
Company's service and installation activities produce less favorable margins,
but service activities are required to maintain the systems of customers
receiving monitoring services and installation activities are required to create
new monitoring customers. The Company's installation activities provide varying
levels of gross margin depending on the market segments and regions served.

         The Company's objective is to provide residential and commercial
security monitoring services to an increasing number of subscribers. The
Company's growth strategy is to enhance its position in the security alarm
monitoring industry in Florida and in the metropolitan New York City area by
increasing the number and density of subscribers for whom it provides services.
The Company is pursuing this strategy through a growth plan which involves
incorporating acquisitions of portfolios of subscriber accounts in existing and
contiguous markets and growth in the Company's existing markets through
referrals and traditional local marketing. The Company believes that increasing
the number and density of its subscribers will help it to achieve economies of
scale and enhance its results of operations. The Company also regularly reviews
opportunities for expanding its operations into other large metropolitan
markets.

         The events of September 11, 2001 in the New York City area did not
have a material impact on the Company's financial position, results of
operations or cash flow.

Key Operating Measures

         The Company believes that EBITDA, MRR, and MRR attrition are key
measurements of performance in the security monitoring industry.

         EBITDA. Earnings before interest and other expense, net, taxes,
depreciation and amortization ("EBITDA") does not represent cash flow from
operations as defined by generally accepted accounting principles, should not be
construed as an alternative to operating income and is indicative neither of
operating performance nor of cash flows available to fund the cash needs of the
Company. Items excluded from EBITDA are significant components in understanding
and assessing the financial performance of the Company. The Company believes
presentation of EBITDA enhances an understanding of financial condition, results
of operations and cash flows because EBITDA is used by the Company to satisfy
its debt service obligations and its capital expenditure and other operational
needs, as well as to provide funds for growth. In addition, EBITDA is used by
senior lenders and the investment community to determine the current borrowing
capacity and to estimate the long-term value of companies with recurring cash
flows from operations. The Company's computation of EBITDA may not be comparable
to other similarly titled measures of other companies. The following table
provides a calculation of EBITDA for the three and nine months ended September
30, 2001 and 2000:



                                       11

<PAGE>
<TABLE>
<CAPTION>
                                                   Three Months Ended                   Nine Months Ended
                                                      September 30,                       September 30,
                                            -------------------------------      -------------------------------
                                                 2001                2000              2001              2000
                                              ----------         ----------      ------------       ------------
<S>                                            <C>               <C>              <C>                <C>
Net loss before cumulative effect of a
change in accounting principle                 $(918,753)        $ (965,763)      $(2,971,074)       $(2,910,485)
Plus :
       Amortization of customer contracts      1,188,832          1,266,229         3,475,070          3,729,550
       Depreciation and amortization             685,007            499,655         1,969,049          1,458,793
       Interest and other expense, net           228,116            344,384           848,617            942,684
                                              ----------         ----------      ------------       ------------
              EBITDA                          $1,183,202         $1,144,505      $  3,321,662       $  3,220,542
                                              ==========         ==========      ============       ============
</TABLE>

         Monthly Recurring Revenue ("MRR"). MRR is revenue that the Company is
entitled to receive for a month of service under monitoring and service
contracts in effect at the end of the period. Management believes MRR enhances
an investor's understanding of the Company's financial condition, results of
operations and cash flows because it provides a measure of the Company's revenue
that can be used to derive estimated annual revenues acquired in acquisitions
for a full year of operations. As a result, MRR can be compared to the level of
investment in the statement of financial condition at the end of the period. By
comparing MRR to cash, debt and equity balances at the end of a period, an
investor can assess the Company's investment track record. Further, management
believes an investor's consideration of MRR relative to the Company's customer
base helps identify trends in MRR per customer. MRR does not measure
profitability or performance, and does not include any allowance for future
losses of customers or allowance for doubtful accounts. The Company does not
have sufficient information as to the losses of acquired customers' accounts to
predict with absolute certainty the amount of acquired MRR that will be realized
in future periods or the impact of the loss of acquired accounts on our overall
rate of customer loss. Our computation of MRR may not be comparable to other
similarly titled measures of other companies and MRR should not be viewed by
investors as an alternative to actual monthly revenue as determined in
accordance with generally accepted accounting principles. MRR at September 30,
2001 and December 31, 2000 was approximately $1,135,000 and $1,100,000,
respectively.

         MRR Attrition. The Company experiences customer cancellations, i.e.,
attrition, of monitoring and related services as a result of subscriber
relocation, the cancellation of acquired accounts during the process of
integrating such accounts into the Company's operations, unfavorable economic
conditions and other reasons. This attrition is offset to a certain extent by
revenues from the sale of additional services to existing subscribers, the
reconnection of premises previously occupied by subscribers, the conversion of
accounts previously monitored by other alarm companies and guarantees provided
by the sellers of such accounts. The Company defines attrition numerically for a
particular period as a quotient, the numerator of which is equal to the
difference between gross MRR lost as the result of canceled subscriber accounts
and MRR lost that was replaced pursuant to guarantees from sellers of accounts
purchased by the Company, and the denominator of which is the month-end MRR
calculated at the end of such period. Net MRR attrition of the Company's
customers during the twelve months ended September 30, 2001 and 2000 was less
than 10%, on an annualized basis.

Results of Operations

         The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated for consolidated operations.

                                       12

<PAGE>

<TABLE>
<CAPTION>
                                                      For the Three Months Ended            For the Nine Months
                                                             September 30,                  Ended September 30,
                                                    ------------------------------    ------------------------------
                                                        2001              2000            2001              2000
                                                    -------------     ------------    ------------      ------------
<S>                                                 <C>               <C>             <C>               <C>
Revenues
        Monitoring                                         60.9%            69.7%           62.8%             70.8%
        Installation and service                            39.1             30.3            37.2              29.2
                                                    ------------      -----------     -----------       -----------
                 Total revenues                            100.0            100.0           100.0             100.0

Operating expenses
        Monitoring                                           9.0             10.8             9.7              11.2
        Installation and service                            31.8             25.3            30.6              24.2
        Selling, general and administrative                 37.4             39.2            38.6              40.7
        Amortization of customer accounts                   21.9             27.3            22.1              27.7
        Depreciation and amortization                       12.6             10.8            12.5              10.8
                                                    ------------      -----------     -----------       -----------
                 Total operating expenses                  112.7            113.4           113.5             114.6

Interest and other expense, net                              4.2              7.4             5.4               7.0
                                                    ------------      -----------     -----------       -----------

Net loss                                                 (16.9)%          (20.8)%         (18.9)%           (21.6)%
                                                    ============      ===========     ===========       ===========
</TABLE>

Three months Ended September 30, 2001 Compared to Three months Ended September
30, 2000

         Revenue. Total revenues for the three months ended September 30, 2001
increased 17% to approximately $5.4 million from approximately $4.6 million
during the corresponding period in the prior year. Monitoring revenues for the
three months ended September 30, 2001 increased to approximately $3.3 million,
or 2%, from approximately $3.2 million during the corresponding period of the
prior year. The increase in monitoring revenues in the three months ended
September 30, 2001 compared to the prior year's period is attributable to
monitoring agreements that are continuously purchased from other security
dealers as well as monitoring agreements that are signed in conjunction with the
Company's installation activities. Installation and service revenues for the
three months ended September 30, 2001 increased by 51% to approximately $2.1
million, compared to approximately $1.4 million during the corresponding period
of the prior year. The increase in installation and service revenues in the
three months ended September 30, 2001 compared to the prior year's period is a
result of significantly increased sales activity in the New York area, and
increases in sales activity in the Company's Florida business servicing builders
of new homes.

         Monitoring, Installation and Service. Monitoring, installation and
service expenses for the three months ended September 30, 2001 increased 32% to
approximately $2.2 million, compared to approximately $1.7 million during the
corresponding period in the prior year. Monitoring expenses decreased 2% to
approximately $491,000 compared to $499,000 during the corresponding period in
the prior year. As a percentage of monitoring revenues during the three months
ended September 30, 2001, monitoring expenses remained constant at 15%, compared
to the corresponding period in the prior year. Installation and service costs
during the three months ended September 30, 2001 increased by 47% to
approximately $1.7 million, compared to approximately $1.2 million during the
corresponding period in the prior year. The increase in installation and service
costs was consistent with the increase in installation and service revenue.

Gross profit, defined as total revenues less monitoring and installation and
service costs, increased by 8% to approximately $3.2 million during the three
months ended September 30, 2001, compared to approximately $3.0 million during
the corresponding period in the prior year. Gross profit from monitoring
revenues increased by 3% to approximately $2.8 million during the three months

                                       13

<PAGE>

ended September 30, 2001, compared to approximately $2.7 million during the
corresponding period in the prior year. The increase in gross profit from
monitoring activities is attributable to the increase of monitored accounts from
internal installation activities for which the incremental costs to monitor are
minimal. Gross profit from monitoring activities as a percentage of monitoring
revenue remained constant at 85% during the three months ended September 30,
2001, compared to the prior period. Gross profit from installation and service
activities increased to approximately $399,000 during the three months ended
September 30, 2001, from approximately $231,000 during the corresponding period
in the prior year, primarily due to a 75% increase in installation revenues.
Gross profit on installation and service activities as a percentage of
installation and service revenues was 19% for the period, compared to 16% for
the prior period.

         Selling, General and Administrative ("SG&A"). SG&A increased by 12% to
approximately $2.0 million during the three months ended September 30, 2001,
compared to approximately $1.8 million during the corresponding period in the
prior year. The increase in SG&A costs in 2001 from 2000 is related primarily to
additional personnel required to support our increased sales activities as well
as additional personnel allocated to care for our existing customers.

         Amortization of Customer Contracts. Amortization of customer
contracts decreased approximately 6%, to approximately $1.2 million during the
three months ended September 30, 2001, compared to approximately $1.3 million
during the corresponding period in the prior year. Such costs are amortized over
10 years, unless contracts are cancelled and not replaced by the alarm company
from which the account was purchased, or otherwise, in which case an estimate of
the remaining unamortized balance is written off as a charge to amortization
expense. The decrease in amortization arose from fewer cancellations in the
Company's New York operations.

         Depreciation and Amortization. Depreciation and amortization increased
by 37% to approximately $685,000 during the three months ended September 30,
2001, compared to approximately $500,000 during the corresponding period in the
prior year. The increase in depreciation and amortization is primarily due to
growth in capitalized customer premise equipment. Such costs include
depreciation of property and equipment (the gross balance of which increased to
approximately $14.5 million at September 30, 2001 from approximately $10.9
million at September 30, 2000) and the amortization of certain other intangible
assets.

         Interest and Other Expense, Net. Interest and other expense, net
decreased 34% to approximately $228,000 during the three months ended September
30, 2001, compared to approximately $344,000 during the corresponding period in
the prior year. Approximately $47,000 of income was recorded due to the
accretion of the warrant obtained from Protection One. Interest expense was
lower from period to period due to significantly lower average interest rates
offset by increased borrowings under the Renewed Credit Facility. Total
borrowings under the Renewed Credit Facility increased to approximately $12.4
million at September 30, 2001 from approximately $10.8 million at September 30,
2000.




                                       14

<PAGE>

         Net Loss. Net loss applicable to common stock for the three months
ended September 30, 2001 and 2000 was approximately $1.4 million, or $0.16 per
share.

Nine months Ended September 30, 2001 Compared to Nine months Ended September 30,
2000

         Revenue. Total revenues for the nine months ended September 30, 2001
increased 17% to approximately $15.7 million from approximately $13.5 million
during the corresponding period in the prior year. Monitoring revenues for the
nine months ended September 30, 2001 increased to approximately $9.9 million, or
4%, from approximately $9.5 million during the corresponding period of the prior
year. The increase in monitoring revenues in the first nine months of 2001 from
the first nine months of 2000 is attributable to monitoring agreements that are
continuously purchased from other security dealers as well as monitoring
agreements that are signed in conjunction with the Company's installation
activities. Installation and service revenues for the nine months ended
September 30, 2001 increased by 49% to approximately $5.9 million, compared to
approximately $3.9 million during the corresponding period of the prior year.
The increase in installation and service revenues in the first nine months of
2001 compared to the prior year's period is a result of significantly increased
sales activity in the New York area, and increases in sales activity in the
Company's Florida business servicing builders of new homes.

         Monitoring, Installation and Service. Monitoring, installation and
service expenses for the nine months ended September 30, 2001 increased 33% to
approximately $6.3 million, compared to approximately $4.8 million during the
corresponding period in the prior year. Monitoring expenses increased 1% to
approximately $1,517,000 compared to approximately $1,500,000 during the
corresponding period in the prior year. As a percentage of monitoring revenues
during the nine months ended September 30, 2001, monitoring expenses were 15%
compared to 16% in the prior period. Installation and service costs during the
nine months ended September 30, 2001 increased by 48% to approximately $4.8
million, compared to approximately $3.3 million during the corresponding period
in the prior year. The increase in installation and service costs was consistent
with the increase in installation and service revenue.

Gross Profit, defined as total revenues less monitoring and installation and
service costs, increased by 8% to approximately $9.4 million during the nine
months ended September 30, 2001, compared to approximately $8.7 million during
the corresponding period in the prior year. Gross profit from monitoring
activities increased by 4% to approximately $8.4 million during the nine months
ended September 30, 2001, compared to approximately $8.0 million during the
corresponding period in the prior year. Gross profit from monitoring activities
as a percentage of monitoring revenue increased to 85% from 84% in the prior
period. The increase in gross profit from monitoring activities is attributable
to the increase of monitoring revenue for which the incremental costs to monitor
are minimal. Gross profit from installation and service activities increased by
52% to approximately $1,035,000 during the nine months ended September 30, 2001,
from approximately $681,000 during the corresponding period in the prior year,
primarily due to a 69% increase in installation revenues offset by slightly
higher installation costs. Gross profit on installation and service activities
as a percentage of installation and service revenues was 18% for the period,
compared to 17% for the prior period.

         Selling, General and Administrative. SG&A increased by 11% to
approximately $6.1 million during the nine months ended September 30, 2001,
compared to approximately $5.5 million during the corresponding period in the
prior year. The increase in SG&A costs in 2001 from 2000 is related primarily to
additional personnel required to support our increased sales activities as well
as additional personnel allocated to care for our existing customers.

         Amortization of Customer Contracts. Amortization of customer
contracts decreased approximately 7%, to approximately $3.5 million during the
nine months ended September 30, 2001, compared to approximately $3.7 million
during the corresponding period in the prior year. Such costs are amortized over
10 years, unless

                                       15
<PAGE>

contracts are cancelled and not replaced by the alarm company from which the
accounts were purchased, or otherwise, in which case an estimate of the
remaining unamortized balance is written off as a charge to amortization
expense. The decrease in amortization arose from fewer cancellations in the
Company's New York operations.

         Depreciation and Amortization. Depreciation and amortization increased
by 35% to approximately $2.0 million during the nine months ended September 30,
2001, compared to approximately $1.5 million during the corresponding period in
the prior year. The increase in depreciation and amortization is primarily due
to growth in capitalized customer premise equipment. Such costs include
depreciation of property and equipment (the gross balance of which increased to
approximately $14.5 million at September 30, 2001 from approximately $10.9
million at September 30, 2000) and the amortization of certain other intangible
assets.

         Interest and Other Expense, Net. Interest and other expense, net
increased 10% to approximately $849,000 during the nine months ended September
30, 2001, compared to approximately $943,000 during the corresponding period in
the prior year. Approximately $63,000 of income was recorded due to the
accretion of the warrant obtained from Protection One during the nine months
ended September 30, 2001. Interest expense was lower from period to period due
to lower average interest rates offset by increased borrowings under the Renewed
Credit Facility. Total borrowings under the Renewed Credit Facility increased to
approximately $12.4 million at September 30, 2001 from approximately $10.8
million at September 30, 2000.

         Net Loss. Net loss applicable to common stock for the nine months ended
September 30, 2001 was approximately $1.7 million, or $0.20 per share, compared
to a net loss before cumulative effect of change in accounting principle of
approximately $4.3 million, or $0.48 per share, during the corresponding period
of the prior year. The current period net loss includes an approximate $2.6
million gain on exchange of preferred stock. The cumulative effect of a change
in accounting principle associated with the adoption of SAB No. 101 of a charge
of approximately $3.1 million or $0.34 per share was also recorded as of
September 30, 2000.

Liquidity and Capital Resources

         As of September 30, 2001, the Company believes it will maintain the
ability to generate sufficient cash to fund future operations of the business.
Generally, cash flow will be generated from a combination of (1) the Company's
existing $20.0 million Renewed Credit Facility with Heller, subject to
compliance with the provisions of the debt covenants in the Renewed Credit
Facility, and (2) recurring revenue from its security monitoring customer base,
which generated $3.3 million of EBITDA in the nine months ended September 30,
2001. At September 30, 2001, there was $7.6 million of availability under the
Renewed Credit Facility. Cash flow from operating activities was approximately
$3.2 million for the nine months ended September 30, 2001.

         Capital Resources. In June 2001, the Renewed Credit Facility was
amended to extend the expiration date to April 3, 2003 from June 30, 2002. Under
the terms of the Renewed Credit Facility, certain financial performance
covenants were modified. The Company was in compliance with all such covenants
as of September 30, 2001.

         The Renewed Credit Facility is used primarily for acquisitions of
subscriber accounts and to finance the Company's internal account creation
efforts. The Company's continued plan of growth through acquisitions of
subscriber accounts is contingent upon its ability to borrow under the Renewed
Credit Facility.

                                       16

<PAGE>

Liquidity. Net cash provided by operating activities during the nine months
ended September 30, 2001 was approximately $3.2 million. The Company incurred a
net loss of approximately $3.0 million during such period; however, included in
such loss was non-cash depreciation and amortization expense, amortization of
customer contracts expense and amortization of deferred financing costs totaling
approximately $5.6 million, and a bad debt provision of approximately $424,000.
Other operating cash flows included cash inflows of approximately $1.3 million
related to unearned revenue from customer premise systems and cash outflows of
approximately $1.2 million related to accounts receivable, accounts payable and
accrued expenses, prepaid expenses and other, notes receivable, and deposits and
other assets.

         Net cash used in investing activities was approximately $3.3 million
during the nine months ended September 30, 2001 and was comprised of
approximately $138,000 for goodwill and other intangibles, net, approximately
$57,000 used in the purchase and placement of customer accounts and the
purchases of fixed assets of approximately $3.1 million, which includes
equipment under lease at customer premises of approximately $2.7 million.

         Net cash used in financing activities was approximately $251,000
during the nine months ended September 30, 2001, consisting primarily of
proceeds under borrowings from Heller of approximately $2.9 million. Theses
proceeds were offset by repayments to Heller and other debt obligations of
approximately $2.1 million, payment of cash dividends on preferred stock of
approximately $860,000, debt financing costs of approximately $139,000, and
costs related to the issuance of equity securities of approximately $70,000. The
Company's cash balance was approximately $377,000 as of September 30, 2001.

         Total shareholders' equity was approximately $510,000 at September 30,
2001, increasing by a net amount of approximately $4.7 million during the nine
months ended September 30, 2001. The net increase resulted from the exchange of
8,000 shares of redeemable Series C preferred stock, which is classified outside
the shareholders' equity (deficit) section of the consolidated balance sheet,
into 8,000 shares of Series E preferred stock, which is classified in the
shareholders' equity (deficit) section of the consolidated balance sheet. This
exchange resulted in an increase of approximately $7.9 million. Additionally,
preferred dividends associated with the Series D preferred stock of
approximately $1.2 million were reclassified from accounts payable and accrued
expenses to additional paid-in capital on the consolidated balance sheet, as the
Company intends to pay such dividends in additional Series D preferred stock.
These increases were offset by the payment and accrual of dividends on the
Company's C, D and E preferred stock of approximately $1.4 million and the net
loss of approximately $3.0 million.

         The Company does not currently have any significant commitments for
capital outlays.

         Affiliation with Western Resources, Inc. As discussed in the Company's
Form 10-KSB for the year ended December 31, 2000, in Part I, Item 1 "History",
Western Resources, Inc. indirectly holds a significant investment in the
Company.

Recent Pronouncements

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141") "Business
Combinations". SFAS 141 addresses financial accounting and reporting for
business combinations and supercedes Accounting Principles Board Opinion No. 16,
"Business Combinations" and Statement of Financial Accounting Standards No. 38
"Accounting for Preacquisition Contingencies of Purchased Enterprises." All
business combinations in the scope of SFAS 141 are to be accounted for under the
purchase method. SFAS 141 is effective for business combinations occurring after
June 30, 2001.

         In July 2001, the FASB also issued Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142
addresses financial accounting and reporting for intangible assets acquired
individually or with a group of other assets (but not those acquired in a
business combination) at acquisition. SFAS 142 also addresses financial
accounting and reporting for goodwill and other intangible assets subsequent to

                                       17

<PAGE>

their acquisition. With the adoption of SFAS 142, goodwill is no longer subject
to amortization. Rather, goodwill will be subject to at least an annual
assessment for impairment by applying a fair-value based test. The impairment
loss is the amount, if any, by which the implied fair value of goodwill and
other intangible assets is less than the carrying or book value. SFAS 142 is
effective for fiscal years beginning after December 15, 2001. Impairment loss
for goodwill and other intangible assets arising from the initial application of
SFAS 142 is to be reported as resulting from a cumulative effect of a change in
accounting principle. The Company has not yet assessed the impact of adopting
SFAS 142.

Concentration of Credit Risk

         Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from a
large number of customers, including both residential and commercial customers.
The Company extends credit to its customers in the normal course of business,
performs periodic credit evaluations and maintains allowances for potential
credit losses.



                                       18

<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

Exhibits
--------

None



Reports on Form 8-K
-------------------

1.   A current report on Form 8-K was filed on August 13, 2001 reporting 1 event
     under item 5.






                                       19
<PAGE>


                                   SIGNATURES
                                   ----------

     In accordance with Section 12 of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                         GUARDIAN INTERNATIONAL, INC.


                                         By:   /s/ KENNETH WIESENFELD
                                            -------------------------------
                                               Kenneth Wiesenfeld
                                               Vice President of Finance and
                                               Principal Accounting Officer

                                         Date: November 12, 2001


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