Filed Pursuant to Rule 424B(4)
Registration File No 333-37595

PROSPECTUS

3,000,000 SHARES

[LOGO]

COMMON STOCK

Response USA, Inc., a Delaware corporation (the "Company"), hereby offers
3,000,000 shares of common stock, par value $0.008 per share (the "Common
Stock") (after giving effect to the one-for-three reverse stock split effective
January 9, 1998). The Common Stock is currently being traded on the Nasdaq
SmallCap Market under the symbol "RSPND," and commencing February 9, 1998 the
Common Stock will be traded under the symbol "RSPN." On February 4, 1998, the
closing bid price of the Common Stock as reported on the Nasdaq SmallCap Market
was $7.0625 per share. See "Price Range of Common Stock."

THESE ARE SPECULATIVE SECURITIES. SEE "RISK FACTORS" LOCATED ON PAGE 8 FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)(3)

Per Share................................................ $6.50 $0.39 $6.11
Total.................................................... $19,500,000 $1,170,000 $18,330,000

(1) Does not include additional consideration to Gruntal & Co., L.L.C.
("Gruntal") consisting of (i) a non-accountable expense allowance and (ii)
five-year warrants to purchase up to an aggregate of 300,000 shares of
Common Stock (the "Gruntal Warrants"). The Company has agreed to indemnify
the several underwriters (the "Underwriters") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."

(2) Before deducting expenses of this offering payable by the Company estimated
at $1,035,000, including the non-accountable expense allowance described in
note (1) above ($1,122,750 in the event of the exercise in full of the
Underwriters' over-allotment option).

(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 450,000 shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
the Underwriters exercise this option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$22,425,000, $1,345,500, and $21,079,500, respectively. See "Underwriting."

The shares of Common Stock are being offered by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to their right to reject orders in whole or in part, and to
certain other matters. It is expected that delivery of the certificates
representing shares of Common Stock will be made against payment therefor at the
offices of Gruntal & Co., L.L.C., on or about February 10, 1998.

--------------------------

GRUNTAL & CO., L.L.C. HAMPSHIRE SECURITIES CORPORATION
---------------------

THE DATE OF THIS PROSPECTUS IS FEBRUARY 5, 1998

Center picture of the Company's central monitoring station surrounded by the
Company's logo and five pictures depicting the Company's products and services.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS, PENALTY BIDS AND SHORT SALES. FOR A
DESCRIPTION OF THESE ACTIVITIES; SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE
ONE-FOR-THREE REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK EFFECTIVE
JANUARY 9, 1998, (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION AND (III) ASSUMES THE REDEMPTION OF THE COMPANY'S SERIES A CONVERTIBLE
PREFERRED STOCK (THE "PREFERRED STOCK") AND COMPLIANCE WITH ALL OTHER PROVISIONS
OF THE SETTLEMENT AGREEMENT BETWEEN THE COMPANY AND THE HOLDERS OF THE PREFERRED
STOCK. SEE "RISK FACTORS--RISKS ASSOCIATED WITH PREFERRED STOCK SETTLEMENT
AGREEMENT" AND "DESCRIPTION OF SECURITIES -- SERIES A CONVERTIBLE PREFERRED
STOCK." EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. AS USED IN THIS PROSPECTUS, THE TERM "COMPANY" MEANS, UNLESS THE
CONTEXT REQUIRES OTHERWISE, THE COMPANY AND ITS WHOLLY-OWNED SUBSIDIARIES,
UNITED SECURITY SYSTEMS, INC. ("USS"), EMERGENCY RESPONSE SYSTEMS, INC. ("ERS")
RESPONSE ABILITY SYSTEMS, INC. ("SYSTEMS") AND, HEALTHLINK, LTD. ("HEALTHLINK"),
AN ENTITY IN WHICH THE COMPANY HAS A 50% EQUITY INTEREST. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."

THE COMPANY

The Company is a fully-integrated security systems provider engaged in the
monitoring, sale, installation and maintenance of residential and commercial
security systems and personal emergency response systems ("PERS"). The Company
is a regional provider of security alarm monitoring services for residential and
small business subscribers operating in the states of New York, New Jersey,
Pennsylvania, Delaware and Connecticut. The Company is also a nationwide
provider of PERS products which enable individual users, such as elderly or
disabled persons, to transmit a distress signal using a portable transmitter.
The Company currently has an aggregate of approximately 48,000 alarm and PERS
subscribers for which it provides monitoring services. As a result of the
Company's acquisitions of subscriber account portfolios, the Company's monthly
recurring revenue ("MRR") has grown by 60%, to approximately $800,000 for the
month ended September 30, 1997 from approximately $500,000 for the month ended
June 30, 1995. According to a May 1997 report published by Security Distributing
and Marketing ("SDM"), an organization which publishes industry reports, as of
December 31, 1996, the Company is the 31st largest electronic security company
in the United States, based on total revenues, and the 25th largest electronic
security company, based on recurring annual revenues.

The Company's electronic security systems business utilizes electronic
systems installed in businesses and residences to provide (i) detection of
events such as intrusion or fire, (ii) surveillance and (iii) control of access
to property. The detection devices are currently monitored by a third-party
monitoring station located in Euclid, Ohio (the "Monitoring Station"). The
Monitoring Station personnel verify the nature of the emergency and contact the
appropriate emergency authorities in the user's area. In some instances,
commercial customers may monitor these devices at their own premises or the
devices may be connected to local fire or police departments. The products and
services marketed in the electronic security services industry range from
residential systems that provide basic entry and fire protection to more
sophisticated commercial systems.

The Company's PERS is an electronic device which is designed to monitor,
identify and electronically report emergencies requiring medical, fire or police
assistance, to help elderly, disabled and other individuals. When activated by
the pressing of a button, or automatically, in the case of certain environmental
temperature fluctuations, the transmitter sends a radio signal to a receiving
base installed in the user's home. The receiving base relays the signal over
telephone lines to the Monitoring Station which provides continuous monitoring
services. In addition, this signal establishes two-way voice communication
between the user and the Monitoring Station personnel directly through the PERS
unit, thereby avoiding any need for the user to access a telephone.

The electronic security services industry is highly fragmented and the
Company's strategy is to grow by acquisition, as well as by offering new
products and services. According to an industry report published in 1996, there
are approximately 12,000 separate security services companies nationally, and
according to the May 1997 SDM Report, the electronic security industry generates
an aggregate of approximately $13 billion in revenues annually. The Company
believes that there is an industry-wide trend towards consolidation due, in
part, to the relatively high fixed costs of maintaining a centralized monitoring
station and the relatively low incremental cost of servicing additional
subscribers. The Company completed the acquisition of an aggregate of 38
subscriber account portfolios (a total of approximately 25,000 subscriber
accounts) during the three fiscal years ended June 30, 1997.

The Company has entered into an agreement with Triple A Security Systems,
Inc. ("Triple A"), pursuant to which the Company will acquire substantially all
of the assets of Triple A upon the consummation of this offering. Triple A is
engaged in the monitoring, sale and installation of residential and commercial
security systems, principally in northeastern Pennsylvania. Triple A currently
services approximately 14,000 subscriber accounts which are monitored by its
central monitoring station, and the Company anticipates transferring all of its
subscriber accounts from the Monitoring Station to Triple A's monitoring station
following consummation of the Triple A acquisition. See "Business -- Pending
Acquisitions."

In March 1997, the Company acquired a 50% interest in HealthLink. HealthLink
markets a low-cost PERS product containing basic one-way transmission features
(the "HealthLink System"). The HealthLink System is distributed nationally
through retail stores, including Target Stores ("Target") (808 stores), Long's
Drugs, a west-coast regional chain (305 stores), Fred Myer, a northwest regional
chain (104 stores), Fry's, a southwest regional chain (51 stores) and Bergen
Brunswick's west-coast Good Neighbor Pharmacies (429 stores), accounting for
distribution through a total of approximately 1,700 stores as of the date of
this Prospectus. The Company is negotiating with several other chain stores to
further increase distribution. The Company provides monitoring and related
services to HealthLink System customers, is responsible for billing and
collecting from such customers and receives a portion of the recurring revenue
as a fee for providing these services.

In November 1996, the Company entered into a two-year agreement granting it
the exclusive worldwide distribution rights within the health care industry to
WanderWatch,-TM- a monitoring system designed to assist in the care of patients
with Alzheimer's disease, autism, head injury, dementia or other diseases or
injuries which may involve memory loss. WanderWatch-TM- is similar to PERS,
except that the transmitter is designed to be continuously activated and
transmits a signal to the base unit. If the base unit does not receive the
requisite number of transmissions, it indicates that the patient may have
wandered outside the "safety range," and triggers an alarm in the home base
unit. If the alarm is not disabled, a signal is automatically transmitted to the
Monitoring Station, whose personnel will then place calls based upon a set
protocol established by the caregivers. The license agreement for
WanderWatch-TM- provides for automatic one-year renewals and the Company's
exclusive rights to the license are subject to forfeiture under certain
circumstances. WanderWatch-TM- is currently being test-marketed by the Company
and the Company does not anticipate commencing distribution of the product prior
to July 1, 1998.

The Company is a Delaware corporation, organized in March 1992. The
Company's principal executive offices are located at 11-H Princess Road,
Lawrenceville, New Jersey 08648, and its telephone number is 609-896-4500.

THE OFFERING

Common Stock offered by the
Company........................... 3,000,000 shares

Common Stock outstanding prior to
this offering..................... 2,212,596 shares(1)

Common Stock outstanding after this
offering.......................... 5,212,596 shares(1)(2)

Use of Proceeds..................... To consummate the acquisition of Triple A and to
reduce certain indebtedness and other obligations of
the Company. See "Use of Proceeds."

Risk Factors........................ The purchase of the shares of Common Stock is
speculative and involves substantial risk.
Prospective investors should carefully review and
consider the information set forth under "Risk
Factors."

Nasdaq SmallCap Market Symbol....... RSPND (RSPN commencing February 9, 1998)

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(1) Does not include up to (i) 1,156,016 shares of Common Stock issuable upon
exercise of outstanding options granted to officers, directors, employees
and consultants of the Company, at exercise prices ranging from $.03 to
$13.35 per share, including 422,800 shares of Common Stock issuable upon
exercise of outstanding options granted to certain officers and directors at
an exercise price of $0.03 per share, 200,000 shares of Common Stock
issuable upon exercise of outstanding options granted to two officers of
USS, one of whom is a director of the Company at an exercise price of $4.50
per share, 500,000 shares of Common Stock issuable upon exercise of options
to be granted to certain officers and directors at an exercise price equal
to the market value on the date of grant and 33,216 shares of Common Stock
issuable upon exercise of outstanding options granted to employees and
consultants at exercise prices ranging from $.30 to $13.35 per share, (ii)
1,708,750 shares of Common Stock issuable upon exercise of outstanding
warrants at exercise prices ranging from $6.00 to $24.00 per share,
including 114,833 and 147,250 shares of Common Stock issuable upon exercise
of outstanding warrants granted to the holders of the Company's Preferred
Stock at exercise prices of $6.00 and $10.125 per share, respectively (the
"Preferred Warrants"), 411,127 shares of Common Stock issuable upon exercise
of the Company's publicly-traded Class A Warrants at an exercise price of
$7.50 per share (the "Class A Warrants"), 493,983 shares of Common Stock
issuable upon exercise of the Company's publicly-traded Class B Warrants at
an exercise price of $9.75 per share (the "Class B Warrants"), 16,567 shares
of Common Stock issuable upon exercise of the Company's Class C Warrants at
exercise prices ranging from $9.78 to $16.875 per share (the "Class C
Warrants"), 150,000 shares issuable upon exercise of a warrant granted to
BKR, Inc. in connection with the Company's investment in HealthLink at an
exercise price of $9.00 per share and 375,000 shares of Common Stock
issuable upon exercise of outstanding warrants granted to consultants and
placement agents at exercise prices ranging from $13.50 to $24.00 per share,
(iii) 102,320 shares of Common Stock issuable upon conversion of the
Company's Series B Preferred Stock (the "Series B Preferred Stock"), (iv)
300,000 shares of Common Stock issuable upon exercise of the Gruntal
Warrants to be issued to Gruntal on the closing of this offering, and (v)
100,000 shares of Common Stock issuable upon exercise of options which may
be granted pursuant to the Company's 1997 Stock Option Plan (the "1997
Plan") which was adopted by the stockholders of the Company on January 6,
1998. See "Management" and "Description of Securities."

(2) Does not include an aggregate of 503,953 shares of Common Stock to be issued
upon consummation of two pending acquisitions, based upon the public
offering price of $6.50 per share. See "Business-- Pending Acquisitions."

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA INFORMATION

PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(3) HISTORICAL AS ADJUSTED(3)
----------------------------------- -------------- ----------------------- --------------
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
1995 1996 1997 1997 1996 1997 1997
---------- ---------- ----------- -------------- ----------- ---------- --------------

INCOME STATEMENT DATA:
Revenues:
Product Sales............. $4,520,062 $2,352,449 $ 2,938,618 $ 4,726,515 $ 656,128 $ 662,846 $1,071,442
Monitoring and Related
Services................ 4,812,474 8,515,247 9,784,285 14,776,735 2,386,239 2,585,038 4,032,063
---------- ---------- ----------- -------------- ----------- ---------- --------------
Total Revenues.......... 9,332,536 10,867,696 12,722,903 19,503,250 3,042,367 3,247,884 5,103,505
---------- ---------- ----------- -------------- ----------- ---------- --------------
Cost of Revenues:
Product Sales(1).......... 2,635,674 1,718,689 1,970,158 3,364,629 451,535 398,442 762,719
Monitoring and Related
Services(2)............. 1,125,123 1,779,490 2,127,257 4,438,081 747,025 768,739 1,397,054
---------- ---------- ----------- -------------- ----------- ---------- --------------
Total Cost of
Revenues.............. 3,760,797 3,498,179 4,097,415 7,802,710 1,198,560 1,167,181 2,159,773
---------- ---------- ----------- -------------- ----------- ---------- --------------
Gross profit................ 5,571,739 7,369,517 8,625,488 11,700,540 1,843,807 2,080,703 2,943,732
---------- ---------- ----------- -------------- ----------- ---------- --------------
Operating Expenses:
Selling, General and
Administrative.......... 6,327,622 6,416,486 9,126,641 11,266,985 1,421,984 1,615,635 2,206,395
Compensation--Options/
Employment Contracts.... -- -- 3,689,700 3,689,700 862,500 (450,000) (450,000)
Depreciation and
Amortization............ 1,302,208 2,200,894 2,976,433 4,535,493 662,719 837,539 1,238,836
Interest.................. 1,220,618 3,185,603 1,349,480 1,505,653 503,470 643,780 681,793
Litigation Settlement..... 240,000 -- -- -- -- -- --
Recovery of Termination
Benefits Cost........... (392,699) -- -- -- -- -- --
Recovery of Restructuring
Charges................. (52,920) -- -- -- -- -- --
---------- ---------- ----------- -------------- ----------- ---------- --------------
Total Operating
Expenses.............. 8,644,829 11,802,983 17,142,254 20,997,831 3,450,673 2,646,954 3,677,024
---------- ---------- ----------- -------------- ----------- ---------- --------------
Loss from Operations...... (3,073,090) (4,433,466) (8,516,766) (9,297,291) (1,606,866) (566,251) (733,292)
Other Income (Expense):
Interest Income........... 42,260 21,568 12,176 27,504 7,939 1,708 4,026
Joint Venture Loss........ -- -- (123,325) (123,325) -- (130,138) (130,138)
---------- ---------- ----------- -------------- ----------- ---------- --------------
Loss Before Extraordinary
Item.......................... (3,030,830) (4,411,898) (8,627,915) (9,393,112) (1,598,927) (694,681) (859,404)
Extraordinary Item Loss on
Debt Extinguishment....... -- -- 2,549,708 2,549,708 2,549,708 -- --
---------- ---------- ----------- -------------- ----------- ---------- --------------
Net Loss...................... (3,030,830) (4,411,898) (11,177,623) (11,942,820) (4,148,635) (694,681) (859,404)
Dividends and Accretion on
Preferred Stock............... -- -- (6,876,521) -- (6,125,549) (335,272) --
---------- ---------- ----------- -------------- ----------- ---------- --------------
Net Loss Applicable to Common
Shareholders.................. $(3,030,830) $(4,411,898) $(18,054,144) $(11,942,820) $(10,274,184) $(1,029,953) $ (859,404)
---------- ---------- ----------- -------------- ----------- ---------- --------------
---------- ---------- ----------- -------------- ----------- ---------- --------------
Loss per Common Share:
Loss Before Extraordinary
Item.................... $ (15.07) $ (8.61) $ (5.80) $ (1.88) $ (1.23) $ (0.33) $ (0.15)
Extraordinary Item........ -- -- (1.71) (0.51) (1.96) -- --
---------- ---------- ----------- -------------- ----------- ---------- --------------
Net Loss.................. $ (15.07) $ (8.61) $ (7.51) $ (2.39) $ (3.19) $ (0.33) $ (0.15)
---------- ---------- ----------- -------------- ----------- ---------- --------------
---------- ---------- ----------- -------------- ----------- ---------- --------------
Net Loss Applicable to
Common Shareholders..... $ (15.07) $ (8.61) $ (12.14) $ (2.39) $ (7.89) $ (0.48) $ (0.15)
---------- ---------- ----------- -------------- ----------- ---------- --------------
---------- ---------- ----------- -------------- ----------- ---------- --------------
Weighted Average Number of
Common Shares
Outstanding............... 201,064 512,179 1,487,574 4,991,527 1,302,284 2,132,533 5,636,486
---------- ---------- ----------- -------------- ----------- ---------- --------------
---------- ---------- ----------- -------------- ----------- ---------- --------------

HISTORICAL PRO FORMA
YEAR ENDED JUNE 30, HISTORICAL AS ADJUSTED(3)
---------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997 1997
---------- ---------- ---------- ------------- --------------

CERTAIN SUBSCRIBER DATA:
MRR(4)...................................... $ 500,000 $ 720,600 $ 800,000 $ 800,000 $ 1,067,000
Number of Retail Subscribers................ 28,628 34,173 37,770 37,592 47,592
Number of Wholesale Subscribers............. 9,440 11,132 9,639 7,720 11,720
Total Number of Subscribers................. 38,068 45,305 47,409 45,312 59,312
MRR per Retail Subscriber(5)................ $ 16.93 $ 20.25 $ 20.27 $ 20.55 $ 21.56
MRR per Wholesale Subscriber(5)............. $ 1.63 $ 2.22 $ 3.50 $ 3.55 $ 3.50

SEPTEMBER 30, 1997
-----------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(3)
------------- --------------

CONSOLIDATED BALANCE SHEET DATA:
Working Capital (Deficit)........................................................ $ (841,753) $ (327,913)
Total Assets..................................................................... 30,296,434 44,532,441
Long-Term Debt, Net of Current Portion(6)........................................ 12,944,996 14,386,375
Preferred Stock.................................................................. 6,818,055 31
Total Stockholders' Equity....................................................... 11,100,411 22,994,563

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(1) Includes cost of goods sold and installation expenses.

(2) Includes monitoring costs, time and material expenses and patrol costs.

(3) Pro forma to reflect (i) the acquisitions of Triple A and The Jupiter Group,
Inc. d/b/a Triple A Patrol ("Jupiter") as if they had occurred on July 1,
1996; and 503,953 shares of Common Stock to be issued to Triple A and
Jupiter in connection with the acquisitions (based upon the public offering
price of $6.50 per share) (ii) the sale by the Company of 3,000,000 shares
of Common Stock offered hereby and the application of the net proceeds
therefrom and (iii) the redemption of the Preferred Stock. The pro forma
financial information is unaudited and may not be indicative of the results
that actually would have occurred if the acquisition had occurred on July 1,
1996. See "Use of Proceeds," "Capitalization" and "Description of
Securities."

(4) MRR is monthly recurring revenue which the Company is entitled to receive
under contracts in effect at the end of the period. MRR is a term commonly
used in the industry as a measure of the size of a company but not as a
measure of profitability or performance, and does not include any allowance
for future attrition or allowance for doubtful accounts. The Company does
not have sufficient information as to the attrition of acquired subscriber
accounts to predict the amount of MRR that will be realized in future
periods or the impact of the attrition of acquired subscriber accounts on
the Company's overall rate of attrition. A retail subscriber is a subscriber
who contracts directly with the Company for monitoring services. A wholesale
subscriber is a subscriber who contracts through a third party for
monitoring services provided by the Company. See "Risk Factors--Attrition of
Subscriber Accounts."

(5) MRR at the end of the period divided by the number of retail or wholesale
(as the case may be) subscribers at the end of the period.

(6) Includes $12,660,000 of borrowings under the Credit Line (as defined
herein). As of January 31, 1998, actual borrowings under the Credit Line
were $15,310,000.

RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK BEING OFFERED HEREBY IS HIGHLY
SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR
TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH OTHER
MATTERS REFERRED TO HEREIN, INCLUDING THE FINANCIAL STATEMENTS AND NOTES
THERETO, THE FOLLOWING RISK FACTORS. IT MUST BE RECOGNIZED THAT OTHER UNFORSEEN
RISKS MIGHT ARISE IN THE FUTURE AND AFFECT THE COMPANY TO A GREATER EXTENT THAN
COULD EVER BE ANTICIPATED.

THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY, WITH RESPECT TO (I) THE COMPANY'S ACQUISITION AND FINANCING PLANS, (II)
TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS,
(III) THE IMPACT OF COMPETITION AND (IV) THE EXPANSION OF CERTAIN OPERATIONS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE
NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND
THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING INFORMATION
CONTAINED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE INFORMATION
UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" IDENTIFIES IMPORTANT FACTORS
THAT COULD CAUSE SUCH DIFFERENCES.

HISTORY OF SIGNIFICANT LOSSES; SUBSTANTIAL ACCUMULATED DEFICIT; WORKING CAPITAL
DEFICIT; NEGATIVE CASH FLOW AND UNCERTAIN FUTURE PROFITABILITY

The Company has incurred net losses of $3,030,830, $4,411,898, $18,054,144
and $1,029,953 (inclusive of dividends and accretion on preferred stock of
$6,876,521 and $335,272 for the fiscal year ended June 30, 1997 and the three
months ended September 30, 1997, respectively) for the three fiscal years ended
June 30, 1995, 1996 and 1997, and the three months ended September 30, 1997,
respectively and an accumulated deficit of $32,471,902 at September 30, 1997 and
negative cash flow of $1,228,215 for the fiscal year ended June 30, 1997 and
$15,738 or the three months ended September 30, 1997. It is anticipated that
such losses will continue for the foreseeable future. The Company had a net
working capital deficit of $1,023,805 as at June 30, 1997 and $841,753 as at
September 30, 1997. In addition, the Company's future plans are subject to known
and unknown risks and uncertainties that may cause the Company to continue to
incur substantial losses from operations. There can be no assurance that the
Company's operations will ever become profitable or that, if it is successful in
doing so, it will be able to maintain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ASSETS ENCUMBERED; HIGHLY-LEVERAGED STRUCTURE

On June 30, 1996, the Company completed a restructuring of its long-term
debt and obtained a $15,000,000 credit line (the "Credit Line") from Mellon
Bank, N.A. (the "Bank") which was increased to $15,500,000 on January 14, 1998.
As of January 30, 1998, $190,000 was available for borrowing under the Credit
Line. On December 10, 1997, the Bank issued a committment letter to the Company
to increase the Credit Line to $18,000,000. The increase in the Credit Line is
subject to the satisfaction of a number of conditions, including the Company's
receipt of a minimum of $7,000,000 of net proceeds from this offering (after
giving effect to the redemption of the Preferred Stock), and there can be no
assurance that all of such conditions will be satisfied or that the Company will
receive such increase in the Credit Line. The Company intends to use a portion
of the net proceeds of this offering to pay down a portion of the outstanding
indebtedness under the Credit Line and intends to subsequently borrow
approximately $7,086,635 to redeem the Preferred Stock, assuming the redemption
occurs on February 10, 1998, which does not include payments of $795,150 made by
the Company on each of December 15, 1997 and January 15, 1998 to redeem a
portion of the Preferred Stock. See "Use of Proceeds" and "Description of
Securities-- Series A Convertible Preferred Stock." At September 30, 1997, after
giving pro forma effect to

the receipt and application of the net proceeds from this offering and the
redemption of the Preferred Stock, the Company's pro forma consolidated
long-term indebtedness would have been approximately $14,386,375. As a result of
such borrowings, the Company's capital structure is highly leveraged. The
Company's indebtedness requires that a significant amount of its cash flow from
operations be applied to the payment of interest, and there can be no assurance
that the Company's operations will generate sufficient cash flow to service this
indebtedness. Borrowings under the Credit Line are at variable rates of
interest, which subjects the Company to fluctuations in interest rates.

The Credit Line is secured by all of the assets of the Company, and includes
financial and other covenants that restrict the operational and financial
flexibility of the Company, including restrictions on indebtedness, liens,
acquisitions and other significant corporate events. Failure to comply with
certain covenants would, among other things, permit the Bank to accelerate the
maturity of the obligations thereunder and could result in cross-defaults
permitting the acceleration of debt under other Company agreements and the
foreclosure on all of the assets of the Company. In addition, the Company is
required to obtain the consent of the Bank under the Credit Line and to maintain
certain financial ratios in order to undertake significant acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company's highly-leveraged
capital structure could impair its ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, or other
purposes, to compete effectively or to operate successfully in the future. As of
March 31, 1997, June 30, 1997 and September 30, 1997, the Company was not in
compliance with certain financial covenants under the Credit Line. The Company
subsequently entered into amendments to the Credit Line which amended the
covenants for the third and fourth quarters of the fiscal year ended June 30,
1997 and the first quarter of fiscal 1998 such that the Company was then in
compliance with the Credit Line. While the Company believes that it will be able
to maintain compliance with the financial covenants under the Credit Line, there
can be no assurance that the Company will maintain compliance with such
financial covenants, or that the Company will be able to obtain necessary
consents, waivers or amendments to the Credit Line in the future.

CERTAIN NON-CASH CHARGES

The Company may incur certain non-cash charges (i) of up to $900,000 for the
fiscal year ended June 30, 1998, as deferred compensation expense relating to
certain performance options granted to two officers of USS, based upon
fluctuations in the market price of the Common Stock, and (ii) for the fiscal
year ended June 30, 1998 in connection with the issuance of a certain
performance warrant issued to BKR, Inc. in connection with the Company's
investment in HealthLink, based upon the value of such warrant. Such charges
could have a material adverse effect on the Company's results of operations. See
"Management," "Business--HealthLink" and Notes 3 and 14 of Notes to Consolidated
Financial Statements of the Company.

RISKS RELATED TO GROWTH THROUGH ACQUISITIONS; RISKS ASSOCIATED WITH TRIPLE A
ACQUISITION

Since fiscal year end 1994, substantially all of the Company's growth has
been through acquisitions. One of the Company's primary strategies is to
continue to increase its revenues and the markets it serves through the
acquisition of other companies in the electronic security services industry and
portfolios of alarm monitoring accounts. During the fiscal years ended June 30,
1995, 1996 and 1997, the Company consummated eight acquisitions (an aggregate of
10,700 subscriber accounts), 16 acquisitions (an aggregate of 9,200 subscriber
accounts) and 14 acquisitions (an aggregate of 5,300 subscriber accounts),
respectively. In the event that the Company targets larger acquisitions, such as
the acquisition of Triple A, such acquisitions can be expected to involve
significant expenditures of capital and time, whether or not consummated. A
substantial portion of the net proceeds of this offering, approximately
$10,000,000 or 57.8%, is intended to be used for the acquisition of the assets
of Triple A. Such acquisition may involve certain unknown risks and
uncertainties in addition to those identified herein, which could have a
material adverse effect on the Company's financial condition and results of
operations. In addition, the acquisition

of electronic security service companies may become more expensive in the
future, to the extent that demand and competition increases. There can be no
assurance that the Company will be able to identify acquisition candidates,
successfully consummate such acquisitions, acquire or profitably manage such
acquisition candidates or successfully integrate such businesses into its
operations without substantial costs, delays or other problems. In addition, the
Company is unable to predict the size or frequency of any future acquisitions,
and there can be no assurance that any businesses acquired will be profitable at
the time of their acquisition or will achieve sales and profitability that
justify the investment therein or that the Company will be able to realize
expected operating and economic efficiencies following such acquisitions.
Acquisitions may involve a number of special risks, including (i) adverse
effects on the Company's reported operating results, (ii) diversion of
management's attention, (iii) increased burdens on the Company's management
resources and financial controls, (iv) dependence on retention and hiring of key
personnel, (v) risks associated with unanticipated problems or legal liabilities
and (vi) amortization of acquired intangible assets, some or all of which could
have a material adverse effect on the Company's operations and financial
performance. Furthermore, significant acquisitions, such as the acquisition of
Triple A, require consent of the Bank under the Credit Line and there can be no
assurance that the Bank will consent to such acquisitions. Failure to receive
any such consent of the Bank could have a material adverse effect on the
Company's operations and financial performance. In addition, the issuance of
additional shares of Common Stock in connection with acquisitions would have a
dilutive effect on the Company's existing stockholders, including investors in
this offering. See "--Potential Need for Additional Financing; Potential
Dilutive Impact of Acquisitions" and "--Substantial Dilution."

The Company has entered into an agreement to acquire Jupiter, a company
engaged in the patrol service business. The Company has no experience in the
patrol service business and such industry may involve risks and uncertainties
which are unknown to the Company and which could have a material adverse effect
on the Company's financial condition and results of operations. In addition, the
patrol service business has a significantly lower profit margin than the other
services provided by the Company, which could also have a material adverse
effect on the Company's results of operations and financial performance. See
"Business--Pending Acquisitions."

Since the Company's primary consideration in making an acquisition is the
amount of MRR associated with the seller's subscriber accounts, the price paid
by the Company is customarily directly tied to such MRR. No audited historical
financial information was available for any of the Company's acquisitions made
since 1994, except Triple A and Jupiter, which financial statements are included
in this Prospectus, if consummated. Therefore, the actual MRR acquired may be
less than the Company anticipated. Thus, the Company must rely on management's
knowledge of the industry, due diligence procedures, and representations and
warranties of the sellers. In the event the Company's assessment of the MRR of
an acquired company is higher than actual MRR for an acquired company, the
Company's financial condition and results of operations could be materially
adversely affected.

A difference between the accounting treatment of the purchase of subscriber
accounts and the accounting treatment of the generation of subscriber accounts
through direct sales by the Company's sales force has a significant impact on
the Company's results of operations. The costs of monitoring contracts (acquired
either through the Company's dealer program or through the acquisition of
subscriber account portfolios) are capitalized and amortized over estimated
lives ranging from five to ten years on a straight-line basis for alarm and PERS
accounts. Included in capitalized costs are acquisition transition costs that
reflect the Company's estimate of costs associated with incorporating the
acquired subscriber accounts into its operations. In contrast, all of the
Company's costs related to the marketing, sales and installation of new alarm
monitoring systems generated by its sales force are expenses in the period in
which such activities occur. The Company's marketing, sales and installation
expenses for new systems generally exceed installation revenues. Such accounting
treatment could adversely affect the Company's financial condition and results
of operations. See "Business."

RISKS ASSOCIATED WITH PREFERRED STOCK SETTLEMENT AGREEMENT

The Company has entered into a Settlement Agreement with the holders of the
Preferred Stock. Pursuant to the Settlement Agreement, the Company is required
to redeem all of the Preferred Stock on February 2, 1998, subject to extension
under certain circumstances. While the Company has received confirmation from a
majority of the holders that the date of redemption has been extended until
February 10, 1998, the Company has not received confirmation from all of the
holders as to such extension and in the event the holders were to disagree with
the Company, the holders might declare the Company to be in breach of the
Settlement Agreement and could attempt to convert their shares of Preferred
Stock and/or reinstitute an action against the Company, which could have a
material adverse effect on the Company and on the market price of the Common
Stock. See "Description of Securities--Series A Convertible Preferred Stock."

POTENTIAL NEED FOR ADDITIONAL FINANCING; POTENTIAL DILUTIVE IMPACT OF
ACQUISITIONS

Based on the Company's operating plan, the Company believes that the net
proceeds of this offering, together with cash on hand and available debt
financing under the Credit Line, will be sufficient to satisfy its current
capital requirements for at least 12 months following this offering. However, in
the event that the Company were to make significant acquisitions for cash
consideration, the Company may require additional capital before such time.
Sources of funds may include the issuance of Common Stock or preferred stock
sold in a public offering or in private placements, debt securities or bank
financing. Historically, the Company has utilized its Common Stock to pay a
portion of the consideration of its acquisitions. To the extent the Company
continues to use its Common Stock in connection with acquisitions, the issuance
of such shares could have a dilutive impact on the Company's existing
stockholders, including investors in this offering. Alternatively, to avoid such
dilution, or if the acquisition candidate is unwilling to accept Common Stock as
all or a portion of the consideration for such acquisition, the Company may be
required to utilize more of its cash resources, if available, or may be required
to seek additional funding. There can be no assurance that the Company would be
able to obtain capital on a timely basis, on favorable terms, or at all. If the
Company is unable to obtain such financing, or generate funds from operation
sufficient to meet it needs, the Company may be unable to implement its current
plans for expansion and development. See "Use of Proceeds."

ATTRITION OF SUBSCRIBER ACCOUNTS

The Company is heavily dependent on its recurring monitoring and service
revenues. Given the relatively fixed nature of monitoring and service expenses,
increases and decreases in monitoring and service revenues have a significant
impact on the Company's financial performance. Substantially all of the
Company's monitoring and service revenues are derived from recurring charges to
subscribers for the provision of various services. Although no single subscriber
represents more than one-half of one percent of the Company's recurring revenue
base, the Company is vulnerable to subscribers canceling their contracts. In
recent years, lost recurring revenues from such cancellations have exceeded the
new recurring revenues added by the Company's internal sales efforts. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

At September 30, 1997, the cost of subscriber accounts and intangible
assets, net of previously accumulated amortization, was $18,045,284, which
constituted 59.6% of the book value of the Company's total assets. The Company's
acquired subscriber accounts are amortized on a straight-line basis over the
estimated life of the related revenues. The Company's assumed attrition rate for
all of its subscriber accounts, expressed as total accounts lost per year, net
of new accounts from subscribers who move into premises previously occupied by
Company subscribers and accounts for which the Company is reimbursed by virtue
of a guarantee by the seller of the account, is approximately 10%. It is the
Company's policy to review periodically actual account attrition and, when
necessary, adjust the remaining estimated lives of the Company's acquired
accounts to reflect assumed future attrition (see Note 1 of Notes to
Consolidated Financial Statements of the Company). There could be a material
adverse effect on the Company's results

of operations and financial condition if actual account attrition significantly
exceeds assumed attrition and the Company has to make further adjustments with
respect to the amortization of acquired subscriber accounts. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Subscriber Attrition."

COMPETITION

The electronic security services industry is highly competitive and
fragmented. The Company competes with national and regional companies, as well
as smaller local companies, in all of its operations. Furthermore, new
competitors continue to enter the industry and the Company may encounter
additional competition from such future industry entrants. Subject to regulatory
compliance, certain companies engaged in the telephone and cable business are
competing in the electronic security services industry and other such companies
may, in the future, enter the industry. Certain of the Company's current
competitors have, and new competitors may have, substantially greater financial
resources than the Company. There can be no assurance that the Company will be
able to compete successfully in the electronic security services industry. The
Company's principal competitors with respect to its PERS are other national or
regional emergency response providers and burglar alarm companies that offer
medical emergency features in addition to their home protection systems. Many of
these companies have greater financial resources than the Company and may enjoy
a particular competitive advantage due to their access to a larger client base.
There can be no assurance that the Company will be able to compete successfully
in the PERS industry. See "Business--Competition."

DEPENDENCE ON THE MONITORING STATION

The Company is dependent on an independent third-party monitoring station to
monitor substantially all of its subscriber accounts. The Company's agreement
with the Monitoring Station expires in April 2000 and is terminable sooner under
certain circumstances. Although the Company believes that alternative monitoring
stations are available on commercially reasonable terms, any termination or
temporary interruption of services by the Monitoring Station for any reason
including a catastrophic event such as tornado, hurricane, earthquake, fire or
other disaster which rendered the Monitoring Station temporarily or permanently
inoperable could adversely affect the Company's financial condition and results
of operations. The Company anticipates transferring all of its subscriber
accounts from the Monitoring Station to Triple A's monitoring station following
consummation of the Triple A acquisition.

DEPENDENCE ON SUPPLIERS AND MANUFACTURERS

The Company does not manufacture any of the equipment or components that it
designs and installs. Although the Company believes that a variety of
alternative sources of supply are available on commercially reasonable terms,
the Company has no guaranteed supply arrangements with its suppliers and
purchases components pursuant to purchase orders placed from time to time in the
ordinary course of business. There can be no assurance that shortages of
components will not occur in the future. Failure of sources of supply and the
inability of the Company to develop alternative sources of supply, if required
in the future, could have a material adverse effect on the Company's operations.
See "Business--Suppliers, Manufacturing and Assembly."

PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE

The nature of the security services provided by the Company potentially
exposes it to greater risk of liability claims for employee acts or omissions or
system failure than may be inherent in many other service businesses. Although
(i) substantially all of the Company's customers have subscriber agreements
which contain provisions for limited liability and predetermined liquidated
damages and (ii) the Company carries insurance which provides coverage against
certain of such liabilities, there can be no assurance that such existing
arrangements will prevent the Company from being adversely affected as a result
of damages arising from the acts of its employees, defective equipment, the acts
or omissions of the Monitoring Station

or because some jurisdictions prohibit or restrict limitations on liabilities
and liquidated damages. In addition, certain of the Company's insurance policies
and the laws of some states may limit or prohibit insurance coverage for
punitive damages and for certain other kinds of damages arising from employee
misconduct. In addition, in some states, the contractual limitation on liability
and indemnification provisions may be ineffective in cases of gross negligence
or intentional misconduct and in certain other situations. See "Business--Risk
Management."

The sale and service of the Company's products entails the risk of product
liability claims. In addition, many of the companies with which the Company does
or may do business may require financial assurances of product reliability. The
Company has product liability insurance, but may be required to pay higher
premiums associated with new product development. Product liability insurance is
expensive and there can be no assurance that additional insurance will be
available on acceptable terms, if at all, or that it will provide adequate
coverage against potential liabilities. The inability to obtain additional
insurance at an acceptable cost or to otherwise protect against potential
product liability could prevent or inhibit commercialization of the Company's
products. A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company.

POSSIBLE ADVERSE EFFECT OF "FALSE ALARMS" ORDINANCES AND GOVERNMENT REGULATIONS

The Company believes that approximately 97% of alarm activations that result
in the dispatch of police or fire department personnel are not emergencies, and
thus are "false alarms." Significant concern has arisen in certain
municipalities about this high incidence of false alarms. This concern could
cause a decrease in the likelihood or timeliness of police response to alarm
activations and thereby decrease the propensity of consumers to purchase or
maintain alarm monitoring services.

A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms and (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations. See "Business--Government Regulation."

The Company's operations are also subject to a variety of federal, state,
county and municipal laws, regulations and licensing requirements. Many of the
states in which the Company operates, as well as certain local authorities,
require the Company to obtain licenses or permits to conduct a security alarm
services business. Certain governmental entities also require persons engaged in
the security alarm services business to be licensed and to meet certain
standards in the selection and training of employees and in the conduct of
business. The loss of such licenses, or the imposition of conditions on the
granting or retention of such licenses, could have a material adverse effect on
the Company.

The Company's advertising and sales practices are regulated by both the
Federal Trade Commission (the "FTC") and state consumer protection laws. Such
regulations include restrictions on the manner in which the Company promotes the
sale of its products and the obligation of the Company to provide purchasers of
its products with certain rights. While the Company believes that it has
complied with these regulations in all material respects, there can be no
assurance that none of these regulations were violated in connection with the
solicitation of the Company's existing subscriber accounts, particularly with
respect to accounts acquired from third parties, or that no such violations will
occur in the future. See "Business-- Governmental Regulation."

GEOGRAPHIC CONCENTRATION

The Company's existing alarm subscriber base is geographically concentrated
in New York, New Jersey, Connecticut, Delaware and Pennsylvania. Accordingly,
the performance of the Company may be

adversely affected by regional or local economic conditions. The Company may
from time to time make acquisitions in regions outside of its current operating
area. The acquisition of companies in other regions, or in metropolitan areas in
which the Company does not currently have subscribers, requires an investment by
the Company. In order for the Company to expand successfully into a new area,
the Company must acquire companies with a sufficient number and density of
subscriber accounts in such area to support the investment. There can be no
assurance that the Company will find such opportunities or that an expansion
into new geographic areas will generate operating profits.

DEPENDENCE ON KEY PERSONNEL AND MANAGEMENT

The Company's success depends to a significant degree upon the continuing
contributions of its senior management and other key employees, particularly its
only two current executive officers, Richard M. Brooks, the Company's Chief
Executive Officer, President, Chief Financial Officer and Chairman of the Board,
and Ronald A. Feldman, the Company's Chief Operating Officer, Vice President,
Secretary and Treasurer, the loss of either of whom might have a material
adverse effect on the Company's financial condition and results of operations.
Although the Company has employment agreements with Messrs. Brooks and Feldman
and certain other employees, there can be no assurance that the Company will be
able to retain the services of such individuals. It is an event of default under
the Credit Line if Messrs. Brooks, Feldman or Todd Herman, President of USS, are
not employed in certain management positions. The Company has key-man life
insurance policies on the lives of Messrs. Brooks and Feldman in the amount of
$3,000,000 and $1,000,000, respectively. See "Management."

CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS

Upon the consummation of this offering, the Company's directors and
executive officers will beneficially own approximately 14.0% of the outstanding
shares of Common Stock (excluding shares of Common Stock to be issued to one of
the directors upon consummation of the Triple A and Jupiter acquisitions) and,
accordingly, will have substantial influence over the outcome of any matter
submitted to a vote of stockholders, including the election of directors and the
approval of significant corporate transactions (such as acquisitions of the
Company or its assets). Such influence could delay or prevent a change of
control of the Company. See "Principal Stockholders" and "Description of
Securities."

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced extreme price and volume
fluctuations that have been unrelated to the operating performance of particular
companies. The market price of the Common Stock may be significantly affected by
quarterly variations in the Company's operating results, changes in financial
estimates by securities analysts or failure by the Company to meet such
estimates, litigation involving the Company, general trends in the security
alarm industry, actions by governmental agencies, national economic and stock
market conditions, industry reports and other factors, many of which are beyond
the control of the Company. See "Price Range of Common Stock."

SUBSTANTIAL DILUTION

Investors purchasing shares in this offering will incur immediate and
substantial dilution of approximately $2.09 (32%) per share between the adjusted
net tangible book value per share of Common Stock after this offering and the
public offering price of $6.50 per share, assuming redemption of the Preferred
Stock. See "Description of Securities--Series A Convertible Preferred Stock." In
addition, the issuance of Common Stock, preferred stock, options, warrants or
convertible securities at prices which are less than the price paid by investors
in this offering would result in additional dilution to investors in this
offering. See "--Shares Eligible for Future Sale; Effect of Previously Issued
Options and Warrants; Registration Rights." Further, the issuance of additional
shares of Common Stock in connection with acquisitions would have a dilutive
effect on the Company's existing stockholders, including investors in this
offering. See "-- Potential Need for Additional Financing; Potential Dilutive
Impact of Acquisitions."

NO DIVIDENDS

The Company has never paid any cash or other dividends on its Common Stock.
Payment of dividends on the Common Stock is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. For the
foreseeable future, the Board intends to retain future earnings, if any, to
finance its business operations and does not anticipate paying any cash
dividends with respect to the Common Stock. Pursuant to the terms of the Credit
Line, the Company may not declare any dividends while any outstanding balance
exists under the Credit Line. See "Management's Discussion and Analysis and
Results of Operations--Liquidity and Capital Resources" and "Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE; EFFECT OF PREVIOUSLY ISSUED OPTIONS AND
WARRANTS; REGISTRATION RIGHTS

Upon the consummation of this offering, the Company will have outstanding
5,212,596 shares of Common Stock, all of which shares including the 3,000,000
shares offered hereby will be freely tradeable without restriction or further
registration under the Securities Act. The Company may also issue in the future
options or shares of Common Stock which are "restricted securities" (as that
term is defined in Rule 144 under the Securities Act) and in the future may only
be sold pursuant to a registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. In general, under Rule 144, as currently in
effect, a person (including a person who may be deemed an "affiliate" of the
Company as that term is defined under the Securities Act) who has beneficially
owned such shares for at least one year would be entitled to sell within any
three-month period a number of shares beneficially owned for at least one year
that do not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
further subject to certain restrictions relating to the manner of sale, notice
and the availability of current public information about the Company. After two
years have elapsed from the date of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such shares may be sold without
limitation by persons who have not been affiliates of the Company for at least
three months. The beneficial owners of 483,922 shares of Common Stock (including
shares of Common Stock issuable upon exercise of options) have agreed not to
sell such shares for a period of 12 months after this offering without the
consent of Gruntal. In addition, the beneficial owners of options to acquire
422,800 shares of Common Stock at an exercise price of $.03 per share have
agreed not to sell the shares issuable upon exercise of such options for a
period of 24 months after this offering, and the beneficial owners of options to
acquire 200,000 shares of Common Stock at an exercise price of $4.50 per share
have agreed not to sell the shares issuable upon exercise of such options for a
period of 24 months after this offering unless, in the case of the owners of the
options to acquire 200,000 shares of Common Stock, they are no longer employed
by the Company prior to the end of such 24 month period, such restriction shall
cease, but in no event shall such restriction be less than 12 months after this
offering. The sale, or availability for sale, of substantial amounts of Common
Stock in the public market subsequent to this offering pursuant to Rule 144 or
otherwise could materially adversely affect the market price of the Common Stock
and could impair the Company's ability to raise additional capital through the
sale of its equity securities or debt financing.

The Company has reserved from the authorized, but unissued, Common Stock,
2,967,086 shares of Common Stock issuable upon exercise of options, warrants and
convertible securities. The sale of shares by the holders of approximately
1,269,513 of such options, warrants and convertible securities have been
included in registration statements which have been filed with the Securities
and Exchange Commission, the sale of which could adversely affect the market
price of the Common Stock. The existence of such outstanding securities may
prove to be a hindrance to future financings, since the holders of such
securities may be expected to exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Description of Securities."

The holders of the Gruntal Warrants will have certain demand and "piggyback"
registration rights with respect to the shares of Common Stock underlying such
warrants, commencing one year after the

effective date of this offering. If Gruntal should exercise registration rights
to effect the distribution of the securities underlying the Gruntal Warrants, it
will be unable to make an active market in the Company's securities prior to and
during such distribution. If it ceases making a market in the Common Stock, the
market and market prices for the Common Stock may be materially adversely
affected, and holders thereof may be unable to sell or otherwise dispose of the
Common Stock. No prediction can be made as to the effect, if any, that sales of
such securities, or the availability of such securities for sale, will have on
the market prices prevailing from time to time for the Common Stock. However,
even the possibility that a substantial number of the Company's securities may,
in the near future, be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Shares Eligible
For Future Sale," "Description of Securities" and "Underwriting."

DELAWARE ANTI-TAKEOVER STATUTE; LIMITATION OF LIABILITY OF DIRECTORS AND
OFFICERS

The Company is a Delaware corporation and is subject to the prohibitions
imposed by Section 203 of the Delaware General Corporate Law ("DGCL"), which is
generally viewed as an anti-takeover statute. In general, this statute will
prohibit the Company from entering into certain business combinations without
the approval of its Board of Directors and, as accordingly, could prohibit or
delay mergers or other attempted takeovers or changes in control with respect to
the Company. Such provisions may discourage attempts to acquire the Company. A
change of control of the Company would also cause a default under the Credit
Line which could accelerate the maturity of the obligations thereunder.

The Company's Certificate of Incorporation includes provisions to eliminate,
to the full extent permitted by the DGCL as in effect from time to time, the
personal liability of directors of the Company for monetary damages arising from
a breach of their fiduciary duties as directors. The Certificate of
Incorporation also includes provisions to the effect that (subject to certain
exceptions) the Company shall, to the maximum extent permitted from time to time
under the law of the State of Delaware, indemnify, and upon request shall
advance expenses to, any director or officer to the extent that such
indemnification and advancement of expenses is permitted under such law, as it
may from time to time be in effect. In addition, the Company's Bylaws (the
"Bylaws") require the Company to indemnify, to the full extent permitted by law,
any director, officer, employee or agent of the Company for acts which such
person reasonably believes are not in violation of the Company's corporate
purposes as set forth in the Certificate of Incorporation. As a result of such
provisions in the Certificate of Incorporation and the Bylaws, stockholders may
be unable to recover damages against the directors and officers of the Company
for actions taken by them which constitute negligence, gross negligence or a
violation of their fiduciary duties, which may reduce the likelihood of
stockholders instituting derivative litigation against directors and officers
and may discourage or deter stockholders from suing directors, officers,
employees and agents of the Company for breaches of their duty of care, even
though such action, if successful, might otherwise benefit the Company and its
stockholders.

POSSIBLE ADVERSE EFFECTS ASSOCIATED WITH THE ISSUANCE OF "BLANK CHECK" PREFERRED
STOCK

The Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue up to 250,000 shares (of which 239,430.42 remain available)
of "blank check" preferred stock, from time to time, in one or more series,
solely on the authorization of its Board of Directors. The Board of Directors
will thus be authorized, without further approval of the stockholders, to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, and any other rights, preferences,
privileges and restrictions applicable to each new series of preferred stock.
The issuance of such stock could, among other results, adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
make it more difficult for a third party to gain control of the Company,
discourage bids for the Common Stock at a premium, or otherwise adversely affect
the market price of the Common Stock. See "Description of Securities--Series A
Convertible Preferred Stock."

USE OF PROCEEDS

The net proceeds (after deducting underwriting discounts and estimated
offering expenses payable by the Company) from the sale of 3,000,000 shares of
Common Stock being offered by the Company, estimated to be approximately
$17,295,000 ($19,956,750 if the Underwriters' over-allotment option is exercised
in full), are expected to be used for the following purposes:

APPROXIMATE AMOUNT PERCENTAGE OF
INTENDED APPLICATION OF NET PROCEEDS THE NET PROCEEDS
- ------------------------------------------------------- ------------------- -------------------

Acquisition(1)......................................... $ 10,000,000 57.8%
Reduction of Debt(2)................................... 7,295,000 42.2%

Pending application of the net proceeds, the Company intends to invest the
net proceeds in short-term investment grade, interest-bearing securities.
Amounts outstanding under the Credit Line bear interest at the Bank's prime rate
plus 1-3/4% per annum and are due on June 30, 2000. The Company may borrow up to
$15,500,000 under the Credit Line and, as of January 30, 1998, $15,310,000 was
outstanding under the Credit Line. On December 10, 1997, the Bank issued a
commitment letter to the Company to increase the Credit Line to $18,000,000. The
increase in the Credit Line is subject to the satisfaction of a number of
conditions, including the Company's receipt of a minimum of $7,000,000 of net
proceeds from this offering (after giving effect to the redemption of the
Preferred Stock), and there can be no assurance that all of such conditions will
be satisfied or that the Company will receive such increase in the Credit Line.
The Company expects that all additional proceeds from any exercise of the
Underwriters' over-allotment option will be used similarly or to supplement
working capital.

- ------------------------
(1) Represents the acquisition of substantially all of the assets of Triple A,
which is to be consummated upon the completion of this offering. Triple A is
the provider of residential and commercial security systems, principally in
northeastern Pennsylvania. See "Business--Pending Applications."

(2) Represents the Company's repayment to reduce amounts outstanding under the
Credit Line. The Company intents to subsequently borrow approximately
$7,086,635 under the Credit Line to redeem the Preferred Stock, assuming the
redemption occurs on February 10, 1998, which does not include payments of
$795,150 made by the Company on each of December 15, 1997 and January 15,
1998, to redeem a portion of the Preferred Stock. See "Description of
Securities--Series A Convertible Preferred Stock." Funds from the Credit
Line were utilized to repay prior existing indebtedness to the lender which
had financed the acquisition of certain subscriber account portfolios,
inventory and working capital purposes. The Company has received
confirmation from a majority of the holders that the redemption date under
the Settlement Agreement has been extended until February 10, 1998, however
the Company has not received confirmation from all of the holders and the
amount of borrowings used to redeem such shares may be less in the event
that less than all of such holders deliver their shares for redemption on
such date. See "Description of Securities--Series A Convertible Preferred
Stock."

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is currently being traded in the over-the-counter
market on the Nasdaq SmallCap Market under the trading symbol "RSPND," and
commencing February 9, 1998, the Common Stock will be traded under the symbol
"RSPN." The following table sets forth, for the quarters indicated, the high and
low bid and asked prices for the Company's Common Stock in the over-the-counter
market (as adjusted to reflect the one-for-three reverse stock split effective
January 9, 1998). Such prices reflect interdealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

BID ASK
------------------ ------------------

HIGH LOW HIGH LOW
------- ------- ------- -------
FISCAL YEAR ENDING
JUNE 30, 1998:
First Quarter....... $12 $ 6 3/4 $12 3/4 $ 8 7/16
Second Quarter...... 11 7/16 7 1/2 12 8 1/8
Third Quarter
(through January
30, 1998).......... 9 3/16 8 1/4 12 8 1/2
FISCAL YEAR ENDED
JUNE 30, 1997:
First Quarter....... $26 5/8 $ 9 3/8 $27 3/8 $ 9 3/4
Second Quarter...... 15 3/8 7 1/8 16 1/8 7 7/8
Third Quarter....... 16 1/8 8 1/16 16 7/8 8 5/8
Fourth Quarter...... 9 4 5/16 9 3/8 4 11/16
FISCAL YEAR ENDED
JUNE 30, 1996:
First Quarter....... $21 9/16 $11 1/4 $23 7/16 $13 1/8
Second Quarter...... 18 12 3/4 18 3/4 13 7/8
Third Quarter....... 18 3/8 14 1/4 18 3/4 15
Fourth Quarter...... 25 1/2 15 3/8 26 1/4 15 3/4

On February 4, 1998, the closing bid price of the Company's Common Stock as
reported on the Nasdaq SmallCap Market was $7.0625 per share. As of February 2,
1998, there were 224 stockholders of record of the Common Stock. The total
monthly trading volume of the Common Stock on the Nasdaq SmallCap Market for the
month ended December 31, 1997 was 303,066.

DIVIDEND POLICY

The Company has not paid dividends on the Common Stock since inception and
does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to retain earnings, if any, for the
development and expansion of its business. The declaration of dividends in the
future will be at the discretion of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. The Company is
prohibited from declaring dividends while any outstanding balance exists under
the Credit Line.

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1997, and as adjusted to reflect (i) the sale of the 3,000,000
shares of Common Stock of the Company offered hereby (after giving effect to the
one-for-three reverse stock split effective January 9, 1998) at the public
offering price of $6.50 per share, (ii) the application of the estimated net
proceeds therefrom, (iii) the redemption of the Preferred Stock, see
"Description of Securities--Series A Convertible Preferred Stock," (iv) the
issuance of the Series B Preferred Stock and (v) the issuance of 503,953 shares
in connection with two pending acquisitions. This table below should be read in
conjunction with the financial statements and related notes appearing elsewhere
in this Prospectus.

AT SEPTEMBER 30, 1997
-------------------------------
PRO FORMA
AS
ACTUAL(1) ADJUSTED(2)(3)
------------- ----------------

Short-Term Debt, Including Capital Lease Obligations:........................... $ 157,815 $ 235,309
Long-Term Debt, Net of Current Portion:......................................... 12,944,996 14,386,375
Stockholders' Equity:
Preferred stock--Par value $1,000
Authorized 250,000 shares
Issued and outstanding 5,890 shares--Series A, actual; none, pro forma as
adjusted................................................................ 6,818,055 --
Issued and outstanding 3,069.58 shares--Series B.......................... 31 31
Common stock--Par value $.008
Authorized 12,500,000 shares
Issued and outstanding 2,189,301 shares, actual; 5,693,254, pro forma as
adjusted................................................................ 17,515 45,545
Additional Paid-in Capital...................................................... 36,755,462 55,439,248
Unrealized Holding Losses on Available For Sale Securities...................... (18,750) (18,359)
Deficit......................................................................... (32,471,902) (32,471,902)
------------- ----------------
Total Stockholders' Equity...................................................... 11,100,411 22,994,563
------------- ----------------
Total Capitalization........................................................ $ 24,045,407 $ 37,380,938
------------- ----------------
------------- ----------------

- ------------------------

(1) Reflects the one-for-three reverse stock split as if it had occurred at
September 30, 1997. See Note 16 of Notes to Consolidated Financial
Statements of the Company.

(2) Pro forma to reflect (i) the 3,000,000 shares of Common Stock offered hereby
and the application of the net proceeds thereof, (ii) the redemption of
5,890 shares of Series A Preferred Stock and (iii) the acquisition of Triple
A and Jupiter as if they had occurred prior to September 30, 1997, including
the issuance of 503,953 shares of Common Stock to be issued upon the
consummation of the acquisition (based upon the public offering price of
$6.50 per share). See "Description of Securities" and Note 16 of Notes to
Consolidated Financial Statements of the Company.

(3) Does not include up to (i) 450,000 shares of Common Stock issuable upon
exercise of the Gruntal Warrants to be issued to Gruntal on the closing of
this offering and (ii) 2,967,086 shares of Common Stock issuable upon the
exercise of options and warrants at exercise prices ranging from $0.03 to
$24.00 per share and upon conversion of convertible securities.

SELECTED FINANCIAL INFORMATION

The following table presents, for the periods and dates indicated, selected
historical and pro forma as adjusted financial data and other data of the
Company. The historical statement of operations data and the balance sheet data
of the Company for and at the year ended June 30, 1997 are derived from the
Company's financial statements, which have been audited by Deloitte & Touche
LLP, independent certified public accountants, and which appear elsewhere in
this Prospectus. The historical statement of operations data and the balance
sheet data of the Company for and at the years ended June 30, 1995 and 1996 are
derived from the Company's financial statements, which have been audited by
Fishbein and Company, PC, independent certified public accountants, and which
appear elsewhere in this Prospectus. The Selected Financial Data presented below
as of September 30, 1997, and for the three months ended September 30, 1996 and
1997, are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the financial
position and the results of operations for this period, applied on a basis
consistent with the audited financial statements. The unaudited pro forma as
adjusted statement of operations and the balance sheet data of the Company give
effect to (i) the consummation of this offering and the application of the net
proceeds therefrom, as set forth in "Use of Proceeds," (ii) the acquisitions of
Triple A and Jupiter and (iii) the effects of certain pro forma adjustments to
the historical financial statements described below, as if such events occurred
prior to September 30, 1997. This information should be read in conjunction with
the Company's financial statements and the related notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Capitalization," included elsewhere in this Prospectus. The pro forma as
adjusted information is not necessarily indicative of what the actual results
would have been had the transactions occurred prior to September 30, 1997, nor
does it purport to indicate the results of future operations. The pro forma as
adjusted information reflects the acquisition of Triple A and Jupiter and does
not reflect any other acquisitions of the Company occurring after September 30,
1997, which acquisitions were not deemed to be material acquisitions by the
Company.

PRO FORMA
HISTORICAL AS ADJUSTED(3) HISTORICAL
----------------------------------- -------------- -----------------------
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1995 1996 1997 1997 1996 1997
---------- ---------- ----------- -------------- ----------- ----------

INCOME STATEMENT DATA:
Revenues:
Product Sales......................... $4,520,062 $2,352,449 $ 2,938,618 $ 4,726,515 $ 656,128 $ 662,846
Monitoring and Related Services....... 4,812,474 8,515,247 9,784,285 14,776,735 2,386,239 2,585,038
---------- ---------- ----------- -------------- ----------- ----------
Total Revenues...................... 9,332,536 10,867,696 12,722,903 19,503,250 3,042,367 3,247,884
---------- ---------- ----------- -------------- ----------- ----------
Cost of Revenues:
Product Sales(1)...................... 2,635,674 1,718,689 1,970,158 3,364,629 451,535 398,442
Monitoring and Related Services(2).... 1,125,123 1,779,490 2,127,257 4,438,081 747,025 768,739
---------- ---------- ----------- -------------- ----------- ----------
Total Cost of Revenues.............. 3,760,797 3,498,179 4,097,415 7,802,710 1,198,560 1,167,181
---------- ---------- ----------- -------------- ----------- ----------
Gross profit............................ 5,571,739 7,369,517 8,625,488 11,700,540 1,843,807 2,080,703
---------- ---------- ----------- -------------- ----------- ----------
Operating Expenses:
Selling, General and Administrative... 6,327,622 6,416,486 9,126,641 11,266,985 1,421,984 1,615,635
Compensation--Options/Employment
Contracts........................... -- -- 3,689,700 3,689,700 862,500 (450,000)
Depreciation and Amortization......... 1,302,208 2,200,894 2,976,433 4,535,493 662,719 837,539
Interest.............................. 1,220,618 3,185,603 1,349,480 1,505,653 503,470 643,780
Litigation Settlement................. 240,000 -- -- -- -- --
Recovery of Termination Benefits
Cost................................ (392,699) -- -- -- -- --
Recovery of Restructuring Charges..... (52,920) -- -- -- -- --
---------- ---------- ----------- -------------- ----------- ----------
Total Operating Expenses............ 8,644,829 11,802,983 17,142,254 20,997,831 3,450,673 2,646,954
---------- ---------- ----------- -------------- ----------- ----------
Loss from Operations.................. (3,073,090) (4,433,466) (8,516,766) (9,297,291) (1,606,866) (566,251)
Other Income (Expense):
Interest Income....................... 42,260 21,568 12,176 27,504 7,939 1,708
Joint Venture Loss.................... -- -- (123,325) (123,325) -- (130,138)
---------- ---------- ----------- -------------- ----------- ----------
Loss Before Extraordinary Item............ (3,030,830) (4,411,898) (8,627,915) (9,393,112) (1,598,927) (694,681)
Extraordinary Item Loss on Debt
Extinguishment........................ -- -- 2,549,708 2,549,708 2,549,708 --
---------- ---------- ----------- -------------- ----------- ----------
Net Loss.................................. (3,030,830) (4,411,898) (11,177,623) (11,942,820) (4,148,635) (694,681)
Dividends and Accretion on Preferred
Stock..................................... -- -- (6,876,521) -- (6,125,549) (335,272)
---------- ---------- ----------- -------------- ----------- ----------
Net Loss Applicable to Common
Shareholders.............................. $(3,030,830) $(4,411,898) $(18,054,144) $(11,942,820) $(10,274,184) $(1,029,953)
---------- ---------- ----------- -------------- ----------- ----------
---------- ---------- ----------- -------------- ----------- ----------
Loss per Common Share:
Loss Before Extraordinary Item........ $ (15.07) $ (8.61) $ (5.80) $ (1.88) $ (1.23) $ (0.33)
Extraordinary Item.................... -- -- (1.71) (0.51) (1.96) --
---------- ---------- ----------- -------------- ----------- ----------
Net Loss.............................. $ (15.07) $ (8.61) $ (7.51) $ (2.39) $ (3.19) $ (0.33)
---------- ---------- ----------- -------------- ----------- ----------
---------- ---------- ----------- -------------- ----------- ----------
Net Loss Applicable to Common
Shareholders........................ $ (15.07) $ (8.61) $ (12.14) $ (2.39) $ (7.89) $ (0.48)
---------- ---------- ----------- -------------- ----------- ----------
---------- ---------- ----------- -------------- ----------- ----------
Weighted Average Number of Common Shares
Outstanding........................... 201,064 512,179 1,487,574 4,991,527 1,302,284 2,132,533
---------- ---------- ----------- -------------- ----------- ----------
---------- ---------- ----------- -------------- ----------- ----------

PRO FORMA
AS ADJUSTED(3)
--------------

1997
--------------

INCOME STATEMENT DATA:
Revenues:
Product Sales......................... $1,071,442
Monitoring and Related Services....... 4,032,063
--------------
Total Revenues...................... 5,103,505
--------------
Cost of Revenues:
Product Sales(1)...................... 762,719
Monitoring and Related Services(2).... 1,397,054
--------------
Total Cost of Revenues.............. 2,159,773
--------------
Gross profit............................ 2,943,732
--------------
Operating Expenses:
Selling, General and Administrative... 2,206,395
Compensation--Options/Employment
Contracts........................... (450,000)
Depreciation and Amortization......... 1,238,836
Interest.............................. 681,793
Litigation Settlement................. --
Recovery of Termination Benefits
Cost................................ --
Recovery of Restructuring Charges..... --
--------------
Total Operating Expenses............ 3,677,024
--------------
Loss from Operations.................. (733,292)
Other Income (Expense):
Interest Income....................... 4,026
Joint Venture Loss.................... (130,138)
--------------
Loss Before Extraordinary Item............ (859,404)
Extraordinary Item Loss on Debt
Extinguishment........................ --
--------------
Net Loss.................................. (859,404)
Dividends and Accretion on Preferred
Stock..................................... --
--------------
Net Loss Applicable to Common
Shareholders.............................. $ (859,404)
--------------
--------------
Loss per Common Share:
Loss Before Extraordinary Item........ $ (0.15)
Extraordinary Item.................... --
--------------
Net Loss.............................. $ (0.15)
--------------
--------------
Net Loss Applicable to Common
Shareholders........................ $ (0.15)
--------------
--------------
Weighted Average Number of Common Shares
Outstanding........................... 5,636,486
--------------
--------------

HISTORICAL PRO FORMA
YEAR ENDED JUNE 30, AS ADJUSTED(3)
---------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997 1997
---------- ---------- ---------- ------------- --------------

SEPTEMBER 30, 1997
-----------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(3)
------------- --------------

- ------------------------

(1) Includes cost of goods sold and installation expenses.

(2) Includes monitoring costs, time and material expenses and patrol costs.

(3) Pro forma to reflect (i) the acquisitions of Triple A and Jupiter as if they
had occurred on July 1, 1996; and 503,953 shares of Common Stock to be
issued to Triple A and Jupiter in connection with the acquisitions (based
upon the public offering price of $6.50 per share) (ii) the sale by the
Company of 3,000,000 shares of Common Stock offered hereby and the
application of the net proceeds therefrom and (iii) the redemption of the
Preferred Stock. The pro forma financial information is unaudited and may
not be indicative of the results that actually would have occurred if the
acquisition had occurred on July 1, 1996. See "Use of Proceeds,"
"Capitalization" and "Description of Securities."

(5) MRR at the end of the period divided by the number of retail or wholesale
(as the case may be) subscribers at the end of the period.

(6) Includes $12,660,000 of borrowings under the Credit Line. As of January 31,
1998, actual borrowings under the Credit Line were $15,310,000.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and related notes thereto.

GENERAL

Since fiscal year end 1994, substantially all of the Company's growth has
been through the acquisition of smaller alarm companies.

During the fiscal year ended June 30, 1995 ("Fiscal 1995"), the Company
consummated eight acquisitions, purchasing approximately 10,700 subscriber
accounts for an aggregate consideration of $5,218,944 in cash and 48,090 shares
of Common Stock.

During the fiscal year ended June 30, 1996 ("Fiscal 1996"), the Company
consummated 16 acquisitions, purchasing approximately 9,200 subscriber accounts
for an aggregate consideration of $5,638,637 in cash and 98,014 shares of Common
Stock. As part of the acquisitions, the Company also issued 5,000 shares of
Common Stock valued at $70,311 as payment of financing costs to the lender that
financed the acquisitions.

During the fiscal year ended June 30, 1997 ("Fiscal 1997"), the Company
consummated 14 acquisitions, purchasing approximately 5,300 subscriber accounts
for an aggregate consideration of $3,424,712 in cash and 8,334 shares of Common
Stock. The Company typically acquires only the subscriber accounts, and not the
facilities or liabilities, of acquired companies. As a result, the Company is
able to obtain gross margins on the monitoring of acquired subscriber accounts
that are similar to those that the Company currently generates on the monitoring
of its existing subscriber base. In addition, the Company may increase the
monitoring charges paid by those subscribers if it is determined that those
currently being paid do not reflect the market area rates. The Company
anticipates continuing its acquisition program which may subject the Company to
certain risks and uncertainties. In addition, the Company's financial
information for Fiscal 1997 reflects the Company's investment in a joint venture
with BKR, Inc. to form HealthLink in March 1997 (see Note 3 of Notes to
Consolidated Financial Statements of the Company). See "Risk Factors--Risks
Related to Growth Through Acquisitions; Risks Associated with Triple A
Acquisition."

In July 1996, the Company completed a restructuring of its long-term debt.
The Company obtained the $15,000,000 Credit Line from the Bank and issued
$7,500,000 of its Preferred Stock to institutional and individual domestic and
foreign investors. The proceeds were used to reduce the Company's long-term
indebtedness and resulted in a substantial decrease in the Company's interest
expense (see Notes 7 and 9 of Notes to Consolidated Financial Statements of the
Company).

A majority of the Company's revenues are derived from monthly recurring
payments for the monitoring, rental and servicing of both electronic security
systems and PERS, pursuant to contracts with initial terms up to five years.
Service revenues are derived from payments under extended warranty contracts and
for service calls performed on a time and material basis. The remainder of the
Company's revenues are generated from the sale and installation of security
systems and PERS. Monitoring and service revenues are recognized as the service
is provided. Sale and installation revenues are recognized when the required
work is completed. All direct installation costs, which include materials, labor
and installation overhead, and selling and marketing costs are expensed in the
period incurred. Alarm monitoring and rental services generate significantly
higher gross margins than do the other services provided by the Company.

The Company has significantly expanded its operations during the two years
ended June 30, 1997. Its alarm subscriber base has grown to over 25,000
customers and the Company's total account base is in

excess of an aggregate of approximately 48,000 alarm and PERS subscribers as of
the date of this Prospectus.

RESULTS OF OPERATIONS

The following table summarizes the components of the Company's revenues and
cost of revenues for the fiscal years ended June 30, 1995, 1996 and 1997 and the
three months ended September 30, 1996 and 1997:

THREE MONTHS ENDED SEPTEMBER
YEAR ENDED JUNE 30, 30,
------------------------------------------------------------------ -------------------------------
1995 1996 1997 1996 1997
-------------------- --------------------- --------------------- -------------------- ---------

Operating revenues:
Product sales...... $4,520,062 48.4% $2,352,449 21.6% $2,938,618 23.1% $ 656,128 21.6% $ 662,846
Monitoring and
Related
Services......... 4,812,474 51.6% 8,515,247 78.4% 9,784,285 76.9% 2,386,239 78.4% 2,585,038
--------- --------- ---------- --------- ---------- --------- --------- --------- ---------
9,332,536 100.0% 10,867,696 100.0% 12,722,903 100.0% 3,042,367 100.0% 3,247,884
--------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Cost of Revenues*:
Product sales...... 2,635,674 28.2% 1,718,689 15.8% 1,970,158 15.5% 451,535 14.8% 398,442
Monitoring and
Related
Services......... 1,125,123 12.1% 1,779,490 16.4% 2,127,257 16.7% 747,025 24.6% 768,739
--------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Total Cost of
Revenues......... 3,760,797 40.3% 3,498,179 32.2% 4,097,415 32.2% 1,198,560 39.4% 1,167,181
--------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Gross Profit....... $5,571,739 59.7% $7,369,517 67.8% $8,625,488 67.8% $1,843,807 60.6% $2,080,703
--------- --------- ---------- --------- ---------- --------- --------- --------- ---------
--------- --------- ---------- --------- ---------- --------- --------- --------- ---------

Operating revenues:
Product sales...... 20.4%
Monitoring and
Related
Services......... 79.6%
---------
100.0%
---------
Cost of Revenues*:
Product sales...... 12.3%
Monitoring and
Related
Services......... 23.6%
---------
Total Cost of
Revenues......... 35.9%
---------
Gross Profit....... 64.1%
---------
---------

- ------------------------

* As a percentage of total revenues

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996:

Operating revenues increased by $205,517 or 7% for the quarter ended
September 30, 1997 ("Fiscal 1998") as compared to the quarter ended September
30, 1996 ("Fiscal 1997"). An increase in sales of electronic security systems to
both residential and commercial customers totaling approximately $45,000, was
offset by a decrease in sales of personal emergency response systems (PERS) to
private label wholesalers of approximately $45,000. The growth in monitoring and
service revenues of $198,799 or 8% for Fiscal 1998 as compared to Fiscal 1997,
was due to the acquisition of monitoring contracts and the success of the
Company's extended warranty program.

Gross Profit for Fiscal 1998 was $2,080,703, which represents an increase of
$236,896, or 13%, over the $1,843,807 of gross profit recognized in Fiscal 1997.
The increase was due primarily to an increase in monitoring and service
revenues, and the success of the extended warranty program, which is concurrent
with the increase in the Company's subscriber base. The Gross Profit Margin
(GPM), as a percentage of sales, was 61% for the quarter ended September 30,
1996, as compared to 64% for the quarter ended September 30, 1997. The GPM on
product sales rose from 31% in Fiscal 1997 to 40% for Fiscal 1998. The increase
is due to increased revenues derived from the installation of electronic
security systems to commercial customers as opposed to residential customers and
the utilization of in-house labor in lieu of subcontractors for the installation
of electronic security systems. The GPM on monitoring and service revenues
increased slightly from 69% to 70% for the periods ended September 30, 1996 and
1997, respectively.

Selling, general and administrative expenses (excluding compensation expense
(benefit) in connection with employment agreements of $862,500 and $(450,000),
and the amortization of transition costs of $91,047 and $11,178, for Fiscal 1997
and Fiscal 1998, respectively) grew to $1,626,813 for the three months ended
September 30, 1997, which represents an increase of $113,782 or 7%, over
selling, general and

administrative expenses for the three months ended September 30, 1996. Selling,
general and administrative expenses, as a percentage of total operating
revenues, remained at 50% for the comparative periods ended September 30, 1996
and 1997. The increase in selling, general and administrative expenses was
primarily due to increases in corporate overhead expenses incurred to assimilate
newly acquired customers into the Company's customer base, to support the larger
subscriber base, and sales and marketing expenses associated with the
test-marketing of WanderWatch. While selling, general and administrative
expenses, as a percentage of revenues, remained the same for Fiscals 1997 and
1998, monitoring and service revenues increased by 8% between comparable
periods, reflecting efficiencies realized in the Company's corporate offices.
The Company anticipates that its current level of selling general and
administrative expenses, as a percentage of sales, will decrease as a result of
the Company's operating revenues growing substantially due to increases in
monitoring and service revenues from ongoing acquisitions.

During the quarter ended September 30, 1996, the Company recorded a deferred
compensation liability with a corresponding charge to selling, general and
administrative expense in the amount of $862,500, pursuant to employment
contracts. As of September 30, 1997, due to increases in the market value of the
Company's common stock, the Company reduced both the deferred compensation
liability and selling, general and administrative expense by $450,000 pursuant
to the same employment contracts. Increases in the Company's stock price result
in a decreasing obligation on behalf of the Company and also are the cause for
the compensation benefit in 1997.

Amortization and depreciation expenses increased by $174,820, from $662,719
to $837,539 for the three months ended September 30, 1996 and 1997,
respectively. This increase in amortization and depreciation expense is the
result of the Company's acquisition of approximately 5,000 monitoring contracts
and the purchase of property and equipment of approximately $630,000 (including
equipment used for rentals) during the past twelve months.

Interest expense increased by $140,310 or 28% for the three months ended
September 30, 1997, as compared to the same period ended September 30, 1996. The
increase in interest expense is due to an increase in borrowings of
approximately $4.7 million during the past twelve months, which was used
primarily for acquisitions and other capital expenditures.

On March 4, 1997, the Company entered into a joint venture agreement with
BKR, Inc. to acquire a 50% interest in HealthLink Ltd. Healthlink Ltd.
subcontracts its production of the HealthLink System to a third-party foreign
manufacturer. The HealthLink System, a low cost PERS product, will be
distributed nationally through retail stores. For the quarter ended September
30, 1997, the Company has realized a loss from joint venture of $130,138.

The net loss for the three months ended September 30, 1997 was $694,681 or
($.33) per share based on 2,132,533 shares outstanding, as compared to a net
loss of $4,148,635 or ($3.19) per share based on 1,302,284 shares outstanding
for the three months ended September 30, 1996. The net loss applicable to common
shareholders (net loss adjusted for dividends and accretion on preferred stock)
for the periods ended September 30, 1996 and 1997 were $10,274,184 or ($7.89)
per share based on 1,302,284 shares outstanding; and $1,029,953 or ($.48) per
share based on 2,132,533 shares outstanding, respectively. Earnings before
interest, taxes, depreciation and amortization (EBITDA), excluding charges for
the loss on debt extinguishment, compensation expense (benefit) - employment
agreements, and the loss on joint venture was $421,823 for the quarter ended
September 30, 1996 as compared to $465,068 for the quarter ended September 30,
1997.

YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996:

Operating revenues increased by $1,855,207, or 17.1%, for Fiscal 1997, as
compared to Fiscal 1996. Product sales increased by $586,169, or 24.9%, for
Fiscal 1997, as compared to Fiscal 1996. The increase in product sales was due
primarily to the sale of PERS to home health care agencies, private label
wholesalers and sales of electronic security systems to commercial customers.
The significant growth in

monitoring and service revenues of $1,269,038, or 14.9%, for Fiscal 1997, as
compared to Fiscal 1996, was due to the acquisition of monitoring contracts and
the success of the Company's extended warranty program.

Gross Profit for Fiscal 1997 was $8,625,488, which represents an increase of
$1,255,971, or 17.0%, over the $7,369,517 of gross profit recognized in Fiscal
1996. The increase was due primarily to an increase in monitoring and service
revenues, and the success of the extended warranty program, which was concurrent
with the increase in the Company's subscriber base. The Gross Profit Margin
("GPM"), as a percentage of sales, was 67.8% for both Fiscal 1996 and Fiscal
1997. The GPM on product sales rose from 26.9% for Fiscal 1996 to 33.0% for
Fiscal 1997. The increase was due to increased revenues derived from the
installation of electronic security systems to commercial customers as opposed
to residential customers and the utilization of in-house labor in lieu of
subcontractors for the installation of electronic security systems. The GPM on
monitoring and service revenues decreased slightly to 78.3% for Fiscal 1997 from
79.1% for Fiscal 1996.

Selling, general and administrative expenses (excluding charges incurred for
legal fees in connection with the preferred stock litigation of $475,000, the
non-cash charge of $689,000 for consulting fees and the non-cash loss recognized
on available-for-sale securities of $218,000) grew to $7,744,641 for Fiscal
1997, which represents an increase of $1,328,155, or 20.7%, over selling,
general and administrative expenses for Fiscal 1996. Selling, general and
administrative expenses (excluding such charges and losses in the aggregate
amount of $1,382,000), as a percentage of total operating revenues, increased
slightly from 59.0% for Fiscal 1996 to 60.9% for Fiscal 1997. The increase in
selling, general and administrative expenses was due primarily to increases in
corporate overhead expenses incurred to assimilate newly acquired customers into
the Company's customer base and to support the larger subscriber base.

On December 16, 1996, the Company granted to employees non-qualified stock
options at $.30 per share, expiring November 27, 2001, and, on June 27, 1997,
reduced the exercise price of options granted to certain officers and directors
of the Company from $4.50 to $.03 and, as a result thereof, the Company recorded
compensation expense of $2,032,200 for Fiscal 1997. In addition, the Company
recorded deferred compensation expense of $1,657,500 for Fiscal 1997, in
connection with two employment contracts with officers of USS. (See Note 14 of
Notes to Consolidated Financial Statements of the Company.)

Amortization and depreciation expenses increased by $775,539, from
$2,200,894 to $2,976,433 for Fiscal 1996 and Fiscal 1997, respectively. This
increase in amortization and depreciation expense is the result of the Company's
purchase of monitoring contracts totaling $4,168,525 and property and equipment
totaling $636,659 (including equipment held for lease of $150,000) during Fiscal
1997.

Interest expense decreased by $1,836,123, or 57.6%, for Fiscal 1997, as
compared to Fiscal 1996. In July 1996, the Company completed a restructuring of
its long-term debt. The Company obtained the $15,000,000 Credit Line from the
Bank and issued $7,500,000 of its Preferred Stock to institutional and
individual domestic and foreign investors. The proceeds of the financing were
utilized to reduce the Company's long-term indebtedness. The restructuring
resulted in an extraordinary charge of $2,549,708 for early extinguishment of
debt in Fiscal 1997.

Equity in loss of joint venture consists of the Company's share ($123,325)
of HealthLink's losses for Fiscal 1997.

The net loss applicable to common shareholders (net loss adjusted for
dividends and accretion on Preferred Stock) for Fiscal 1997 was $18,054,144, or
$(12.14) per share, based on 1,487,574 shares outstanding. The net loss for
Fiscal 1997, excluding the following nonrecurring charges: (i) loss on early
debt extinguishment of $2,549,708; (ii) compensation expense recognized from the
grant of stock options and from employment contracts of $3,689,700; (iii) legal
fees incurred in connection with the preferred stock litigation of $475,000;
(iv) the non-cash charge of $689,000 for consulting fees; and (v) loss realized
on available-for-sale securities of $218,000, was $3,556,215, or $(2.39) per
share, based on 1,487,574 shares

outstanding, as compared to a net loss of $4,411,898, or $(8.61) per share,
based on 512,179 shares outstanding for Fiscal 1996. The net losses for Fiscal
1996 and Fiscal 1997 are attributable to depreciation, amortization and interest
expense totaling $5,386,497 and $4,325,913, respectively. Earnings before
interest, taxes, depreciation and amortization ("EBITDA"), excluding
nonrecurring charges and the loss on the HealthLink joint venture, was
approximately $950,000 for Fiscal 1996, as compared to approximately $880,000
for Fiscal 1997. The decrease was due primarily to the write-down of inventory
used to service outdated electronic security systems acquired from other alarm
dealers, and an increase in the Company's provision for doubtful accounts, along
with direct write-offs to bad debt expense totaling approximately $830,000.

YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995:

The Company significantly expanded its operations for Fiscal 1996. Its alarm
subscriber base grew to over 21,000 customers, an increase of approximately
62.0% over the number of subscribers as of Fiscal 1995. The substantial increase
in operating revenues and monitoring service revenues resulted primarily from
acquisitions totaling over 9,200 monitoring accounts from other dealers and
companies, and the sale of the Company's PERS products to hospitals and home
health care agencies. The Company's account base totaled in excess of 45,000
monitoring subscribers as of June 30, 1996.

Operating revenues increased by $1,535,160, or 16.4%, for Fiscal 1996 as
compared to Fiscal 1995. Product sales decreased by $2,167,613, or 48.0%, for
Fiscal 1996 as compared to Fiscal 1995. The decline in product sales was due to
the Company's strategy of expanding primarily through the acquisition of
monitoring contracts, as opposed to direct sales of security systems. Sales of
electronic security systems decreased by approximately $2,500,000 for Fiscal
1996 as compared to Fiscal 1995. Revenues from the sale of PERS products
increased by approximately $300,000 for Fiscal 1996 as compared to Fiscal 1995.
The significant growth in monitoring and service revenues of $3,702,773, or
76.9%, for Fiscal 1996, as compared to Fiscal 1995, was due to the acquisition
of monitoring contracts and the success of the Company's extended warranty
program and the acquisition of the Medical Alert Systems Monitoring Division of
ERS in November 1994.

Gross Profit for Fiscal 1996 was $7,369,517, which represents an increase of
$1,797,778, or 32.3%, over the $5,571,739 of gross profit recognized in Fiscal
1995. The increase was due primarily to an increase in monitoring and service
activities and the success of the extended warranty program, which is related to
the increase in the Company's subscriber base by approximately 9,200
subscribers. Gross Profit, as a percentage of operating revenues, increased from
59.7% for Fiscal 1995 to 67.8% for Fiscal 1996. The increase was caused
primarily by an increase in monitoring and service revenues as a percentage of
total revenues from 51.6% in Fiscal 1995 to 78.4% in Fiscal 1996. The cost of
product sales rose from 58.3% for Fiscal 1995 to 73.1% for Fiscal 1996. An
increase in competition, including the advertisement of free security systems,
resulted in a lower average selling price for the Company's security systems,
causing a decline in the Gross Profit Margin in Fiscal 1996.

Selling, general and administrative expenses rose to $6,416,486 in Fiscal
1996, which represents an increase of $88,864, or 1.4%, over selling, general
and administrative expenses for Fiscal 1995. Selling, general and administrative
expenses, as a percentage of total operating revenues, declined from 67.8% for
Fiscal 1995 to 59.0% for Fiscal 1996. Sales and marketing expenses declined from
$2,000,000 for Fiscal 1995 to $700,000 for Fiscal 1996, a decrease of
$1,300,000, or 65.0%. Sales and marketing expenses declined due to the Company's
strategy to grow through acquisitions as opposed to new system installations.
General and administrative expenses rose from $4,327,622 in Fiscal 1995 to
$5,716,486 in Fiscal 1996, representing an increase of $1,388,864, or 32.1%. The
increase in general and administrative expenses was caused by increases in
corporate overhead expenses incurred to support a larger subscriber base.

Amortization and depreciation expenses increased by $898,686, or 69.0% from
$1,302,208 for Fiscal 1995 to $2,200,894 for Fiscal 1996. This increase in
amortization expense is the result of the Company's purchase of monitoring
contracts totaling $7,996,459.

Interest expense increased by $1,964,985, to $3,185,603 for Fiscal 1996,
from $1,220,618 for Fiscal 1995. The primary reason for the increase was
additional interest expense on long-term debt incurred by the Company in
connection with its acquisitions and purchases of monitoring contracts. In July
1996, the Company obtained the $15,000,000 Credit Line from the Bank, of which
$10,500,000 was used to repay existing notes payable collateralized by
monitoring contracts.

In June 1994, an employee resigned and, pursuant to the severance agreement,
he was to receive annual compensation of $120,000 plus benefits through October
31, 1997. In connection with this severance agreement, a charge of $409,673 was
recorded as termination benefits for the fiscal year ended June 30, 1994,
representing the present value of the obligation based on an interest rate of
8.5%. During Fiscal 1995, the Company renegotiated this agreement, resulting in
a recovery of $392,699 of termination benefits cost.

In April 1994, the Company initiated a plan of restructuring designed to
reduce costs, improve operational efficiencies and increase overall future
profitability as the Company refocused sales and marketing efforts on security
and fire alarm systems for residential and commercial properties. As a result,
the Company streamlined its organization and closed its manufacturing and
monitoring facilities. During Fiscal 1995, the Company recorded a recovery of
$52,920 of these costs, resulting from an over-accrual at June 30, 1994.

The net loss for Fiscal 1996 was $4,411,898, or $(8.61) per share, based on
512,179 shares outstanding, as compared to a net loss for Fiscal 1995 of
$3,030,830, or $(15.07) per share, based on 201,064 shares outstanding. The net
loss for the period is attributable primarily to $5,386,497 in amortization and
interest expense related to the Company's acquisition of subscribers from other
dealers and increased selling, general and administrative expenses incurred in
connection with the expansion of the Company's subscriber monitoring account
base. EBITDA improved by approximately $1,500,000, to approximately $950,000 for
Fiscal 1996, as compared to a loss before interest, taxes, depreciation and
amortization of approximately $550,000 for Fiscal 1995.

ACCOUNTING DIFFERENCES FOR ACCOUNT PURCHASES AND NEW INSTALLATIONS

A difference between the accounting treatment of the purchase of subscriber
accounts and the accounting treatment of the generation of new accounts through
direct sales by the Company's sales force has a significant impact on the
Company's results of operations. The costs of monitoring contracts (acquired
either through the Company's dealer program or through acquisition of subscriber
account portfolios) are capitalized and amortized over estimated lives ranging
from five to 10 years for alarm and PERS accounts. Included in capitalized costs
are certain acquisition transition costs associated with incorporating the
purchased subscriber accounts into the Company's operations. Such costs include
costs incurred by the Company in fulfilling the Seller's preacquisition
obligations to the acquired subscribers, such as providing warranty repair
services. In contrast, all of the Company's costs related to the sales,
marketing and installation of new alarm monitoring systems generated by the
Company's sales force are expenses in the period in which such activities occur.

SUBSCRIBER ATTRITION

Subscriber attrition has a direct impact on the Company's results of
operations, since it affects both the Company's revenues and its amortization
expense. Attrition can be measured in terms of canceled subscriber accounts and
in terms of decreased MRR resulting from canceled subscriber accounts. The
Company experiences attrition of subscriber accounts as a result of several
factors, including relocation of

subscribers, adverse financial and economic conditions and competition from
other alarm service companies. In addition, the Company may lose certain
subscriber accounts, particularly subscriber accounts acquired as part of an
acquisition, if the Company does not service those subscriber accounts
successfully or does not assimilate such accounts into the Company's operations.
Gross subscriber attrition is defined by the Company for a particular period as
a quotient, the numerator of which is equal to the number of subscribers who
disconnect during such period, and the denominator of which is the average of
the number of subscribers at each month end during such period. Net MRR
attrition is defined by the Company for a particular period as a quotient, the
number of which is an amount equal to gross MRR lost as the result of canceled
subscriber accounts during such period, net of MRR during such period (i)
generated by increases in rates to existing subscribers, (ii) resulting from the
reconnection of premises previously occupied by subscribers of the Company or of
prior subscribers of the Company, (iii) resulting from conversions and (iv)
associated with canceled accounts with respect to which the Company obtained an
account guarantee, and the denominator of which is the average month-end MRR in
effect during such period. Although the Company believes that its formulas of
gross subscriber attrition and net MRR attrition are similar to those used by
other security alarm companies, there can be no assurance that gross subscriber
attrition and net MRR attrition, as presented by the Company, are comparable to
other similarly titled measures of other alarm monitoring companies. During
Fiscal 1997, the Company experienced gross attrition of approximately 10.6% and
net MRR attrition of approximately 10.4%. The Company believes that its gross
subscriber and net MRR attrition rates as calculated are generally consistent
with those of its major industry competitors.

LIQUIDITY AND CAPITAL RESOURCES

In July 1996, the Company completed a restructuring of its long-term debt.
The Company obtained the $15,000,000 Credit Line from the Bank, which was
increased to $15,500,000 on January 14, 1998, and issued $7,500,000 of Preferred
Stock to institutional and individual domestic and foreign investors. The
proceeds of the financing were utilized to repay the Company's long-term
indebtedness and resulted in a substantial decrease in the Company's borrowing
costs. As of January 30, 1998, the Company has $190,000 available under the
Credit Line. On December 10, 1997, the Bank issued a committment letter to the
Company to increase the Credit Line to $18,000,000. The increase in the Credit
Line is subject to the satisfaction of a number of conditions, including the
Company's receipt of a minimum of $7,000,000 of net proceeds from this offering
(after giving effect to the redemption of the Preferred Stock), and there can be
no assurance that all of such conditions will be satisfied or that the Company
will receive such increase in the Credit Line. Amounts outstanding under the
Credit Line bear interest at the Bank's prime rate, plus 1 3/4%. As of March 31,
1997, June 30, 1997 and September 30, 1997, the Company was not in compliance
with certain financial covenants under the Credit Line. The Company subsequently
entered into amendments to the Credit Line which amended the covenants for the
third and fourth quarters of the fiscal year ended June 30, 1997 and the first
quarter of the fiscal year ended June 30, 1998 such that the Company was then in
compliance with the Credit Line. While the Company believes that it will be able
to maintain compliance with the financial covenants under the Credit Line, there
can be no assurance that the Company will maintain compliance with such
financial covenants, or that the Company will be able to obtain necessary
consents, waivers or amendments to the Credit Line in the future. The
restructuring resulted in an extraordinary charge of $2,549,708 for early
extinguishment of debt in Fiscal 1997. The Company's working capital improved by
$182,052, from a working capital deficiency of $1,023,805 to a working capital
deficiency of $841,753 at September 30, 1997, as compared to June 30, 1997.

Net cash used in operating activities for the three months ended September
30, 1997 was $223,841 as compared to $2,452,516 for the three months ended
September 30, 1996. A net loss of $694,681 including noncash transactions
totaling $816,665, provided cash from operating activities in the amount of
$121, 984. The noncash transactions are as follows: (i) depreciation and
amortization of $1,139,016; (ii) compensation benefit in connection with
employment agreements of $450,000; (iii) a loss on joint venture of $130,138;
and (iv) a gain on sale of equipment of $2,489. Cash used in operating
activities included changes in

accounts receivable, and prepaid expenses and other current assets totaling
$285,617. The increase in accounts receivable of $110,181 was primarily due to
the increase in monthly monitoring and service billings, as a result of the
acquisition of approximately 5,000 subscriber accounts during the past twelve
months. Prepaid expenses and other current assets increased by $175,436, due
primarily to expenditures in connection with the planned secondary offering and
a security deposit on a pending acquisition.

In connection with the acquisition of accounts, the Company incurred cash
expenditures for previously accrued transition costs (costs associated with the
transfer of acquired customers to the Company's central monitoring station,
notification of change in the service provider, and service calls to customer
premises), of $11,178 for the three months ended September 30, 1997 as compared
to $91,047 for the three months ended September 30, 1996.

Net cash used in investing activities for the three months ended September
30, 1997 was $226,079 as compared to $582,913 for the three months ended
September 30, 1996. Purchases of monitoring contracts, and property and
equipment accounted for $111,648 and $114,431 (including equipment used for
rentals in the amount of $52,075), of the cash used in investing activities.

Net cash provided by financing activities was $434,182 for the three months
ended September 30, 1997, as compared to $1,503,483 for the three months ended
September 30, 1996. Proceeds from the exercise of stock options and warrants
totaled $82,421. Net proceeds received from a line of credit of $425,000 were
used primarily for the acquisition of monitoring contracts, and expenses
incurred in connection with the planned secondary offering. Costs incurred in
connection with the prior years refinancing totaled $43,081. Principal payments
on long-term debt totaling $30,158 were made during the three months ended
September 30, 1997.

Systems filed a petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in October 1987. Systems' Plan of Reorganization became
effective in February 1990 and provided for, among other things, long-term
payments to creditors totaling approximately $2,800,000. As of September 30,
1997, deferred payment obligations to such pre-reorganization creditors totaled
$270,560, which is payable in varying installments through the year 2000.

The Company has no material commitments for capital expenditures during the
next 12 months and believes that its current cash and working capital position
and future cash flow from operations will be sufficient to meet its working
capital needs for 12 months. The Company intends to use borrowings under the
Credit Line to acquire monitoring contracts. Additional funds beyond those
currently available will be required to continue the acquisition program, and
there can be no assurance that the Company will be able to obtain such
financing.

INFLATION

The Company does not believe that inflation has a material effect on its
operations.

CERTAIN NON-CASH CHARGES

The Company may incur certain non-cash charges (i) of up to $900,000 for the
fiscal year ended June 30, 1998, as deferred compensation expense relating to
certain performance options granted to two officers of USS, based upon
fluctuations in the market price of the Common Stock, and (ii) for the fiscal
year ended June 30, 1998 in connection with the issuance of a certain
performance warrant issued to BKR, Inc. in connection with the Company's
investment in HealthLink, based upon the value of such warrant. See
"Management," "Business--HealthLink" and Notes 3 and 14 of Notes to Consolidated
Financial Statements of the Company. Such charges could have a material adverse
effect on the Company's results of operations.

BUSINESS

GENERAL

The Company is a fully-integrated security systems provider engaged in the
monitoring, sale, installation and maintenance of residential and commercial
security systems and PERS. The Company is a regional provider of security alarm
monitoring services for residential and small business subscribers operating in
the states of New York, New Jersey, Pennsylvania, Delaware and Connecticut. The
Company is also a nationwide provider of PERS products which enable individual
users, such as elderly or disabled persons, to transmit a distress signal using
a portable transmitter. The Company currently has an aggregate of approximately
48,000 alarm and PERS subscribers for which it provides monitoring services. As
a result of the Company's acquisitions of subscriber account portfolios, the
Company's MRR has grown by 60%, to approximately $800,000 for the month ended
September 30, 1997 from approximately $500,000 for the month ended June 30,
1995. According to a May 1997 report published by SDM, an organization which
publishes industry reports, as of December 31, 1996, the Company is the 31st
largest electronic security company in the United States, based on total
revenues, and the 25th largest electronic security company, based on recurring
annual revenues.

The Company's electronic security systems business utilizes electronic
systems installed in businesses and residences to provide (i) detection of
events such as intrusion or fire, (ii) surveillance and (iii) control of access
to property. The detection devices are currently monitored by the Monitoring
Station. The Monitoring Station personnel verify the nature of the emergency and
contact the appropriate emergency authorities in the user's area. In some
instances, commercial customers may monitor these devices at their own premises
or the devices may be connected to local fire or police departments. The
products and services marketed in the electronic security services industry
range from residential systems that provide basic entry and fire protection to
more sophisticated commercial systems.

The electronic security services industry is highly fragmented and the
Company's strategy is to grow by acquisition, as well as by offering new
products and services. According to an industry report published in 1996, there
are approximately 12,000 separate security services companies nationally and,
according to the May 1997 SDM report, the electronic security industry generates
an aggregate of approximately $13 billion in revenues annually. The Company
believes that there is an industry-wide trend towards consolidation due, in
part, to the relatively high fixed costs of maintaining a centralized monitoring
station and the relatively low incremental cost of servicing additional
subscribers. The Company completed the acquisition of an aggregate of 38
subscriber account portfolios (a total of approximately 25,000 subscriber
accounts) during the three fiscal years ended June 30, 1997.

The Company has entered into an agreement with Triple A, pursuant to which
the Company will acquire substantially all of the assets of Triple A upon the
consummation of this offering. Triple A is engaged in the installation,
monitoring and servicing of residential and commercial alarm systems,
principally in northeastern Pennsylvania. Triple A currently services
approximately 14,000 subscriber accounts which are monitored by its central
monitoring station, and the Company anticipates transferring all of its
subscriber accounts from the Monitoring Station to Triple A's monitoring station
upon consummation of the Triple A acquisition. See "--Pending Acquisitions."

In March 1997, the Company acquired a 50% interest in HealthLink. HealthLink
markets a low-cost PERS product containing basic one-way transmission features.
The HealthLink System is distributed nationally through retail stores, including
Target (808 stores), Long's Drugs, a west-coast regional chain (305 stores),
Fred Myer, a northwest regional chain (104 stores), Fry's, a southwest regional
chain (51 stores) and Bergen Brunswick's west-coast Good Neighbor Pharmacies
(429 stores), accounting for distribution through a total of approximately 1,700
stores as of the date of this Prospectus. The Company is negotiating with
several other chain stores to further increase distribution. The Company
provides monitoring and related services to HealthLink System customers, is
responsible for billing and collecting from such customers and receives a
portion of the recurring revenue as a fee for providing these services.

The Company's revenues consist primarily of recurring payments under written
contracts for the monitoring and servicing of security systems and PERS
products. The Company currently monitors approximately 48,000 subscribers. For
the fiscal year ended June 30, 1997, monitoring and service revenues represented
76.9% of total revenues. MRR is a term commonly used in the alarm industry and
means monthly recurring revenue that the Company is entitled to receive under
contracts in effect at the end of the period. MRR is utilized by the alarm
industry to measure the size of a company, but not as a measure of profitability
or performance, and does not include any allowance for future attrition or
allowance for doubtful accounts. During the fiscal year ended June 30, 1997, the
Company's MRR grew by 60.0%, to approximately $800,000 from approximately
$500,000 for the fiscal year ended June 30, 1995. Total revenues have increased
during such period from $9,332,536 to $12,722,903, or 36.3%.

ELECTRONIC SECURITY INDUSTRY

The security services industry encompasses a wide range of products and
services, which can be broadly divided into electronic monitoring products and
services which the Company provides and highly labor intensive manned guarding
and patrol services, which the Company does not currently provide, but will
provide upon the consummation of the acquisition of Jupiter (see Note 16 of
Notes to Consolidated Financial Statements of the Company). Electronic
monitoring products and services consist of the sale, installation, continuous
monitoring and maintenance of electronic security systems. This business
utilizes modern electronic devices installed in customers' businesses and
residences to provide (i) detection of events such as intrusion or fire, (ii)
surveillance, (iii) control of access and (iv) control of articles. Event
detection devices are monitored by a monitoring center, which is linked to the
customer through telephone lines. This center is often located at remote
distances from the customer's premises. In some instances, the customer may
monitor these devices at its own premises or the devices may be connected to
local fire or police departments. The products and services marketed in the
electronic security services industry range from residential systems that
provide basic entry and fire protection to sophisticated commercial systems
incorporating closed-circuit television systems and access control. See
"--Pending Acquisitions."

The Company believes that the electronic security services industry is
characterized by the following attributes:

- HIGH DEGREE OF FRAGMENTATION. The electronic security services industry is
comprised of a large number of local and regional companies and several
integrated national companies. The Company believes that, based on
industry studies, there are approximately 12,000 separate security
services companies nationally generating an aggregate of approximately $13
billion in revenues annually. A survey published by SDM magazine in May
1996 reported that, in 1995, based upon information provided by the
respondents, the 100 largest companies in the industry accounted for
approximately 23% of total industry revenues.

- TREND TOWARD CONSOLIDATION. The Company believes that because the central
station monitoring sector of the electronic industry has relatively high
fixed costs but relatively low incremental costs associated with servicing
additional subscribers, the industry offers significant opportunities for
consolidation. In addition, the Company believes that the fragmented
nature of the industry can be attributed to the low capital requirements
associated with performing basic installation and maintenance of
electronic security systems. However, the business of a full service,
integrated electronic security services company which provides central
station monitoring services is capital intensive, and the Company believes
that the high fixed costs of establishing both central monitoring stations
and full service operations contribute to the small number of national
competitors.

- CONTINUED PRODUCT DIVERSIFICATION AND INTEGRATION OF SERVICES. A recent
trend in the commercial electronic security services industry has been
increased integration of different types of products into single systems
provided by single vendors. The Company believes that this trend has
resulted from commercial needs for enhanced security services on a more
cost-effective basis. Whereas basic alarm systems were once adequate for
many businesses, it appears that many companies now require access control
and closed circuit television systems integrated into a single system to
provide for their overall security needs. A security system which provides
burglar and fire alarm monitoring along with closed circuit television and
access control, all integrated into one central system, not only provides
enhanced security services, but also is more cost-effective than four
separate systems installed by four separate vendors. The Company is
positioning itself to take advantage of this trend by expanding the
breadth of its electronic security service offerings.

- ADVANCES IN DIGITAL COMMUNICATIONS TECHNOLOGY. Prior to the development of
digital communications technology, alarm monitoring required a dedicated
telephone line, which made long-distance monitoring uneconomic.
Consequently, in order to achieve a national or regional presence, alarm
monitoring companies were required to maintain a large number of
geographically dispersed monitoring stations. The development of digital
communications technology eliminated the need for dedicated telephone
lines, reducing the cost of monitoring services to the subscriber and
permitting the monitoring of subscriber accounts over a wide geographic
area from a central monitoring station. The elimination of local
monitoring stations has decreased the cost of providing alarm monitoring
services and has substantially increased the economies of scale for larger
alarm service companies. In addition, the concurrent development of
microprocessor-based control panels has substantially reduced the cost of
the equipment available to subscribers in the residential and commercial
markets and has substantially reduced service costs because many
diagnostic and maintenance functions can be performed from a company's
office without having to send a technician to the customer's premises.

The Company believes that several factors contribute to a favorable market
for electronic security services generally in the United States:

- HIGH LEVEL OF CONCERN ABOUT CRIME. As violent crime and the reporting of
crime by the news media has increased, the perception by Americans that
crime is a significant problem has also grown. Concurrently, demand for
security systems has grown with greater awareness of risk management

within the business community. In addition to the protection that
electronic detection and surveillance systems provide, the Company
believes that such systems also have a deterrent effect against crime.

- INSURANCE REQUIREMENTS AND PREMIUM DISCOUNTS. The increase in demand for
security systems may also be attributable, in part, to the requirement of
insurance companies that businesses install an electronic security system
as a condition of insurance coverage. The purchase of an electronic alarm
system often entitles the subscriber to obtain premium discounts as well.
In addition, in order to comply with many municipal fire codes, the
installation of an electronic fire system is required in many localities.

ELECTRONIC SECURITY SERVICES

MONITORED ELECTRONIC SECURITY SYSTEMS

The Company's electronically-monitored security systems involve the use on a
customer's premises of devices designed to detect or react to various
occurrences or conditions, such as intrusions, movement, fire, smoke, flooding,
environmental conditions (including temperature or humidity variations) and
other hazards. In most systems these detection devices are connected to a
microprocessor-based control panel which communicates through telephone lines to
the Monitoring Station where alarm and supervisory signals are received and
recorded. Systems may also incorporate an emergency "panic button," which when
pushed causes the control panels to transmit an alarm signal that takes priority
over other alarm signals. In most systems, control panels can identify the
nature of the alarm and the areas within a building where the sensor was
activated and transmit the information to the Monitoring Station. Depending upon
the type of service for which the subscriber has contracted, Monitoring Station
personnel respond to alarms by relaying appropriate information to the local
fire or police departments, notifying the customer or taking other appropriate
action. As of June 30, 1997, the Company has approximately 25,000 alarm
subscribers for which it provides monitoring services. Of such alarm
subscribers, approximately 80% are residential and 20% are commercial.

RESIDENTIAL SYSTEMS. Residential security services consists of the sale,
installation, monitoring and maintenance of electronically monitored security
systems to detect intrusion and fire. The Company believes that the demand for
residential systems results from a general awareness of crime and security
concerns. In addition, residential customers are usually able to obtain more
favorable insurance rates if an electronically monitored security system is
installed in their home. Approximately 80% of the Company's customers are
residential. On average, fees charged for residential monitoring services are
lower than the fees charged for commercial monitoring services. Contracts for
residential services are generally for an initial four-year term, automatically
renewing on a year-to-year basis thereafter, unless canceled.

COMMERCIAL SYSTEMS. The Company also provides electronic security services
and products to commercial businesses and facilities. These systems and products
are tailored to customers' specific needs and include electronic monitoring
services that provide intrusion and fire detection, as well as card or keypad
activated access control systems and closed circuit television systems. The
Company also markets standard security packages for specific types of commercial
customers. Certain commercial customers require more complex electronic security
systems. To meet this demand, the Company also sells integrated electronic
security systems that combine a variety of electronic security services and
products. These systems are integrated by the Company to provide a single
computer-controlled security system.

PRODUCTS

The Company sells products offered by several different manufacturers.
Systems are generally purchased by the customers, although the Company does
lease a limited number of systems. When the system is sold, the customer pays
the Company the purchase price. When the system is leased, only an

installation fee is charged. Customers agree to pay monthly service charges for
monitoring and may also subscribe for maintenance services. Uniform package
prices are offered to residential customers who purchase standard security
systems, which includes a fixed number of detection devices. Frequently,
customers add detection devices at an additional charge to expand the coverage
of the system. Pricing depends upon the monitoring components installed, the
type of alarm transmission and other services required.

INSTALLATION, SERVICE AND MAINTENANCE

As part of its effort to provide high-quality service to its residential and
commercial customers, the Company maintains a trained installation, service and
maintenance staff. These employees are trained by the Company to install and
service the various types of commercial and residential security systems which
the Company sells. The Company does not manufacture any of the components used
in its electronic security service business.

Installations of new alarm systems are performed promptly after the
completion of the sale of the account. After completing an installation, the
technician instructs the subscriber on the use of the system and furnishes a
written manual and, in many instances, an instruction video. Additional
follow-up instruction is provided by sales consultants in the branch offices on
an as-needed basis.

The increasing density of the Company's subscriber base as a result of the
Company's continuing strategy to "infill" its existing branch service areas with
new subscribers permits more efficient scheduling and routing of field service
technicians and results in economies of scale at the branch level. The increased
efficiency in scheduling and routing also allows the Company to provide faster
field service response and support, which leads to a higher level of subscriber
satisfaction.

The Company offers an extended one-year service protection plan which
provides that, for an additional fee, the Company will cover the normal costs of
repair and maintenance of its systems during normal business hours after the
expiration of the initial warranty period.

CONTRACTS

The Company's alarm monitoring subscriber contracts generally have initial
terms ranging from four to five years in duration, and provide for automatic
renewal for a fixed period, unless the Company or subscriber elects to cancel
the contract at the end of the applicable period. The Company maintains an
individual file with a signed copy of the contract for each of its subscribers
and a computerized data base.

Substantially all of the Company's alarm monitoring agreements for the
Company's residential subscribers (which constitute approximately 80% of the
Company's alarm subscriber customer base) provide for subscriber payments of
between $20 and $32 per month. The Company's commercial subscribers typically
pay between $25 to $50 per month.

In the normal course of its business, the Company experiences customer
cancellations of monitoring and related services as a result of subscribers
relocating, the cancellation of purchased accounts in the process of
assimilation into the Company's operations, unfavorable economic conditions,
dissatisfaction with field maintenance service and other reasons. This attrition
is offset to a certain extent by revenues from the sale of additional services
to existing subscribers, price increases, the reconnection of premises
previously occupied by subscribers, conversion of accounts previously monitored
by other alarm dealers and guarantees provided by sellers of such accounts
against account cancellations for a period following the acquisition.

ELECTRONIC SECURITY SERVICES BUSINESS STRATEGY

THE ACQUISITION PROGRAM

The Company grows primarily by acquiring subscriber accounts from smaller
alarm companies. The Company focuses on acquisitions that allow it to increase
its subscriber density in each area in which it operates. This leads to greater
field maintenance and repair efficiencies. The Company believes that it is an
effective competitor in the acquisition market because of the substantial
experience of its management team over the past three years in completing 38
acquisitions. In addition, the Company has entered into agreements, pursuant to
which, if consummated, the Company would acquire an additional 14,000 subscriber
accounts.

During the fiscal year ended June 30, 1995, the Company consummated eight
acquisitions, purchasing approximately 10,700 subscriber accounts for an
aggregate consideration of $5,218,944 in cash and 48,090 shares of Common Stock.

During the fiscal year ended June 30, 1996, the Company consummated 16
acquisitions, purchasing approximately 9,200 subscriber accounts for an
aggregate consideration of $5,638,637 in cash and 98,014 shares of Common Stock.
As part of the acquisitions, the Company also issued 5,000 shares of restricted
Common Stock as payment of financing costs to the lender that financed the
acquisitions.

During the fiscal year ended June 30, 1997, the Company consummated 14
acquisitions, purchasing approximately 5,300 subscriber accounts for an
aggregate consideration of $3,424,712 in cash and 8,334 shares of Common Stock.
The Company anticipates continuing its acquisition program. The Company
typically acquires only the subscriber accounts, and not the facilities or
liabilities, of acquired companies. As a result, the Company is able to obtain
gross margins on the monitoring of acquired subscriber accounts that are similar
to those that the Company currently generates on the monitoring of its existing
subscriber base. In addition, the Company may increase the monitoring charges
paid by those subscribers if it is determined that those currently being paid do
not reflect the market area rates. The Company is unable to predict the timing,
size or frequency of any acquisitions in the future. See "Risk Factors -- Risks
Related to Growth Through Acquisitions; Risks Associated with Triple A
Acquisition."

Since the Company's primary consideration in making an acquisition is the
amount of MRR that will be derived from such new subscribers, the price paid by
the Company is customarily based upon such MRR. To protect the Company against
the loss of acquired accounts and to encourage the seller of such accounts to
facilitate the transfer of the subscribers, management typically requires the
seller to provide guarantees against account cancellation for a period following
the acquisition, typically 9-18 months. The Company usually holds back from the
seller 10%-20% of the acquisition price, and has the contractual right to
utilize such holdback to recapture a portion of the purchase price based on the
lost MRR arising from the cancellation of acquired accounts.

In evaluating the quality of the accounts acquired, the Company relies
primarily on management's knowledge of the industry, its due diligence
procedures, its experience integrating accounts into the Company's operations,
its assumptions as to attrition rates for the acquired accounts and the
representations and warranties of the sellers.

The Company employs a comprehensive acquisition program to identify,
evaluate, and assimilate acquisitions of new subscriber accounts that includes
three stages: (i) the identification and negotiation stage; (ii) the due
diligence stage; and (iii) the assimilation stage.

The Company actively seeks to identify prospective companies and dealers
through membership in trade associations, trade magazine advertising and
contacts through various vendors and other industry participants. The Company's
use of standard form agreements and experience in identifying and negotiating
previous acquisitions, helps to facilitate the successful negotiation and
execution of acquisitions in a timely manner.

The Company conducts an extensive pre-closing review and analysis of all
facets of the seller's operations. The process includes a combination of
selective field equipment installations, individual review of substantially all
of the subscriber contracts, an analysis of all the rights and obligations under
such contracts and other types of verification of the seller's operations.

The Company develops a specific assimilation process, in conjunction with
the seller, for each acquisition. Assimilation programs typically include a
letter, approved by the Company, from the seller to its subscribers, explaining
the sale and the transition, followed by one or more letters or packages that
include the Company's subscriber service brochures, field service and monitoring
service telephone number stickers, yard signs and window decals. Thereafter,
almost all new subscribers are contacted individually by telephone by a member
of the Company's customer service department for the purpose of soliciting
certain information and addressing the subscriber's questions or concerns.

PENDING ACQUISITIONS

On September 30, 1997, the Company entered into an asset purchase agreement
with Triple A, pursuant to which, as amended, the Company agreed to acquire
substantially all of the assets of Triple A for aggregate consideration of
approximately $13,000,000, including $10,000,000 payable in cash, approximately
$2,250,000 payable in Common Stock of the Company, based on the lesser of market
(as defined in the agreement) at closing or the price per share of Common Stock
with respect to this offering, and $750,000 in the assumption of liabilities of
Triple A. The purchase price is subject to adjustment at the closing under
certain circumstances. The purchase price was based upon a multiple of the MRR
of Triple A. The closing of the acquisition is conditioned on the closing of
this offering, and the Company intends to utilize a portion of the proceeds from
this offering to consummate the acquisition. Triple A is engaged in the
installation, monitoring and servicing of residential and commercial alarm
systems, principally in northeastern Pennsylvania. Triple A currently services
approximately 14,000 subscriber accounts which are monitored by Triple A's
central monitoring station. As part of the acquisition, the Company has agreed
to enter into an employment agreement with Robert L. May, President and sole
stockholder of Triple A and who subsequently has become a director of the
Company, on terms to be agreed upon by the parties. The financial statements for
Triple A are included herewith.

The holder of all of the common stock of Triple A is the owner of 80% of the
common stock of Jupiter. In connection with the Triple A acquisition, on
September 30, 1997, the Company entered into an agreement to acquire all of the
outstanding stock of Jupiter, a patrol service company, for aggregate
consideration of approximately $1,045,000 payable in Common Stock, based on the
lesser of market (as defined in the agreement) at closing or the price per share
of Common Stock with respect to this offering. The purchase price was based upon
a multiple of the monthly revenue for contracted guard services by Jupiter. The
closing of the acquisition is conditional on the closing of this offering.
Jupiter's patrol services are principally supplied in areas in which the Company
believes that Triple A is a substantial provider of security systems services.
The patrol service supplements the Company's alarm monitoring service by
providing routine patrol of a subscriber's premises and neighborhood, response
to alarm system activations and "special watch" services, such as picking up
mail and newspaper and increased surveillance when the customer is on vacation.

Jupiter also offers "dedicated" patrol service to homeowners' associations
in selected markets, for which Jupiter provides a marked car for patrol
exclusively in such association's neighborhood. The Company believes that
offering such services will enable it to increase sales of the Company's alarm
monitoring services within such neighborhoods. The acquisition involves a line
of business in which the Company has no previous experience and may involve
risks and uncertainties which are unknown to the Company. The financial
statements of Jupiter are included herewith. See "Risk Factors--Risks Related to
Growth Through Acquisitions; Risks Associated with Triple A Acquisition."

DEALER PROGRAM

The Company recently commenced a dealer program (the "Dealer Program") which
allows it to participate in the growth of the residential security alarm market
by providing monitoring and field service repair services to subscriber accounts
generated on a monthly basis through exclusive purchase agreements with
independent alarm companies specializing in the sale and installation of
residential alarm systems. The dealers that the Company selects for the Dealer
Program are typically small alarm companies that specialize in installing alarm
systems for residential or small businesses in a specified geographic area. The
Company enters into exclusive contracts with such dealers that provide for the
purchase by the Company of the dealers' subscriber accounts on an ongoing basis.
The dealers install alarm systems, arrange for the subscriber to enter into the
Company's alarm monitoring agreements, and install the Company's yard signs and
window decals. In addition, the Company evaluates the credit history of the
prospective new subscriber prior to purchase from the dealer. The Company is
currently purchasing approximately 50-75 accounts per month through its Dealer
Program and anticipates an expansion of this program during its next fiscal
year.

PATIENT MONITORING SERVICES

PERS INDUSTRY

The personal emergency response industry generally consists of companies
that provide technological support services to help elderly or medically-at-risk
individuals live independently, without the need of supervised care. In the
Company's view, the recent growth of the emergency response market is strongly
linked to the belief of medical professionals that such individuals should be
encouraged to live independently for as long as possible. The Company believes
that the demand for emergency response systems may increase as the number of
people over 65 years of age, and the number of such persons living alone,
increases. Currently, two groups of individuals are perceived to be the
principal users of PERS products. The first group consists of elderly people who
are capable of living independently and who are seeking ways to extend their
ability to maintain their independence. The second group consists of those who
experience short-term medical needs for whom the PERS is primarily used to
reduce the length of a hospital stay and to provide short-term assistance at
home during the recuperation period. Other potential users include "latch-key"
children and others for whom immediate, automatic access to emergency assistance
is desirable.

PERS PRODUCTS AND MONITORING SERVICES

PRODUCTS. The Company's PERS is designed to monitor, identify and
electronically report emergencies requiring medical, fire and police assistance.
The PERS unit consists of two basic components: (i) a portable pendant
transmitter that is worn around the neck (the system also includes a portable,
hand-held transmitter that can be attached to the user's belt or mounted on a
wall); and (ii) a receiving base that is installed in the user's home and
connected to the user's telephone line. The Company's PERS also includes a smoke
detector (in certain states) that transmits a distress signal to the Monitoring
Station in the event of fire, and a medical/police hand-held transmitter that
transmits a medical or police distress signal to the Monitoring Station. Both
the pendant and medical/police hand-held transmitter send a medical distress
signal to the Monitoring Station; however, the hand-held transmitter also sends
a police distress signal on a separate channel when activated.

The Company's PERS has a variety of safety features, including an
environmental control which detects temperature fluctuations, a cancel function
to avoid false alarms, an alternative power source, which allows the system to
remain functional in the event of a generalized power failure, and a special
transmitter designed for use by handicapped persons. In addition, once
activated, the PERS "seizes" the user's telephone line to which the receiving
base is connected and dials the Monitoring Station until a connection is
established, regardless of whether the user's telephone is in use or off the
hook. Each PERS is tested before release for sale and is re-tested immediately
after installation in a user's home.

MONITORING SERVICES. Users of the Company's PERS products initiate a
distress signal by pressing a button on the portable transmitter included in the
system. Once activated, the transmitter sends radio signals to the receiving
base (the transmitter has an effective range of approximately 150 feet), which
in turn translates the radio signal and automatically dials the Monitoring
Station using a toll-free telephone number. Once telephone contact is made with
the Monitoring Station, a coded signal automatically initiates the electronic
retrieval of personal data relating to the user who initiated the distress
signal. Such data includes the user's name and address, directions to the user's
home, allergies, medications, best route of entry into the user's home during an
emergency, and the doctor and family members that should be contacted. In
addition, this signal establishes two-way voice communication between the user
and Monitoring Station personnel directly through the PERS unit, avoiding any
need for the user to access a telephone. Monitoring personnel verify the nature
of the emergency by speaking with the individual and, if necessary, notify the
predetermined emergency authorities in the user's area. If the monitoring
personnel are unable to establish voice communication with the user, emergency
agencies are notified immediately. As of June 30, 1997, the Company has
approximately 23,000 PERS monitoring subscribers in approximately 45 states for
whom it provides monitoring services. The Company's monitoring service is
available only to users of the Company's PERS; PERS products cannot be
programmed to permit the customer to utilize a competitor's monitoring service.

The Company provides all of its PERS users with a 24-hours-per-day, 365
days-per-year monitoring service. The monthly charge for monitoring services
paid by the subscriber is approximately $28. The Company's contracted monitoring
facility is located in Euclid, Ohio and is accessible by PERS users nationwide
through toll-free emergency telephone lines. The monitoring facility contains
telecommunications and computer equipment with the capacity to monitor tens of
thousands of PERS users simultaneously, and to receive and act upon a user's
emergency signal. On average, the Company receives 1,000 calls per day from its
PERS users, of which approximately 60% are made by users for test purposes. The
Company maintains a duplicate set of all customer data at its contracted Euclid,
Ohio facility.

SALES AND MARKETING

The Company sells its PERS products in the United States directly to
consumers through referrals by affiliated hospitals and through franchisees and
private label re-sellers (principally home alarm companies). In Canada, the
Company's PERS products are marketed exclusively by a Canadian distributor.
Until 1991, substantially all PERS products were sold through franchisees,
although the sale of new franchises was discontinued in 1987. Currently, the
Company's direct sales are generated principally by the Company's home health
care division, which commenced operations in March 1991. The following is a
summary of the Company's current and proposed marketing programs.

FRANCHISEES AND DISTRIBUTORSHIP. The Company ceased offering new franchises
for sale in 1987 and has no current plans to resume selling franchises in the
future. Existing franchisees, however, are allowed to renew their franchise
annually upon payment of a $350 renewal fee. As of November 30, 1997,
approximately 85 franchisees had paid their franchise renewal fee for the 1998
fiscal year.

Franchisees are independent contractors who purchase or lease their PERS
requirements from the Company in accordance with a schedule of prices
established by the Company, and resell PERS products in non-exclusive
territories. Franchisees also are required to contract with the Company to
provide monitoring services to the franchisee's customers. In addition, the
Company offers billing and collection services to franchisees. Franchisees are
required to pay a monthly fee to the Company for each customer monitored, the
amount of which is dependent upon the number of accounts serviced and the level
of other services (for instance, billing and collection) provided. The Company
also sells advertising and promotional materials, accessories and supplies to
its franchisees pursuant to a published price list.

HOME HEALTH CARE DIVISION. In March 1991, the Company established a home
health care division to market PERS products to hospitals and home health care
agencies. Hospitals and home health care

agencies may either purchase or lease/purchase PERS products for their patients,
with monitoring services provided by the Company. The consumer acquires the PERS
from the home health care agency, and the Company's obligations are limited to
providing monitoring services. Additional markets for the Company's home health
care division include state and local welfare agencies. The Company is also
actively soliciting agreements with municipalities to provide the Company's PERS
services as part of the municipalities' total health and other assistance
programs. The Company has entered into agreements with the Philadelphia
Corporation on Aging and the municipality of Los Angeles, Department of Aging,
pursuant to which the Company provides PERS and monitoring services to clients
of such entities.

PRIVATE LABEL PROGRAMS. The Company also supplies PERS products for vendors
under product names owned by the vendors. Currently, sales under these programs
are limited. Currently, all of the Company's private label vendors provide their
own monitoring services. The Company's gross profit margins on sales in its
private label programs are significantly lower than margins on its direct and
franchisee sales programs.

PRODUCTION

The principal materials utilized in the production of PERS products consist
of electronic components which are obtained from several suppliers. The
sub-contractor also purchases molded plastic, printed circuit boards and
miscellaneous hardware from several sources. The Company believes that the
required electronic components are not unique to a particular vendor and that
other sources could be obtained, although some delay in production might result
if it were necessary to find new sources for electronic components.

HEALTHLINK

HealthLink is a 50% joint venture between the Company and BKR, Inc.
HealthLink was formed in March 1997 to distribute the HealthLink System through
retail pharmacies. In connection with its investment in HealthLink, the Company
issued 364,722 shares of Common Stock to BKR, Inc. and issued a
performance-based warrant, expiring March 3, 2002, to BKR, Inc., entitling it to
purchase up to 10,000 shares of Common Stock for each 10,000 PERS placed on line
by HealthLink at an exercise price of $9.00 per share up to a maximum of 150,000
shares of Common Stock. HealthLink's distribution has grown from 58 stores in
the fourth quarter of 1996 to approximately 1,700 stores as of the date of this
Prospectus. To date, HealthLink has sold and shipped approximately 3,300 systems
to such stores. HealthLink is currently available in Target (808 stores)
nationwide, Long's Drugs (305 stores), Fry's (51 stores), Fred Myer (104 stores)
and in 429 Bergen Brunswick's west-coast Good Neighbor Pharmacies.

The HealthLink System is designed as a low-cost PERS for use by senior
citizens. The HealthLink System has a suggested retail price of $129.95 in most
stores, and provides monitoring revenue to HealthLink of approximately $23 per
month. The HealthLink System is manufactured by a third-party foreign
manufacturer. The Company provides monitoring and related services to HealthLink
System customers, is responsible for billing and collecting from such customers
and receives a portion of the recurring revenue as a fee for providing these
services.

Pursuant to the Purchase Agreement between the Company and BKR, Inc., if
BKR, Inc. sells at least 333,334 shares of Common Stock in open market
transactions and the average gross sale price per share obtained by BKR, Inc. is
less than the closing price of the Company's Common Stock on the date of the
Purchase Agreement, the Company shall, at its option, either (i) pay BKR, Inc.
an amount equal to the difference between such sale price and closing price or
(ii) issue to BKR, Inc. additional shares of the Company's Common Stock with an
aggregate market value equal to such difference, which shares shall be
registered.

WANDERWATCH-TM-

On November 22, 1996, the Company entered into a two-year agreement with
Sloan Electronics, Incorporated ("Sloan") granting the Company the exclusive
worldwide distribution rights within the health care industry to
WanderWatch-TM-, a wandering compliance monitoring system designed for use in
home health care and assisted living facility environments. The WanderWatch-TM-
system is designed to provide around-the-clock monitoring of patients that
suffer from Alzheimer's disease, autism, dementia, head injury or other diseases
or injuries which may involve memory loss. The WanderWatch-TM- system consists
of a wireless ankle transmitter that sends a radio frequency transmission to a
base unit, usually located centrally in a home. If the base unit does not
receive a requisite number of transmissions within a 60-second interval, it
indicates that the patient may have wandered outside of the "safety range" and
triggers a loud beeping alarm in the base unit. If the alarm is not disabled
within 60 seconds, a signal is automatically transmitted to the Monitoring
Station. The license agreement for WanderWatch-TM- provides for automatic
one-year renewals, provided that neither party has notified the other that it
has failed to comply with the terms of the agreement within 60 days prior to the
expiration of any such renewal term. In addition, the Company's exclusive rights
to the license are subject to forfeiture in the event that the Company fails to
achieve certain targeted annual sales increases of WanderWatch-TM- and fails to
use reasonable efforts to fully and effectively promote the sale of
WanderWatch-TM-. In such event, the Company's license of WanderWatch-TM- would
become non-exclusive. The agreement also contains certain non-competition
provisions which restrict the right of both parties to produce products which
could be considered directly competitive with WanderWatch-TM-. The agreement
provides for an initial license fee of $35,000 payable by the Company, a
per-unit purchase price payable by the Company and a per-unit percentage of the
monthly recurring revenue received from WanderWatch-TM-, equal to the lesser of
20% or $7.50 from revenues derived from end users of WanderWatch-TM-, subject to
a certain maximum fee for recurring revenues. The agreement provides that Sloan
shall allocate time and financial resources for research and development to
improve WanderWatch-TM-.

Approximately 2,800,000 patients are afflicted with Alzheimer's disease and
are being cared for in their homes. Alzheimer's disease is a progressive,
degenerative disease of the brain, and the most common form of dementia. There
are approximately four million people afflicted with Alzheimer's disease in the
United States. Approximately one in ten persons over the age of 65, and nearly
half of the people over the age of 85, have Alzheimer's disease. Over 70% of
Alzheimer's patients live at home. An Alzheimer's patient will live an average
of eight years and as many as 20 years or more from the onset of symptoms. The
WanderWatch-TM- system will be offered to the caregivers (I.E., family members
and professional caregivers) on a monthly rental basis. Additionally,
WanderWatch-TM- will be offered through the Company's existing distribution
network of home health care companies, hospitals, visiting nurse associations
and various governmental agencies. WanderWatch-TM- is currently being
test-marketed by the Company, and the Company does not anticipate commencing
distribution of the product prior to July 1, 1998.

MONITORING STATION

In April 1994, the Company entered into an agreement with Emergency Response
Center, Inc. ("ERC"), owner of the Monitoring Station, expiring in April 2000.
The agreement automatically renews for successive one-year terms unless either
party gives the other written notice of termination not later than six months
prior to the end of the then current term of the agreement. Pursuant to the
agreement, in consideration for providing monitoring services and electronic
data base storage for the Company, ERC receives monitoring service fees based
upon the number of subscribers it services and certain other start-up and
maintenance costs. Upon consummation of the Triple A acquisition, the Company
will own Triple A's monitoring station, located in Wilkes-Barre, Pennsylvania,
which will continue to provide monitoring services to Triple A customers, and
which the Company anticipates will provide monitoring services for all of the
Company's customers following consummation of the Triple A acquisition.

GOVERNMENTAL REGULATION

The Company's operations are subject to a variety of federal, state, county
and municipal laws, regulations and licensing requirements. Many of the states
in which the Company operates, as well as certain local authorities, require the
Company to obtain licenses or permits to conduct a security alarm services
business. Certain governmental entities also require persons engaged in the
security alarm services business to be licensed and to meet certain standards in
the selection and training of employees and in the conduct of business. The
Company believes that it holds the required licenses and is in substantial
compliance with all licensing and regulatory requirements in each jurisdiction
in which it operates.

The security alarm industry is also subject to the oversight and
requirements of various insurance, approval, listing and standards
organizations. Adherence to the standards and requirements of such organizations
may be mandatory or voluntary depending upon the type of customer served, the
nature of security service provided and the requirements of the local
governmental jurisdiction. The Company has not had any material difficulties in
complying with such standards and requirements in the past.

The Company's electronic security business relies on the use of telephone
lines and radio frequencies to transmit signals and to communicate with field
personnel. The cost of such lines and the type of equipment which may be
utilized in telephone line transmissions are regulated by both the federal and
state governments. The operation and utilization of radio frequencies are
regulated by the Federal Communications Commission and state public utilities
commissions. The Company's PERS products are regulated by the Federal Food and
Drug Administration.

The Company's advertising and sales practices are regulated by both the FTC
and state consumer protection laws. Such regulations include restrictions on the
manner in which the Company promotes the sale of its products and the obligation
of the Company to provide purchasers of its products with certain rescission
rights. While the Company believes that it has complied with these regulations
in all material respects, there can be no assurance that none of these
regulations were violated in connection with the solicitation of the Company's
existing subscriber accounts, particularly with respect to accounts acquired
from third parties, or that no such violations will occur in the future.

Although it ceased offering new franchises for sale in 1987, the Company's
continuing relationship with its existing franchisees is subject to regulation
under state laws and by the FTC. Moreover, the Company continues to be bound by
obligations to franchisees under certain state consent orders regarding alleged
franchise sales practices. At various times, the Company also has been named in
state actions or inquiries related to the sales practices of its franchisees.
The Company believes it is not liable for the actions of its franchisees;
however, there can be no assurance that it will not be subject to future orders.
The Company may be subject to additional regulation in the future, and changes
in laws and regulations

applicable to the Company could increase the cost of compliance and otherwise
materially and adversely affect the Company in ways not presently foreseeable.

RISK MANAGEMENT

The nature of the services provided by the Company potentially exposes it to
greater risks of liability for employee acts or omissions, or system failures,
than may be inherent in many other service businesses. To reduce those risks,
substantially all of the Company's customers have subscriber agreements which
contain provisions for limited liability and predetermined liquidated damages to
customers and indemnification by customers against third-party claims; however,
some jurisdictions prohibit or restrict limitations on liability and liquidated
damages. The Company carries insurance of various types, including general
liability and errors and omissions insurance to insure it from liability arising
from acts or omissions of its employees. The Company's general and umbrella
liability insurance policies combined provide up to $10,000,000 of coverage,
depending on the nature of claims. Certain of the Company's insurance policies
and the laws of some states may limit or prohibit insurance coverage for
punitive or certain other kinds of damages arising from employee misconduct. In
addition, in some states the contractual limitation of liability and
indemnification provisions may be ineffective in cases of gross negligence or
intentional misconduct and in certain other situations.

INSURANCE

The Company maintains general liability insurance policies covering various
types of liability including products liability. The product liability insurance
has policy limits of $1,000,000 per occurrence and $5,000,000 in the aggregate
per year and the errors and omissions liability insurance policy limits are
$1,000,000 per occurrence and $5,000,000 in the aggregate per year with a
deductible of $50,000 per occurrence payable by the Company. These policies are
subject to exclusions and other terms which the Company believes are typical for
policies of similarly situated companies. The Company believes that its
insurance coverage is adequate for its needs, but there can be no assurance that
the Company will not be subjected to claims in the future which are not covered
by its insurance or which exceed its insurance coverage.

INTELLECTUAL PROPERTY

The Company owns a federal trademark registration for the trade name
"Response Ability" and holds a license for the names "WanderWatch" and
"HealthLink." The Company believes that its rights in these trademarks are of
unlimited duration and adequately protected by registration or applications to
register. In addition, the Company relies on trade secret and other laws to
protect its proprietary rights in its security systems and programs. No
assurance can be given that the Company will be able to successfully enforce or
protect its rights to its trademarks or proprietary information in the event
that any of them is subject to third-party infringement or misappropriation. The
Company's central monitoring operations utilize proprietary software which the
Company has licensed from a third party.

SUPPLIERS, MANUFACTURING AND ASSEMBLY

The Company currently has multiple sources of supply for the components used
in the electronic security and PERS products that it designs and installs. The
Company does not manufacture any of the products that it designs and installs,
or any of the components thereof. The Company's products are assembled from such
components by third-party contract assemblers. The Company believes that a
variety of alternative sources of supply are available on reasonable terms.
However, the Company has no guaranteed supply arrangements with its suppliers
and purchases components pursuant to purchase orders placed from time to time in
the ordinary course of business. There can be no assurance that shortages of
components will not occur in the future. Failure of sources of supply and the
inability of the Company to

develop alternative sources of supply if required in the future could have a
material adverse effect on the Company's operations.

COMPETITION

ELECTRONIC MONITORING SERVICES

The security services business is highly competitive and new competitors are
continually entering the field. Competition is based primarily on price in
relation to quality of service. Sources of competition in the security services
business are other providers of central monitoring services, systems directly
connected to police and fire departments, local alarm systems and other methods
of protection, such as manned guarding.

The central monitoring sector of the electronic security business is
characterized by low marginal costs associated with monitoring additional
customers. Despite the opportunity for economies of scale by consolidation of
monitoring and administrative functions, the industry is highly fragmented, with
thousands of small providers.

There are also a limited number of larger competitors, including ADT
Limited, a division of Tyco, International, Borg-Warner Security Corporation
(under the Wells Fargo and Pony Express brand names), a division of Honeywell,
Inc., Brinks Home Security, a division of The Pittston Company, SecurityLink by
Ameritech and Protection One, Inc.

PERS

The emergency response industry is serviced by numerous companies that
provide PERS products and services, including monitoring services. A majority of
the emergency response companies offer systems that are monitored through a
central monitoring facility. In some instances, companies which sell PERS units
establish agreements with local burglar alarm companies to provide the service
on a per-user fee basis, or have their own monitoring capability. A number of
emergency response companies offer their products through hospitals that
distribute and monitor the systems. Several companies offer systems that utilize
a direct dial/pre-recorded telephone message to selected telephone numbers
directly without a monitoring station.

The Company's principal competitors are other national or regional emergency
response providers and burglar alarm companies that offer medical emergency
features in addition to their home protection systems. Many of these companies
have greater financial resources than the Company and may enjoy a particular
competitive advantage due to their access to a larger client base. The Company
considers its principal competitors to be American Medical Alert Corp. and
Lifeline Systems, Inc. Methods of competition in the PERS industry consist of
quality, service and price of the PERS products. While price is a factor, the
customer's primary consideration in choosing a PERS supplier is the quality of
monitoring service provided and the reliability of the PERS products. The
Company believes that it competes favorably as to all of these factors.

EMPLOYEES

At January 30, 1998, the Company employed 167 full-time employees. Of this
number, 7 are engaged in sales, 8 in quality control, 46 in field service and
installation, 58 in customer service, 12 in acquisition assimilation and 36 in
administration. None of the Company's employees are represented by a labor
union, and the Company considers its employee relations to be satisfactory.

PROPERTIES

The Company leases 15,000 square feet in Lawrenceville, New Jersey, for its
executive and administrative offices, at an annual rental of $172,000. The lease
expires in June 1999, after which the Company has a five-year renewal option.
The Company also leases (i) 1,100 square feet in Wilmington, Delaware, for use
as a sales and installation facility, at an annual rental of $14,400, which
lease expires in February 1998, after which the Company has a one-year renewal
option on the same terms and conditions, which the Company intends to renew;
(ii) 2,000 square feet in Los Angeles, California, for use as a sales and
installation facility, at an annual rental of $24,000, which lease expires in
October 2000; (iii) 5,000 square feet for its inventory, storage and testing
facility in Florida, which is adjacent to the Company's third-party assembler,
at an annual rental of $19,200, which lease expires in March 1999; and (iv)
2,900 square feet in Allentown, Pennsylvania, for use as a sales and
installation facility, at an annual rental of $24,000, which lease expires in
November 1998, after which the Company has two, one-year renewal options on the
same terms and conditions.

The Company believes that its current facilities are adequate for its needs.

LEGAL PROCEEDINGS

The Company experiences routine litigation in the normal course of its
business. The Company does not believe that any of such pending litigation will
have a material adverse effect on the financial condition or results of
operations of the Company.

In February 1996, the Company consented to the issuance of an Order
Instituting Proceedings pursuant to the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Findings and Order of
the Securities and Exchange Commission (the "Finding"), without admitting or
denying allegations of facts contained therein. In July 1993, the Company sold
20,000 shares of Common Stock to non-U.S. residents pursuant to what it claimed
to be an exemption from registration under Regulation S of the Securities Act.
The Finding stated that such sales were made under circumstances in which the
Company knew or should have known that such exemption was not available.
Consequently, the Finding stated, the sales were made in violation of the
registration provisions of the Securities Act. The Company consented to
permanently cease and desist from committing or causing any violation, and any
future violation, of Section 5 of the Securities Act.

In January and February 1997, certain holders of the Preferred Stock
commenced litigation against the Company, challenging, among other things, the
Company's decision to suspend conversion rights of such holders and seeking,
among other things, specific performance under the Certificate of Designation to
convert their Preferred Stock to Common Stock of the Company. The Company has
entered into a Settlement Agreement with such holders. See "Description of
Securities--Series A Convertible Preferred Stock."

Prior to its acquisition by the Company, Systems was named in a number of
civil and administrative proceedings relating to its franchise sales. The
Company does not presently offer franchises for sale; however, the Company is
bound by certain consent decrees and regulations involving its continuing
relationship with franchisees.

MANAGEMENT

The current executive officers and directors of the Company are set forth
below:

NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------

Richard M. Brooks(1)................ 49 Chief Executive Officer, President, Chief Financial Officer and
Chairman of the Board
Ronald A. Feldman................... 35 Vice President, Chief Operating Officer, Secretary-Treasurer and
Director
Robert L. May....................... 40 Director
A. Clinton Allen(2)................. 53 Director
Todd E. Herman...................... 43 Director, President of USS
Robert M. Rubin..................... 57 Director
Stuart Levin........................ 37 Director
Bruce H. Luehrs(1)(2)............... 44 Director
Stuart R. Chalfin(1)(2)............. 56 Director

- ------------------------

(1) Member of Audit Committee

(2) Member of Stock Option Committee

Directors are elected to serve until the next annual meeting of stockholders
and until their successors have been elected and have qualified. Directors do
not receive remuneration for their services as such, but may be reimbursed for
expenses incurred in connection therewith, such as the cost of travel to Board
meetings. Under the Credit Line, the Bank is entitled to cause the Company to
nominate one person to the Company's Board of Directors. Bruce H. Luehrs is
currently the Bank's nominee. Officers serve at the pleasure of the Board of
Directors until their successors have been elected and have qualified.

RICHARD M. BROOKS has been Chief Executive Officer and Chairman of the
Company since July 1994, a Director of the Company (including one of its
subsidiaries prior to its acquisition by the Company) since August 1990, and has
served as the President and Chief Financial Officer of the Company since
February 1990. Mr. Brooks was Chief Operating Officer of the Company from
February 1990 until July 1994. From August 1986 to February 1990, Mr. Brooks was
general counsel to Systems. Mr. Brooks served as Regional Counsel Mid-Atlantic
Region for the Interstate Commerce Commission from May 1979 to March 1983 and
was a senior attorney for the United States Treasury Department from March 1974
to April 1979. Mr. Brooks received his Bachelor of Science Degree in Business
Administration in June 1970 from Temple University, and graduated from Temple
University School of Law in 1973.

RONALD A. FELDMAN has been a Director and Secretary-Treasurer of the
Company (including one of its subsidiaries prior to its acquisition by the
Company) since August 1990 and Chief Operating Officer since July 1994. He has
also served as the Secretary and Treasurer of Systems from June 1990 and Vice
President of the Company since April 1992. From August 1986 through September
1989, he was the supervisor of Systems' manufacturing operations and supervised
the Company's monitoring activities since March 1987. Mr. Feldman attended
Temple University from 1980 to 1982.

ROBERT L. MAY has served as Director of the Company since December 1997.
Mr. May also serves as President of Triple A, a security services company since
1981 and President of Jupiter, a company which provides guards, patrol and alarm
response services to customers of Triple A since 1992. Mr. May also serves as
director of Integral Technologies, Inc., an industry software provider, and is
the director and President of the Central Station Alarm Association and Alarm
Dealers Association, respectively. Mr. May has previously served as President of
the Pennsylvania Burglar and Fire Alarm Association.

A. CLINTON ALLEN has served as Director of the Company since December 1997.
Mr. Allen also serves as Vice Chairman and a director of The DeWolfe Companies
Inc., a home ownership service company, since 1991. Mr. Allen is Chairman and
Chief Executive Officer of A.C. Allen & Company, Inc., an investment banking
consulting firm. Mr. Allen also serves as a director of Swiss Army Brands, Inc.,
a distributor of knives, cutlery and watches and is a member of its Executive
Committee, and is a director of SweetWater, Inc., a water technology company.
Mr. Allen also serves as a director and Vice Chairman of Psychemedics
Corporation, a drug testing services company. Mr. Allen was the first outside
director of Blockbuster Entertainment, was Chairman of its Compensation
Committee and served in such capacities until it was sold to Viacom/Paramount in
1994. Mr. Allen is a party to a one-year renewable consulting agreement with the
Company commencing February 1998. See "--Employment and Consulting Agreements."

TODD E. HERMAN has been a Director of the Company since February 1995 and
President of USS since 1984. Mr. Herman was also Vice President of Investech
Properties, Inc., a private investment and development firm, from 1984 through
1990. Mr. Herman received his Bachelor of Science degree in Business
Administration from Washington University of St. Louis, Missouri in 1975 and
graduated from Seton Hall School of Law in 1982. Mr. Herman is a Certified
Public Accountant.

ROBERT M. RUBIN has been a Director of the Company since October 1991. Mr.
Rubin has served as Chairman of Connectsoft Communications Corporation, a
developmental stage company, since June 1997. Mr. Rubin has also served as
Chairman of the Board of Directors of American United Global, Inc. ("AUGI")
since May 1991, and was its Chief Executive Officer from May 1991 to January
1994. Since January 1996, Mr. Rubin has also served as President and Chief
Executive Officer of AUGI. Mr. Rubin was the founder, President, Chief Executive
Officer and a director of Superior Care, Inc. ("SCI") from its inception in 1976
until May 1986. Mr. Rubin continued as a director of SCI (now known as Olsten
Corporation ("Olsten")) until late 1987. Olsten, a New York Stock Exchange
listed company, is engaged in providing home care and institutional staffing
services and health care management services. Mr. Rubin is Chairman of the Board
and a minority stockholder and the former Chief Executive Officer of ERD Waste
Corp., Inc. ("ERD"), a diversified waste management public company specializing
in the management and disposal of municipal solid waste, industrial and
commercial non-hazardous waste and hazardous waste. In September 1997, ERD filed
for protection under Chapter 11 of the United States Bankruptcy Code. On April
10, 1997, ERD entered into a Consent Order with the Attorney General of the
State of New York and the NYSDEC pursuant to which ERD permanently ceased
operation of its Long Beach, New York facility effective April 10, 1997. Mr.
Rubin is a former director and Vice Chairman, and currently a minority
stockholder, of American Complex Care, Incorporated ("ACCI"), a public company
formerly engaged in providing on-site health care services, including
intra-dermal infusion therapies. Mr. Rubin is also the Chairman of the Board of
Western Power & Equipment Corp. ("Western") and Chairman of the Board of IDF
International, Inc. ("IDF"), both public companies. Western, a 56.6%-owned
subsidiary of AUGI, is engaged in the distribution of construction equipment,
principally manufactured by Case Corporation. IDF, a 58%-owned subsidiary of
AUGI, is engaged in providing construction consulting services to businesses and
municipalities and site acquisition, architectural and engineering services for
the cellular communications industry. Mr. Rubin is also a director and a
minority stockholder of Diplomat Corporation, a public company engaged in the
manufacture and distribution of baby products. From 1994 to 1996, Mr. Rubin was
also a director of Kaye Kotts Associates, Inc., a tax return preparation
company, which on July 10, 1997, filed for protection under Chapter 11 of the
United States Bankruptcy Code.

STUART LEVIN has been a Director of the Company since February 1994. Mr.
Levin has been employed by the Company (including one of its subsidiaries prior
to its acquisition by the Company) as its Director of Operations since October
1991 and Director of the Company's home health care division, since April 1994.
Prior to October 1991, Mr. Levin held management positions with Tandy
Corporation, and was the President of W.A.S., Inc., a food distribution company.
Mr. Levin attended Temple University from 1978 to 1980.

BRUCE H. LUEHRS has been a Director of the Company since October 1, 1997.
Mr. Luehrs has an extensive background in venture capital, mergers and
acquisitions and commercial and investment banking. In November 1997, Mr. Luehrs
was named General Partner of Edison Venture Fund IV, a division of Edison
Venture Fund, a venture capital firm investing in emerging growth enterprises in
the Mid-Atlantic region. In September 1996, Mr. Luehrs formed Penn Valley
Capital ("PVC"), which provides advisory services to companies in transition due
to periods of rapid growth or financial difficulty. From July 1995 to September
1996, Mr. Luehrs was a principal with Columbia Capital Corporation, a merchant
bank focusing on the telecommunications industry. From June 1992 to July 1995,
Mr. Luehrs served as Executive Vice President and Chief Financial Officer of
Seaview Thermal Systems, a technology-driven environmental services company.
From February 1990 through March 1992, Mr. Luehrs was a principal of PNC Equity
Management, an equity fund affiliated with PNC Corporation. Mr. Luehrs received
his undergraduate degree in economics from Duke University and his Masters in
Management from Northwestern University.

STUART R. CHALFIN has been a Director of the Company since October 1, 1997.
Since 1975, Mr. Chalfin has been a principal of Fishbein & Company, P.C.,
independent public accountants, where he specializes in advising closely held
businesses and professionals. Mr. Chalfin is affiliated with the Committee on
Relations with Colleges and Universities and the Linda Creed Foundation and is a
member of the American Institute of Certified Public Accountants.

EMPLOYMENT AND CONSULTING AGREEMENTS

Mr. Brooks and Mr. Feldman each have employment agreements, expiring June
30, 2000, to act in the capacities listed above for the Company. Such agreements
provide for initial annual base salaries of $225,000 and $150,000, respectively.
The Credit Line provides that the salaries and bonuses received by Messrs.
Brooks and Feldman in any fiscal year shall not exceed $225,000 and $150,000,
respectively. Under their employment agreements, Messrs. Brooks and Feldman also
receive life insurance, disability, hospitalization, major medical, vacation and
other employee benefits, reimbursement of reasonable business expenses incurred
on behalf of the Company, a non-accountable expense allowance of up to $1,000
per month, in the case of Mr. Brooks, and $500 per month, in the case of Mr.
Feldman, and use of Company-owned vehicles. The employment agreements are
terminable only upon certain circumstances, such as for cause, disability and
death, and if terminated for any other reason, such employees shall be entitled
to receive the present value of all compensation and benefits through June 30,
2000. The Company maintains and is the beneficiary of key person life insurance
policies in the amount of $3,000,000 and $1,000,000 on the lives of Messrs.
Brooks and Feldman, respectively.

In addition to cash compensation and other benefits, in connection with
amendments to their employment agreements executed in August 1992, Messrs.
Brooks and Feldman received options to purchase 44,445 and 28,356 shares of
Common Stock, respectively, at a price equal to $11.25. These options are
exercisable until November 14, 2004. Messrs. Brooks and Feldman also received
options to purchase 200,000 and 66,667 shares of Common Stock, respectively,
awarded under the Company's Non-Qualified Stock Option Plan. In November 1995,
the exercise price on Messrs. Brooks' and Feldman's options were reduced to the
prevailing market price of $7.50 and subsequently reduced to $4.50 on June 15,
1997 and to $0.03 on June 27, 1997. During February 1996, Messrs. Brooks and
Feldman both exercised options to purchase 8,334 shares of Common Stock. In
addition, the Company has agreed to grant options to purchase 87,500 and 37,500
shares of Common Stock to Mr. Brooks and Mr. Feldman, respectively, on the
effective date of this offering at an exercise price equal to the market value
on such date. Such options will vest in three equal annual installments
commencing on the first anniversary of the date of grant of such options.

Mr. Herman and John Colehower have employment agreements with USS, expiring
March 4, 1999, to act as President and Treasurer of USS and Vice President of
USS, respectively. Such agreements provide for an initial base salary of
$120,000, and may be increased at the discretion of the Board of Directors of

the Company, as well as certain additional payments and benefits based upon
increases in the Company's subscriber accounts. As a result of certain
obligations to Messrs. Herman and Colehower, the Company recorded a deferred
compensation liability of $1,207,500 as of September 30, 1997, based on such
obligations, which are not due until March 1999. Under their employment
agreements, Messrs. Herman and Colehower also receive life insurance,
disability, hospitalization, major medical, vacation and other employee
benefits. The employment agreements are terminable only upon certain
circumstances, such as for cause, disability and death or, for any other reason,
upon 90 days' written notice.

In addition to cash compensation and other benefits, Messrs. Herman and
Colehower received options to purchase 100,000 shares each of Common Stock at an
exercise price of $4.50. These options were subject to a vesting schedule, which
schedule has been accelerated such that all of such options are fully vested.

Robert M. Rubin, a Director of the Company, has performed consulting
services for the Company in the past. In February 1993, Mr. Rubin was issued a
warrant to purchase 1,667 shares of Common Stock at $15.00 per share, in
consideration of services to the Company. The exercise price of such warrant was
subsequently reduced to $.024 per share and the warrant was exercised. In
September 1994, Mr. Rubin was granted options to purchase 1,667 shares of Common
Stock at the prevailing market price of $2.4375, which options were exercised.
In February 1995, Mr. Rubin was granted options to purchase 50,000 shares of
Common Stock at a price of $11.25 per share, which options are exercisable for a
period of ten years. In November 1995, Mr. Rubin was granted options to purchase
50,000 shares of Common Stock at the prevailing market price of $7.50 and in
November 1995, the exercise price of Mr. Rubin's options granted in February
1995 were reduced to the prevailing market price of $7.50. (See Note 10 of Notes
to Consolidated Financial Statements of the Company). On June 27, 1997, the
exercise price of all of Mr. Rubin's options was reduced to $0.03. On October 1,
1994, Mr. Rubin entered into a consulting agreement with the Company pursuant to
which he was paid an annual consulting fee of $60,000 for a period of two years.
The agreement was terminated on April 30, 1996, at which time Mr. Rubin
converted outstanding loans in the amount of $200,000 into 28,069 shares of
Common Stock and converted subordinated debentures in the amount of $101,329
into 22,518 shares of Common Stock. See "Management" and "Principal
Stockholders."

A. Clinton Allen, a Director of the Company, has entered into a one-year
renewable consulting agreement with the Company commencing February 1998,
pursuant to which Mr. Allen will receive $4,000 per month in consideration for
providing certain consulting services to the Company.

EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation for
services in all capacities paid by the Company to its Chief Executive Officer
and each executive officer whose annual compensation exceeded $100,000 (the
"Named Executive Officers") during fiscal 1995, 1996 or 1997:

SUMMARY COMPENSATION TABLE

LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------------------------------
--------------------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LONG-TERM
NAME AND PRINCIPAL BONUS COMPENSATION STOCK OPTIONS/ INCENTIVE PLAN
POSITION YEAR SALARY ($) ($) ($)(1) AWARD(S) SARS (#) PAYOUTS
- ------------------ --------- ----------- ------------- ----------------------- ------------- ----------- -----------------

Richard M. Brooks, 1997 $ 220,673 -- -- -- 236,111(2) --
President, Chief 1996 $ 217,980 -- -- -- -- --
Executive 1995 $ 175,003 -- -- -- -- --
Officer and
Chief Financial
Officer

Ronald A. Feldman, 1997 $ 137,307 -- -- -- 86,689(2) --
Chief Operating 1996 $ 135,654 -- -- -- -- --
Officer, 1995 $ 106,495 -- -- -- -- --
Vice President,
Secretary
and Treasurer

ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)
- ------------------ ---------------------

Richard M. Brooks, --
President, Chief --
Executive --
Officer and
Chief Financial
Officer
Ronald A. Feldman, --
Chief Operating --
Officer, --
Vice President,
Secretary
and Treasurer

- ------------------------

(1) Excludes perquisites and other personal benefits, securities and properties
otherwise categorized as salary or bonuses which in the aggregate, for each
of the Named Executive Officers did not exceed the lesser of either $50,000
or 10% of the total annual salary reported for such person.

(2) Such options were originally granted in prior periods; however, on June 15,
1997, the Company reduced the exercise price of such options from $7.50 per
share to $4.50 per share. On June 27, 1997, the Company further reduced the
exercise price of such options from $4.50 per share to $0.03 per share. See
"Management -- Reduction of Exercise Price of Certain Stock Options."

INCENTIVE STOCK OPTION PLAN

In March 1992, the Company's Board of Directors and stockholders adopted and
approved an Incentive Stock Option Plan ("ISO Plan"). The ISO Plan provides for
the grant to key employees of the Company of stock options intended to qualify
as "incentive stock options" under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). A total of 13,334 shares of
Common Stock have been reserved for issuance under the ISO Plan, all of which
shares have been granted as of the date of this Prospectus. The ISO Plan is
administered by a committee of the Board of Directors which, among other things,
has the sole discretion to select optionees and determine the number of shares
covered by each option, its exercise price and certain of its other terms. The
exercise price of options granted under the ISO Plan may not be less than the
fair market value of Common Stock on the date of grant, and not less than 110%
of such fair market value in the case of participants owning more than 10% of
Common Stock. Options expire no later than 10 years after they are granted (five
years after grant in the case of participants owning more than 10% of the
Company's Common Stock). The number of shares for which the optionee may
exercise an option in any calendar year is limited to option shares with an
aggregate fair market value, determined at the time the option is granted, which
does not exceed $100,000. The $100,000 limit for any calendar year is subject to
further reduction by the fair market value of any stock (determined at the time
of option grant) for which the employee was granted an option under any Company
plan during such calendar year. Options terminate three months after the
optionee ceases to be employed by the Company unless the optionee's employment
is terminated by reason of disability, in which case, the options shall expire
following one year after such employment termination. The committee has the
right to accelerate the expiration date in certain events. Options granted under
the ISO Plan are not transferable, except by will or the law of descent and
distribution.

NON-QUALIFIED STOCK OPTION PLAN

In August 1990, the Company's Board of Directors approved a Nonqualified
Stock Option Plan (the "NQO Plan") pursuant to which the Company may grant stock
options to directors, officers, key employees and consultants. A total of 3,453
shares of Common Stock were reserved for issuance under the NQO Plan, all of
which shares have been granted as of the date of this Prospectus. Options shall
terminate six months after the optionee ceases to be employed by the Company or
any subsidiary, regardless of the cause for termination.

REDUCTION OF EXERCISE PRICE OF CERTAIN STOCK OPTIONS

On June 15, 1997, the Company reduced the exercise price of options to
purchase 622,800 shares of Common Stock granted to officers, directors and a key
employee of the Company, from $7.50 to $4.50, or the prevailing market price. On
June 27, 1997, the Company further reduced the exercise price of options to
purchase 422,800 shares of Common Stock granted to certain officers and
directors of the Company, from $4.50 to $0.03, which resulted in a compensation
expense of $1,889,916.

1997 STOCK OPTION PLAN

In October 1997, the Board of Directors of the Company adopted the 1997
Plan, which was subsequently approved by the Company's stockholders on January
6, 1998.

The 1997 Plan provides for the grant of options to purchase up to, but not
in excess of, 600,000 shares of Common Stock to key employees, including but not
limited to officers, directors, agents, consultants and independent contractors
of the Company or any parent or subsidiary of the Company (excluding members of
the Administrator (as defined in the 1997 Plan)). Options may be either
"incentive stock options" within the meaning of Section 422 of the Code, or
non-qualified options. Incentive stock options may be granted only to employees
of the Company or a subsidiary of the Company, while non-qualified options may
be issued to non-employee directors, as well as to employees of the Company or
its subsidiary.

The 1997 Plan is administered by a committee selected by the Board of
Directors (the "Administrator"), which determines, among other things, those
individuals who receive options, the time period during which the options may be
exercised, the number of shares of Common Stock issuable upon the exercise of
each option and the option exercise price. Pursuant to the 1997 Plan, the
Administrator determines, among other things, those individuals who receive
options, the time period during which the grants will be made, the number of
shares of Common Stock to be granted and the price (if any) to be paid by such
key employees therefor.

The exercise price per share of Common Stock subject to an incentive option
may not be less than the fair market value per share of Common Stock on the date
the option is granted. The per share exercise price of the Common Stock subject
to a non-qualified option may be established by the Administrator. If the
aggregate fair market value (determined as of the date the option is granted) of
Common Stock for which any person may be granted incentive stock options which
first become exercisable in any calendar year exceeds $100,000, such stock
option shall be treated, to the extent of such excess, as an option which does
not qualify as an incentive stock option. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to such
person, 10% or more of the total combined voting power of all classes of stock
of the Company (a "10% Shareholder") shall be eligible to receive any incentive
stock options under the 1997 Plan unless the exercise price is at least 110% of
the fair market value of the shares of Common Stock subject to the option,
determined on the date of grant. Non-qualified options are not subject to such
limitation.

No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee. In the event of termination of
employment other than by death, retirement, permanent and total disability,

unless extended by the Administrator on or before such employee's date of
termination of employment, the optionee will have no more than three months
after such termination during which the optionee shall be entitled to exercise
all or any part of such employee's option, unless otherwise determined by the
Administrator. Upon termination of employment of an optionee by reason of death,
retirement, permanent or total disability, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination.

Options under the 1997 Plan must be issued within 10 years from the
effective date of the Plan. The effective date of the 1997 Plan is September
1997. Incentive stock options granted under the 1997 Plan cannot be exercised
more than 10 years from the date of grant. Incentive stock options issued to a
10% Shareholder are limited to five-year terms. All options granted under the
1997 Plan provide for the payment of the exercise price in cash or check or by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods, or by such other methods
approved by the Administrator pursuant to the 1997 Plan. Therefore, an optionee
may be able to tender shares of Common Stock to purchase additional shares of
Common Stock and may theoretically exercise all of such optionee's stock options
with no additional investment other than the purchase of the original shares.

Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1997 Plan.

As of the date hereof, no options have been granted pursuant to the 1997
Plan; however, the Company has agreed to grant incentive stock options to
purchase 500,000 shares of Common Stock as follows: (i) 75,000 shares of Common
Stock to Mr. Allen, a director, (ii) 175,000 shares of Common Stock to Mr. May,
a director, (iii) 75,000 shares of Common Stock to Mr. Rubin, a director, (iv)
25,000 shares of Common Stock to Mr. Luehrs, a director, (v) 25,000 shares of
Common Stock to Mr. Chalfin, a director, (vi) 87,500 shares of Common Stock to
Mr. Brooks, an officer and director and (vii) 37,500 shares of Common Stock to
Mr. Feldman, an officer and director, all of which options are expected to be
granted on the effective date of this offering at an exercise price equal to the
market value on such date and shall be subject to certain vesting requirements.
See "Principal Stockholders."

Other than options to acquire approximately 18,784 shares of Common Stock
which were granted by the Company to employees who were not officers or
directors of the Company, at an exercise price of $.10 per share (at a time when
when the market price of the Company's Common Stock on the date of the grant was
$.50 per share), none of the outstanding options or warrants issued by the
Company, at the time of the grant or issuance thereof, were granted at less than
85% of the market price of the Common Stock on the date of the grant.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning options granted to or
held by the Named Executive Officers during the fiscal year ended June 30, 1997:

INDIVIDUAL GRANTS
--------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- ------------------------------------------- ------------------- --------------- ------------------- ---------------

Richard M. Brooks.......................... 236,111(1) 35.7% $ .03 11/14/04
Ronald A. Feldman.......................... 86,689(1) 13.1% $ .03 11/14/04

- ------------------------

(1) Such options were originally granted in prior periods; however, on June 15,
1997, the Company reduced the exercise price of such options from $7.50 per
share to $4.50 per share. On June 27, 1997, the Company further reduced the
exercise price of such options from $4.50 per share to $0.03 per share. See
"Management -- Reduction of Exercise Price of Certain Stock Options."

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

The following table sets forth certain information regarding stock options
exercised by the Named Executive Officers during the fiscal year ended June 30,
1997, as well as the number of exercisable and unexercisable in-the-money stock
options and their values at fiscal year end. An option is in-the-money if the
fair market value for the underlying securities exceeds the exercise price of
the option.

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS
AT FY-END AT FY-END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------------------------- ----------------- ----------------- ------------------- -----------------

Richard M. Brooks.............................. 0 0 236,111/0 $ 1,586,666/0
Ronald A. Feldman.............................. 0 0 86,689/0 $ 582,550/0

- ------------------------

(1) The value of unexercised options is determined by multiplying the number of
options held by the difference between the closing price of the Common Stock
of $6 3/4 at June 30, 1997 (as adjusted to reflect the one-for-three reverse
stock split effective January 9, 1998), as reported by the Nasdaq SmallCap
Market, and the exercise price of the options.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information, as of the date of this
Prospectus, based upon 2,212,596 shares of Common Stock outstanding and as
adjusted to reflect the sale of 3,000,000 shares of Common Stock by the Company
in this offering regarding the beneficial ownership of the Company's Common
Stock by (i) all persons known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each director and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Information as to Kenneth Stickney was derived from the Schedule 13D
filed by such stockholder, and, except for the percentage ownership, reflects
the information contained therein as of the date such 13D was filed.

PERCENTAGE OF
OUTSTANDING STOCK
OWNED(3)
----------------------------------

AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
OF BENEFICIAL OWNER(2) OWNERSHIP(1) BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------------- ------------------------ ----------------- ---------------
Richard M. Brooks (4)................................... 236,772 9.7% 4.3%
Ronald A. Feldman (5)................................... 87,356 3.8% 1.6%
Robert M. Rubin (6)..................................... 220,760 9.4% 4.1%
Stuart Levin............................................ 3,833 * *
Todd E. Herman (7)...................................... 102,667 4.4% 1.9%
Kenneth Stickney........................................ 159,722 7.2% 3.1%
Bruce H. Luehrs (8)..................................... 15,334 * *
Stuart R. Chalfin (8)................................... 15,000 * *
Robert L. May (9)....................................... 105,000 4.5% 2.0%
A. Clinton Allen (10)................................... 45,000 2.0% *
Executive Officers and Directors as a group (nine
persons) (11)......................................... 831,722 28.1% 14.0%

- ------------------------

* Less than one percent.

(1) For purposes of the above table, a person or group of persons is deemed to
have "beneficial ownership" of any shares that such person or group has the
right to acquire within 60 days after such date; and for purposes of
computing the percentage of outstanding shares held by each person or group
on a given date, such shares are deemed to be outstanding, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.

Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act, and is generally determined by voting power and/or investment
power with respect to securities. Except as indicated by footnote, and
subject to community property laws where applicable, the Company believes
that the persons named in the table above have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them.

(2) The address for the referenced individuals who beneficially owns 5% or more
of the outstanding Common Stock of the Company is c/o Response USA, Inc.,
11-H Princess Road, Lawrenceville, New Jersey, except for Robert M. Rubin,
whose address is 9450 Aegean Drive, Boca Raton, Florida 33496, BKR, Inc.,
whose address is 7944 East Beck Lane, Suite 210, Scottsdale, Arizona 85260,
and Kenneth Stickney, whose address is 7944 East Beck Lane, Suite 210,
Scottsdale, Arizona 85260.

(3) Individual percentages have been rounded to the nearest 0.1%.

(4) Includes 236,111 shares issuable upon exercise of currently exercisable
options. Does not include 87,500 shares issuable upon exercise of options to
be granted upon consummation of this offering, which options shall vest in
three equal annual installments commencing on the first anniversary of the
date of grant of such options. See "Management -- Employment and Consulting
Agreements."

(5) Includes 86,689 shares issuable upon exercise of currently exercisable
options. Does not include options to purchase 37,500 shares issuable upon
exercise of options to be granted upon consummation of this offering, which
options shall vest in three equal annual installments commencing on the
first

anniversary of the date of grant of such options. See "Management --
Employment and Consulting Agreements."

(6) Includes 1,840 shares of Common Stock owned by Mr. Rubin's wife and
children, as to which Mr. Rubin disclaims beneficial ownership. Includes
100,000 shares issuable upon exercise of currently exercisable options and
45,000 shares issuable upon exercise of the vested portion of options to be
granted upon consummation of this offering. Does not include 30,000 shares
issuable upon exercise of options to be granted upon consummation of this
offering, which options shall vest one year from the date of grant of such
options. See "Management--Employment and Consulting Agreements."

(7) Includes 100,000 shares issuable upon exercise of currently exercisable
options. See "Management-- Employment and Consulting Agreements."

(8) Includes 15,000 shares issuable upon exercise of the vested portion of
options to be granted upon consummation of this offering. Does not include
10,000 shares issuable upon exercise of options to be granted upon
consummation of this offering, which options shall vest one year from the
date of grant of such options.

(9) Does not include approximately 503,953 shares of Common Stock to be received
by Mr. May upon consummation of the acquisitions of Triple A and Jupiter,
based upon the public offering price of $6.50 per share. Includes 105,000
shares issuable upon exercise of the vested portion of options to be granted
upon consummation of this offering. Does not include 70,000 shares issuable
upon exercise of options to be granted upon consummation of this offering,
which options shall vest in three equal annual installments commencing on
the first anniversary of the date of grant of such options.

(10) Includes 45,000 shares issuable upon exercise of the vested portion of
options to be granted upon consummation of this offering. Does not include
30,000 shares issuable upon exercise of options to be granted upon
consummation of this offering, which options shall vest one year from the
date of grant of such options.

(11) Includes 747,800 shares issuable upon exercise of currently exercisable
options and the vested portion of options to be granted upon consummation of
this offering referred to in notes (4), (5), (6), (7), (8), (9) and (10)
above.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except as described under "Management" and "Executive Compensation," the
Company has not engaged in any transactions with individuals who, at the time of
such transaction, were officers, directors, principal stockholders or affiliates
thereof during the three fiscal years ended June 30, 1997. In connection with
the appointment of A. Clinton Allen as a director of the Company, the Company
entered into a one-year renewable consulting agreement with Mr. Allen commencing
February 1998, pursuant to which Mr. Allen will receive $4,000 per month in
consideration for providing certain consulting services to the Company. Such
consulting agreement was approved by the Company's independent directors.

The Company intends that all future material affiliated transactions and
loans will be made or entered into on terms that are no less favorable to the
Company than those that can be obtained from unaffiliated third parties and that
all future material affiliated transactions and loans, and any forgiveness of
loans, must be approved by a majority of the Company's independent directors who
do not have an interest in the transactions and who had access, at the Company's
expense, to the Company's or independent legal counsel. In addition, the Company
has agreed to maintain at least two independent directors on its Board of
Directors.

DESCRIPTION OF SECURITIES

The following summary description of the Company's capital stock and
selected provisions of its Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by reference to the Company's Certificate of
Incorporation and Bylaws, copies of which have been filed with the Securities
and Exchange Commission (the "Commission") as exhibits to the Registration
Statement of which this Prospectus is a part.

COMMON STOCK

The Company is authorized to issue up to 37,500,000 shares of Common Stock,
par value $.008 per share, of which 2,212,596 shares are outstanding as of the
date hereof. Holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably, dividends when, as, and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is validly authorized and issued, fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue up to 239,430.42 shares of preferred
stock, par value $1,000 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion rights, redemption
rights and sinking fund provisions. The issuance of any such preferred stock
could adversely affect the rights of the holders of Common Stock and, therefore,
reduce the value of the Common Stock. The ability of the Board of Directors to
issue preferred stock could discourage, delay or prevent a takeover of the
Company. The Company has agreed that any future issuances of preferred stock
will not be offered to any promoters (which includes, among other individuals,
officers and directors of the Company) unless such preferred stock is issued to
all stockholders or, unless such issuance has been approved by the Company's
independent directors. See "Risk Factors -- Possible Adverse Effects Associated
with the Issuance of 'Blank Check' Preferred Stock."

SERIES A CONVERTIBLE PREFERRED STOCK

In May 1996, the Company authorized the issuance of 7,500 shares (of which
4,712 shares remain outstanding as of the date hereof) of 1996 Series A
Convertible Preferred Stock with a par value of $1,200 per share. The holders of
the Preferred Stock are not entitled to receive dividends and have no voting
rights. The Preferred Stock is convertible into a number of shares of Common
Stock determined by using a formula of "the premium plus $1,200, divided by the
conversion price." The premium as defined equates to an annual 10% deemed
dividend, and the conversion price is equal to the lesser of the Fixed Price (as
defined in the certificate of designation for the 1996 Series A Convertible
Preferred Stock) or 80% of the average closing bid price of Common Stock for the
five days immediately preceding the date of conversion, but in no event greater
than $15.00 per share, subject to adjustment upon the occurrence of certain
dilutive events. Up to 50% of the Preferred Stock was convertible commencing 45
days after issuance, and the balance was convertible commencing 70 days after
issuance. After June 1, 1999, the Company may require conversion. The Preferred
Stock has an aggregate liquidation preference of $7,362,500 plus the cumulative
10% deemed dividend.

Prior to June 30, 1997, the Company reached an agreement, which was
subsequently amended pursuant to an amendment dated November 30, 1997 (as
amended, the "Settlement Agreement") with the holders (the "Holders") of the
Preferred Stock (other than Halifax Fund, LP ("Halifax")), pursuant to which the
Holders agreed to refrain from all conversions of the Preferred Stock for
specified periods, and the Company agreed to issue to the Holders the Preferred
Warrants as described below and to amend the terms of the Preferred Stock by the
filing of an Amended Certificate of Designation (the "Amendment").

Pursuant to the terms of the Settlement Agreement, on June 26, 1997, each
Holder received 5,000 Preferred Warrants for each 100 shares of Preferred Stock
held as of June 26, 1997, an aggregate of 114,833 Preferred Warrants. The
Preferred Warrants, which are not redeemable by the Company, are exercisable at
a price per share of $6.00 and entitle the holder thereof to purchase one share
of Common Stock per Preferred Warrant. Of such Preferred Warrants, 50% are
exercisable after June 30, 1998 and the remaining 50% of the Preferred Warrants
are exercisable after June 30, 1999. The Preferred Warrants expire after June
30, 2006. In connection with the amendment executed on November 30, 1997, each
Holder received an additional 7,500 Warrants (the "Additional Warrants") for
each 100 shares of Preferred Stock held as of November 18, 1997. The Additional
Warrants, which are redeemable by the Company, are exercisable at a price per
share of $10.125 and entitle the holder thereof to purchase one share of Common
Stock per Additional Warrant. Of such Additional Warrants, fifty percent (50%)
are exercisable after December 1, 1998 and fifty percent (50%) are exercisable
after December 1, 1999. The Additional Warrants expire after November 30, 2007.

In consideration of the issuance of the Preferred Warrants as amended, and
subject to the terms and conditions set forth in the Settlement Agreement, each
Holder agreed (a) to give its proxy and its consent in favor of the Amendment
and (b) to refrain from any and all conversions of such Holder's Preferred
Stock, pursuant to the terms of the original Certificate of Designation, until
the earlier of February 12, 1998 or upon the occurrence of defaults on certain
dates ("Trigger Dates"). If the Company fails to comply with the Trigger Dates,
the Holder's right to convert its Preferred Stock shall be activated if and only
if a majority of the Holders as of such Trigger Date have collectively provided
appropriate written notice exercising such right. The Trigger Dates are
comprised of the following: (i) the repurchase of 10% of the aggregate number of
shares of Preferred Stock on December 15, 1997 for aggregate consideration of
$795,150; (ii) the printing of prospectuses relating to this offering by January
7, 1998; (iii) the holding of the Company's annual stockholders meeting by
January 7, 1998; (iv) commencement of a road show relating to this offering on
January 16, 1998; (v) the repurchase of 10% of the aggregate number of shares of
Preferred Stock on January 15, 1998 for aggregate consideration of $795,150; and
(vi) the redemption of the remaining shares of Preferred Stock by February 2,
1998 (subject in certain circumstances to extension, but in no event later than
February 12, 1998). To date, all such Trigger Dates have been met. While the
Company has received confirmation from a majority of the Holders that the date
of redemption has been extended until February 10, 1998, the Company has not
received confirmation from all of the Holders as to such extension and in the
event the Holders were to disagree with the Company, certain of the holders
might declare the Company to be in breach of the Settlement Agreement and could
attempt to convert their shares of Preferred Stock and/or reinstitute an action
against the Company which could have a material adverse effect on the Company
and the market price of the Common Stock. "See Risk Factors-- Risks Associated
with Preferred Stock Settlement Agreement."

The Amendment gives the Company the right to redeem the Preferred Stock
("Redemption") for payment of the following to the Holders: (i) cash in an
amount equal to One Thousand Three Hundred Fifty Dollars ($1,350) per share of
Preferred Stock (the "Redemption Price"); and (ii) interest at a rate of

twelve percent (12%) per annum on the Redemption Price from May 12, 1997 until
consummation of the Redemption.

The Amendment provides that the suspension of conversion rights would no
longer be effective and the right to convert the Preferred Stock shall be
effective commencing on and after February 12, 1998, in accordance with the
terms set forth in the Amended Certificate of Designations. In addition,
pursuant to the Settlement Agreement, each Holder agreed to refrain from
conversions of the Preferred Stock until the earlier of February 12, 1998 or
certain other specified dates.

On June 30, 1997, the Company agreed to convert 1,000 shares of Preferred
Stock owned by Halifax and issued to Halifax 300,000 shares of the Company's
Common Stock and concluded the Settlement Agreement with the Holders. The
Company assisted in locating EC Capital, Inc., a market maker in the Company's
securities as a purchaser for the Common Stock received by Halifax upon
conversion of its Preferred Stock. Halifax's Common Stock was purchased for an
aggregate price of $1,500,000, comprised of $1,350 per share for each share of
Preferred Stock, plus $150,000 for reimbursement of attorneys' fees. The Company
issued to Halifax 5,000 Class C Warrants for each 100 shares of Preferred Stock
held by Halifax. In the event that the Company settles with any other Holder of
Preferred Stock on terms which Halifax in its sole discretion believes are
better than those received by Halifax in the settlement, Halifax has the right
to elect the alternative settlement. Upon the consummation of this offering, the
Company intends to utilize funds available under the Credit Line to redeem the
Preferred Stock which, based upon an assumed redemption date of February 10,
1998, would have an aggregate redemption price of approximately $7,086,635.

SERIES B PREFERRED STOCK

In September 1997, the Company authorized the issuance of 3,069.58 shares
(all of which shares remain outstanding as of the date hereof) of 1997 Series B
Preferred Stock with a par value of $.01 per share. The holders of the Series B
Preferred Stock are not entitled to receive dividends and have no voting rights.
Each share of the Series B Preferred Stock is convertible at any time into
approximately 33 1/3 shares of Common Stock, subject to adjustment under certain
circumstances.

CLASS A WARRANTS

The Company currently has outstanding publicly-traded Class A Warrants to
purchase up to 411,127 shares of Common Stock at an exercise price of $7.50 per
share at any time until October 22, 1998. Each holder thereof is entitled to
purchase one share of Common Stock for each nine Class A Warrants and payment of
$7.50. The Class A Warrants contain anti-dilution provisions providing for
adjustment of the exercise price and the number of shares of Common Stock
underlying the Class A Warrants upon the occurrence of certain events. The Class
A Warrants are redeemable by the Company, upon proper notice, at a redemption
price of $.30 per share, until October 1998, after a period of at least ten
consecutive business days on which the closing high bid price for the Common
Stock as reported on the Nasdaq SmallCap Market, or, the closing sales price, if
the Common Stock is listed on an exchange or reporting system that provides last
sales prices, equals or exceeds 120% of the then current exercise price of the
Class A Warrants.

CLASS B WARRANTS

The Company currently has outstanding publicly-traded Class B Warrants to
purchase up to 493,983 shares of Common Stock at an exercise price of $9.75 per
share at any time until October 22, 1998. Each holder thereof is entitled to
purchase one share of Common Stock for each nine Class B Warrants and payment of
$9.75. The Class B Warrants contain anti-dilution provisions providing for
adjustment of the exercise price and the number of shares of Common Stock
underlying the Class B Warrants upon the

occurrence of certain events. The Class B Warrants are redeemable by the Company
upon the same terms as the Class A Warrants.

CLASS C WARRANTS

The Company currently has outstanding Class C Warrants to purchase up to
16,567 shares of Common Stock at exercise prices ranging from $9.78 to $16.875
per share at any time until January 15, 2000. The Class C Warrants contain
anti-dilution provisions providing for adjustment of the exercise price and the
number of shares of Common Stock underlying the Class C Warrants upon the
occurrence of certain events. The Class C Warrants were issued in connection
with a private financing by the Company.

PREFERRED WARRANTS

The Company currently has outstanding Preferred Warrants to purchase up to
262,083 shares of Common Stock at exercise prices ranging from $6.00 to $10.125
per share at any time until June 25, 2007. The Company issued such Preferred
Warrants in connection with the settlement with the Holders. The Preferred
Warrants contain anti-dilution provisions providing for adjustment of the
exercise price and the number of shares of Common Stock underlying the Preferred
Warrants upon the occurrence of certain events. The Preferred Warrants also
entitle the holders to certain "piggyback" registration rights with respect to
the shares issuable upon exercise thereof at any time that the Company files a
registration statement other than one relating solely to the sale of securities
to participants in a Company employee benefit plan, one not including
substantially the same information as would be required to be included in a
registration statement covering the sale of such Common Stock, or one only
registering Common Stock issuable upon conversion of convertible debt securities
which are also being registered.

GRUNTAL WARRANTS

In connection with this offering, the Company has agreed to issue to Gruntal
the Gruntal Warrants. The Gruntal Warrants will be exercisable for a period of
four years commencing one year after the closing of this offering. Gruntal and
its designees are entitled to certain registration rights under the Securities
Act relating to the shares of Common Stock received upon the exercise of the
Gruntal Warrants. The Gruntal Warrants may not be sold, transferred, assigned,
pledged or hypothecated during the first year after issuance, except to the
Underwriters and persons who are officers and partners thereof. The exercise
price and the number of shares of Common Stock that may be purchased are subject
to adjustment pursuant to anti-dilution provisions of the Gruntal Warrants.

TRANSFER AGENT

Upon consummation of this offering, American Stock Transfer and Trust
Company will be the Transfer Agent for the Company's Common Stock and registrar
for the Company's publicly-traded warrants.

DIRECTORS' LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation includes provisions which
eliminate the personal liability of directors for monetary damages resulting
from breaches of their fiduciary duty (except for liability for breaches of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under Section
174 of the DGCL or for any transaction from which the director derived an
improper personal benefit). The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.

Section 145 of the DGCL permits indemnification by a corporation of certain
officers, directors, employees and agents.

The Company's Bylaws provide that the Company will indemnify each of its
directors and officers with respect to all liability and loss suffered and
expenses incurred by such person in any action, suit or proceeding in which such
person was or is made or threatened to be made a party or is otherwise involved

by reason of the fact that such person is or was a director or officer of the
Company. The Company is also obligated to pay the expenses of the directors and
officers incurred in defending such proceedings, subject to reimbursement if it
is subsequently determined that such person is not entitled to indemnification.

The Company maintains a policy of insurance under which the directors and
officers of the Company will be insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in their
respective capacities as directors or officers, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

DELAWARE ANTI-TAKEOVER LAW

The Company is subject to Section 203 of the DGCL ("Section 203"), which,
subject to certain exceptions and limitations, prohibits a Delaware corporation
from engaging in any "business combination" with any "interested stockholder"
for a period of three years following the date that such stockholder became an
interested stockholder, unless: (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (for the purposes of determining the number of shares outstanding
under the DGCL, those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer are excluded from the
calculation); or (iii) on or subsequent to such date, the business combination
is approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.

For purposes of Section 203, a "business combination" includes (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

SHARES ELIGIBLE FOR FUTURE SALE

owners of options to acquire 422,800 shares of Common Stock at an exercise price
of $.03 per share have agreed not to sell the shares issuable upon exercise of
such options for a period of 24 months after this offering, and the beneficial
owners of options to acquire 200,000 shares of Common Stock at an exercise price
of $4.50 per share have agreed not to sell the shares issuable upon exercise of
such options for a period of 24 months after this offering unless, in the case
of the owners of the options to acquire 200,000 shares of Common Stock, they are
no longer employed by the Company prior to the end of such 24 month period, such
restriction shall cease, but in no event shall such restriction be less than 12
months after this offering.

In general, under Rule 144, as currently in effect, a person (including a
person who may be deemed an "affiliate" of the Company as that term is defined
under the Securities Act) who has beneficially owned such shares for at least
one year would be entitled to sell within any three-month period a number of
shares beneficially owned for at least one year that do not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are further subject to certain
restrictions relating to the manner of sale, notice and the availability of
current public information about the Company. After two years have elapsed from
the date of the issuance of restricted securities by the Company or their
acquisition from an affiliate, such shares may be sold without limitation by
persons who have not been affiliates of the Company for at least three months.

The Company has reserved from the authorized, but unissued, Common Stock,
2,967,086 shares of Common Stock issuable upon exercise of options, warrants and
convertible securities. The sale of shares by the holders of approximately
1,269,513 of such options, warrants and convertible securities have been
included in registration statements filed with the Securities and Exchange
Commission, the sale of which could adversely affect the market price of the
Common Stock. The existence of such outstanding securities may prove to be a
hindrance to future financings, since the holders of such securities may be
expected to exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company. See
"Description of Securities."

The sale, or availability for sale, of substantial amounts of Common Stock
in the public market subsequent to this offering pursuant to Rule 144 or
otherwise could materially adversely affect the market price of the Common Stock
and could impair the Company's ability to raise additional capital through the
sale of its equity securities or debt financing.

The holders of the Gruntal Warrants will have certain demand and "piggyback"
registration rights with respect to the shares of Common Stock underlying such
warrants, commencing one year after the effective date of this offering. See
"Underwriting."

If Gruntal should exercise registration rights to effect the distribution of
the securities underlying the Gruntal Warrants, it will be unable to make an
active market in the Company's securities prior to and during such distribution.
If it ceases making a market in the Common Stock, the market and market prices
for the Common Stock may be materially adversely affected, and holders thereof
may be unable to sell or otherwise dispose of the Common Stock. See "Description
of Securities" and "Underwriting."

No prediction can be made as to the effect, if any, that sales of such
securities, or the availability of such securities for sale, will have on the
market prices prevailing from time to time for the Common Stock. However, even
the possibility that a substantial number of the Company's securities may, in
the near future, be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Risk
Factors--Shares Eligible For Future Sale; Effect of Previously Issued Options
and Warrants; Registration Rights" and "Underwriting."

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell an aggregate of 3,000,000 shares of Common Stock
to the Underwriters named below, for whom Gruntal and Hampshire Securities
Corporation ("Hampshire") are acting as the representatives, and the
Underwriters have severally agreed to purchase the number of shares of Common
Stock set forth opposite their respective names in the table below at the
offering price, less underwriting discounts set forth on the cover page of this
Prospectus.

UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------

Gruntal & Co., L.L.C........................................................................... 1,125,000
Hampshire Securities Corporation............................................................... 1,125,000
CIBC Oppenheimer............................................................................... 62,500
Hambrecht & Quist.............................................................................. 62,500
Lehman Brothers................................................................................ 62,500
Nationsbanc Montgomery Securities LLC.......................................................... 62,500
Brean Murray & Co., Inc........................................................................ 31,250
Cruttenden Roth Incorporated................................................................... 31,250
EVEREN Securities, Inc......................................................................... 31,250
Gabelli & Co., Inc............................................................................. 31,250
Gerard Klauer Mattison & Co., Inc.............................................................. 31,250
Hanifen, Imhoff Inc............................................................................ 31,250
Jefferies & Company, Inc....................................................................... 31,250
Mesirow Financial.............................................................................. 31,250
Morgan Keegan & Company, Incorporated.......................................................... 31,250
Needham & Company, Inc......................................................................... 31,250
Pennsylvania Merchant Group Ltd. .............................................................. 31,250
Punk, Ziegel & Company......................................................................... 31,250
C.E. Unterberg, Towbin......................................................................... 31,250
Van Kasper & Company........................................................................... 31,250
H.C. Wainwright & Co., Inc..................................................................... 31,250
McGinn, Smith & Co., Inc....................................................................... 31,250
-----------------
Total...................................................................................... 3,000,000

The Underwriting Agreement provides that the obligation of the Underwriters
to purchase the shares of Common Stock is subject to certain conditions. The
Underwriters are committed to purchase all of the shares of the Common Stock
(other than those covered by the over-allotment option described below), if any
are purchased. Gruntal is currently negotiating with Hampshire to acquire
certain assets of Hampshire for an undisclosed amount. In anticipation of such
transaction, certain employees of Hampshire, including the principal members of
Hampshire's investment banking group, have joined Gruntal.

The Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of $0.22 per
share. The Underwriters may allow, and such dealers reallow, a concession of not
more than $0.10 per share to certain other dealers. After this offering, the
public offering price, the concession to selected dealers and the reallowance to
other dealers may be changed by the representatives.

The Company has agreed to pay Gruntal a non-accountable expense allowance
equal to 3% of the gross proceeds received by the Company from the sale of the
3,000,000 shares of Common Stock offered hereby, of which $50,000 has already
been paid. The Company has also agreed to pay certain of the Underwriters'
expenses in connection with this offering, including expenses in connection with
qualifying the shares offered hereby for sale under the laws of such states as
the Underwriters may designate and the

placement of tombstone advertisements. The Company has also granted to Gruntal
and its designees, for nominal consideration, five-year warrants to purchase
from the Company up to 300,000 shares of Common Stock at an exercise price per
share equal to 140% of the public offering price per share, exercisable for the
four year period commencing one year after the date of this Prospectus. The
Gruntal Warrants may not be sold, transferred, assigned, pledged or hypothecated
during the first year after issuance, except to members of the selling group and
persons who are officers and partners thereof. The Gruntal Warrants contain
anti-dilution provisions upon the occurrence of certain events, including stock
dividends, stock splits and recapitalizations, and grant registration rights to
the holders thereof at the expense of the Company, at the request of the holders
of a majority thereof (on no more than one occasion) during the four-year period
beginning on the first anniversary of the date of this Prospectus and
"piggyback" registration rights (on no more than one occasion). See "Description
of Securities--Gruntal Warrants."

The Company has also granted to the Underwriters, exercisable for 45 days
from the date of this Prospectus, an option to purchase up to 450,000 additional
shares of Common Stock at the public offering price less the underwriting
discount. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase additional shares of
Common Stock proportionate to such Underwriter's initial commitment as indicated
in the preceding table. The Underwriters shall exercise such right of purchase
only for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of Common Stock.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.

The Company, its directors and officers, and certain stockholders of the
Company, beneficially owning an aggregate of 483,922 shares of Common Stock
prior to the offering (including shares of Common Stock issuable upon exercise
of options), have agreed with the Underwriters not to publicly sell or otherwise
dispose of any of their shares of Common Stock or securities exercisable for or
convertible into shares of Common Stock for a period of 12 months after the date
of the Prospectus without the prior written consent of Gruntal. In addition, the
beneficial owners of options to acquire 422,800 shares of Common Stock at an
exercise price of $.03 per share have agreed not to sell the shares issuable
upon exercise of such options for a period of 24 months after this offering, and
the beneficial owners of options to acquire 200,000 shares of Common Stock at an
exercise price of $4.50 per share have agreed not to sell the shares issuable
upon exercise of such options for a period of 24 months after this offering
unless, in the case of the owners of the options to acquire 200,000 shares of
Common Stock, they are no longer employed by the Company prior to the end of
such 24 month period, such restriction shall cease, but in no event shall such
restriction be less than 12 months after this offering.

In connection with this offering, certain Underwriters may engage in passive
market-making transactions in the Common Stock on the Nasdaq SmallCap Market
immediately prior to the commencement of sales in this offering, in accordance
with Rule 103 under Regulation M. Passive market-making consists of displaying
bids on the Nasdaq SmallCap Market limited by the bid prices of independent
market makers for a security and making purchases of a security which are
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market-making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.

During and after this offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect

of the Common Stock sold in this offering for their account may be reclaimed by
the syndicate if such shares are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock which may be higher than the price
that might otherwise prevail in the open market. Neither the Company nor any of
the Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
at any time.

OBSERVER TO THE BOARD

In connection with this offering, the Company has agreed that, until the
third anniversary of the date of this Prospectus, Gruntal may appoint an
observer to attend all meetings of the Company's Board of Directors. The
observer will be entitled to reimbursement of reasonable and accountable
out-of-pocket expenses for attendance at those meetings. In addition, the
observer will be entitled to indemnification to the same extent as the Company's
directors.

LEGAL MATTERS

The validity of the shares offered hereby and certain other legal matters
will be passed upon for the Company by Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, New York, New York. Certain legal matters in connection with the offering
will be passed upon for the Underwriters by Morrison Cohen Singer & Weinstein,
LLP, New York, New York. Squadron, Ellenoff, Plesent & Sheinfeld, LLP, has
represented Hampshire on certain other matters.

EXPERTS

The financial statements of the Company included in this Prospectus as of
and for the year ended June 30, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

The financial statements of the Company included in this Prospectus as of
and for the years ended June 30, 1996 and 1995 have been audited by Fishbein &
Company, PC, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

The financial statements of Triple A and Jupiter included in this Prospectus
as of and for the years ended December 31, 1996 and 1995 have been audited by
Terry H. Jones, CPA, independent auditor, as stated in his report appearing
herein, and are included in reliance upon the report of such person given upon
his authority as an expert in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files periodic reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, NW, Washington, DC 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Electronic filings made via EDGAR
are publicly available through the Commission's Web site at http://www.sec.gov.
Copies of such material can be obtained from the Public Reference Section of the
Commission, Room 1024, 450 Fifth Street, NW Washington, DC 20549 at prescribed
rates. In addition, reports and other information concerning the Company may be
inspected at the offices of the NASD, 1735 K Street, NW, Washington, DC 20006.

The Company has filed Registration Statements on Form SB-2 (herein, together
with all amendments and exhibits, referred to as the "Registration Statement")
with the Commission under the Securities Act, with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement which may be examined without charge at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, NW, Washington, DC 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or document referred to herein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.

INDEX TO FINANCIAL STATEMENTS

PAGE
---------

RESPONSE USA, INC. AND SUBSIDIARIES

Independent Auditors' Report for the Fiscal Year Ended June 30, 1997....................................... F-2
Independent Auditors' Report for the Fiscal Years Ended June 30, 1995 and June 30, 1996.................... F-3
Consolidated Balance Sheets at June 30, 1996 and June 30, 1997 and September 30, 1997 (unaudited).......... F-4
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 1995, June 30, 1996 and June 30,
1997 and the three months ended September 30, 1996 (unaudited) and September 30, 1997 (unaudited)........ F-6
Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended June 30, 1995, June 30, 1996 and
June 30, 1997 and the three months ended September 30, 1997 (unaudited).................................. F-7
Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30, 1995, June 30, 1996 and June 30,
1997 and the three months ended September 30, 1996 (unaudited) and September 30, 1997 (unaudited)........ F-9
Notes to Consolidated Financial Statements................................................................. F-13

TRIPLE A SECURITY SYSTEMS, INC.

Independent Auditors' Report............................................................................... F-34
Balance Sheets at September 30, 1997, December 31, 1996 and December 31, 1995.............................. F-35
Statements of Income and Retained Earning for the Nine Months Ended September 30, 1997 and September 30,
1996 and for the Years Ended December 31, 1996 and December 31, 1995..................................... F-36
Statements of Cash Flows for the Nine Months Ended September 30, 1997 and September 30, 1996 and for the
Years Ended December 31, 1996 and December 31, 1995...................................................... F-37
Notes to Financial Statements.............................................................................. F-38

THE JUPITER GROUP, INC.

Independent Auditors' Report............................................................................... F-46
Balance Sheets at September 30, 1997, December 31, 1996 and December 31, 1995.............................. F-47
Statements of Income and Retained Earnings for the Nine Months Ended September 30, 1997 and September 30,
1996 and for the Years Ended December 31, 1996 and December 31, 1995..................................... F-48
Statements of Cash Flows for the Nine Months Ended September 30, 1997 and September 30, 1996 and for the
Years Ended December 31, 1996 and December 31, 1995...................................................... F-49
Notes to Financial Statements.............................................................................. F-50

PRO FORMA FINANCIAL INFORMATION--RESPONSE USA, INC. AND SUBSIDIARIES

Unaudited Pro Forma Financial Statements................................................................... F-54
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 1997............................. F-55
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Three Months Ended September 30,
1997..................................................................................................... F-56
Unaudited Condensed Consolidated Statement of Operations for the Fiscal Year Ended June 30, 1997........... F-57
Notes to Unaudited Pro Forma Financial Statements.......................................................... F-58

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors of Response USA, Inc.:

We have audited the accompanying consolidated balance sheet of Response USA,
Inc. as of June 30, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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 used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1997 and the
results of its operations and cash flows for the year then ended, in conformity
with generally accepted accounting principles.

As discussed in Note 16, the accompanying financial statements give effect
to a one-for-three reverse stock split effective January 9, 1998.

Deloitte & Touche LLP
Philadelphia, Pennsylvania
October 8, 1997 (January 9, 1998 as to the second to the last paragraph of Note
16)

F-2

INDEPENDENT AUDITOR'S REPORT

Stockholders and Directors

Response USA, Inc. and Subsidiaries

Lawrenceville, New Jersey

We have audited the consolidated balance sheet of RESPONSE USA, INC. AND
SUBSIDIARIES as of June 30, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Response USA, Inc. and Subsidiaries as of June 30, 1996, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.

As discussed in Note 9, the Company has retroactively reclassified an amount
from the preferred stock account into additional paid-in capital. In addition,
the financial statements give effect to the one-for-three reverse stock split
described in Note 16.

FISHBEIN & COMPANY, P.C.

Elkins Park, Pennsylvania

August 22, 1996 (January 9, 1998

as to the last paragraph hereof)

F-3

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

AT JUNE 30,
---------------------------- SEPTEMBER 30,
1996 1997 1997
------------- ------------- -------------

ASSETS (UNAUDITED)
CURRENT ASSETS
Cash.............................................................. $ 1,926,766 $ 698,551 $ 682,813
Marketable securities............................................. 100,000 75,000 56,250
Accounts receivable--Current portion
Trade--Net of allowance for doubtful accounts of $327,072,
$437,208 and $373,432, respectively........................... 1,461,911 1,443,203 1,580,791
Net investment in sales-type leases............................. 125,385 89,124 88,443
Preferred Stock subscription receivable........................... 6,525,000
Inventory......................................................... 652,551 798,814 829,453
Prepaid expenses and other current assets......................... 118,689 271,087 446,524
------------- ------------- -------------
Total current assets.......................................... 10,910,302 3,375,779 3,684,274
------------- ------------- -------------
MONITORING CONTRACT COSTS--Net of accumulated amortization of
$2,838,374, $5,217,345 and $5,872,197, respectively............... 16,950,387 18,433,133 18,045,284
------------- ------------- -------------
PROPERTY AND EQUIPMENT--Net of accumulated depreciation and
amortization of $1,862,915, $2,363,067 and $2,466,951,
respectively...................................................... 1,261,007 1,512,077 1,522,023
------------- ------------- -------------
OTHER ASSETS
Accounts receivable--Noncurrent portion
Trade........................................................... 29,421 49,046 37,006
Net investment in sales-type leases............................. 323,817 179,752 165,067
Deposits.......................................................... 48,008 45,310 45,935
Investment in joint venture....................................... 3,139,484 2,963,096
Deferred compensation expense..................................... 892,500 517,500
Deferred financing costs--Net of accumulated amortization of
$111,945, $254,154 and $556,131, respectively................... 3,411,803 3,612,727 3,316,249
------------- ------------- -------------
3,813,049 7,918,819 7,044,853
------------- ------------- -------------
$ 32,934,745 $ 31,239,808 $ 30,296,434
------------- ------------- -------------
------------- ------------- -------------

See notes to consolidated financial statements

F-4

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)

AT JUNE 30,
------------------------------

SEPTEMBER 30,
1996 1997 1997
-------------- -------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)

CURRENT LIABILITIES
Current portion of long-term debt
Notes payable................................................. $ 194,914 $ 100,329 $ 104,956
Capitalized lease obligations................................. 51,064 57,453 52,859
Accounts payable--Trade......................................... 424,921 556,205 738,909
Purchase holdbacks.............................................. 646,976 415,765 571,120
Accrued expenses and other current liabilities.................. 2,033,701 1,288,332 1,076,485
Deferred revenue................................................ 1,591,103 1,981,500 1,981,698
-------------- -------------- -------------
Total current liabilities................................... 4,942,679 4,399,584 4,526,027
-------------- -------------- -------------
LONG-TERM LIABILITIES--Net of current portion
Long-term debt
Notes payable................................................. 12,374,607 12,435,287 12,872,584
Capitalized lease obligations................................. 31,189 85,435 72,412
Put obligation payable.......................................... 2,580,338
Deferred compensation expense................................... 2,550,000 1,725,000
-------------- -------------- -------------
14,986,134 15,070,722 14,669,996
-------------- -------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY
Preferred Stock--Par value $1,000
Authorized 250,000 shares
Issued and outstanding 7,500 shares--June 30, 1996
Issued and outstanding 6,890 shares--June 30, 1997
Issued and outstanding 5,890 shares--September 30, 1997..... 1,605,000 7,757,783 6,818,055
Preferred stock--Series B--Par value $.01
Authorized 3,069.58 shares
Issued and outstanding 3,069.58 shares--September 30,
1997...................................................... 31
Common Stock--Par value $.008
Authorized 12,500,000 shares
Issued and outstanding 1,284,982 shares--June 30, 1996;
1,769,736 shares--June 30, 1997;
2,189,301 shares--September 30, 1997........................ 10,280 14,158 17,515
Additional paid-in capital...................................... 24,971,800 35,439,510 36,755,462
Unrealized holding losses on available-for-sale securities...... (193,343) (18,750)
Accumulated deficit............................................. (13,387,805) (31,441,949) (32,471,902)
-------------- -------------- -------------
13,005,932 11,769,502 11,100,411
-------------- -------------- -------------
$ 32,934,745 $ 31,239,808 $ 30,296,434
-------------- -------------- -------------
-------------- -------------- -------------

See notes to consolidated financial statements

F-5

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED JUNE 30, THREE MONTHS ENDED
-------------------------------------- SEPTEMBER 30,
1995 1996 1997 -----------------------------
----------- ----------- ------------ 1996 1997
-------------- -------------
(UNAUDITED) (UNAUDITED)

OPERATING REVENUES
Product sales........................... $ 4,520,062 $ 2,352,449 $ 2,938,618 $ 656,128 $ 662,846
Monitoring and service.................. 4,812,474 8,515,247 9,784,285 2,386,239 2,585,038
----------- ----------- ------------ -------------- -------------
9,332,536 10,867,696 12,722,903 3,042,367 3,247,884
----------- ----------- ------------ -------------- -------------
COST OF REVENUES
Product sales........................... 2,635,674 1,718,689 1,970,158 451,535 398,442
Monitoring and service.................. 1,125,123 1,779,490 2,127,257 747,025 768,739
----------- ----------- ------------ -------------- -------------
3,760,797 3,498,179 4,097,415 1,198,560 1,167,181
----------- ----------- ------------ -------------- -------------
GROSS PROFIT.............................. 5,571,739 7,369,517 8,625,488 1,843,807 2,080,703
----------- ----------- ------------ -------------- -------------
OPERATING EXPENSES
Selling, general and administrative..... 6,327,622 6,416,486 9,126,641 1,421,984 1,615,635
Compensation--Options/Employment
contracts............................. 3,689,700 862,500 (450,000)
Litigation settlement................... 240,000
Recovery of termination benefits cost... (392,699)
Recovery of restructuring charges....... (52,920)
Depreciation and amortization........... 1,302,208 2,200,894 2,976,433 662,719 837,539
Interest................................ 1,220,618 3,185,603 1,349,480 503,470 643,780
----------- ----------- ------------ -------------- -------------
8,644,829 11,802,983 17,142,254 3,450,673 2,646,954
----------- ----------- ------------ -------------- -------------
LOSS FROM OPERATIONS...................... (3,073,090) (4,433,466) (8,516,766) (1,606,866) (566,251)
----------- ----------- ------------ -------------- -------------
OTHER INCOME/(EXPENSE)
Interest income......................... 42,260 21,568 12,176 7,939 1,708
Joint venture loss...................... (123,325) (130,138)
----------- ----------- ------------ -------------- -------------
42,260 21,568 (111,149) 7,939 (128,430)
----------- ----------- ------------ -------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM............ (3,030,830) (4,411,898) (8,627,915) (1,598,927) (694,681)
EXTRAORDINARY ITEM
Loss on debt extinguishment............. 2,549,708 2,549,708
----------- ----------- ------------ -------------- -------------
NET LOSS.................................. (3,030,830) (4,411,898) (11,177,623) (4,148,635) (694,681)
Dividends and accretion on preferred
stock................................... (6,876,521) (6,125,549) (335,272)
----------- ----------- ------------ -------------- -------------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS............................ $(3,030,830) $(4,411,898) $(18,054,144) $ (10,274,184) $ (1,029,953)
----------- ----------- ------------ -------------- -------------
----------- ----------- ------------ -------------- -------------
Loss per common share
Loss before extraordinary item.......... $ (15.07) $ (8.61) $ (5.80) $ (1.23) $ (.33)
Extraordinary item...................... (1.71) (1.96) --
----------- ----------- ------------ -------------- -------------
Net loss................................ $ (15.07) $ (8.61) $ (7.51) $ (3.19) $ (.33)
----------- ----------- ------------ -------------- -------------
----------- ----------- ------------ -------------- -------------
Net loss applicable to common
shareholders.......................... $ (15.07) $ (8.61) $ (12.14) $ (7.89) $ (.48)
----------- ----------- ------------ -------------- -------------
----------- ----------- ------------ -------------- -------------
Weighted average number of shares
outstanding............................. 201,064 512,179 1,487,574 1,302,284 2,132,533
----------- ----------- ------------ -------------- -------------
----------- ----------- ------------ -------------- -------------

See notes to consolidated financial statements

F-6

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

UNREALIZED
PREFERRED STOCK HOLDING
PREFERRED STOCK SERIES B COMMON STOCK LOSSES ON
---------------------- ---------------------- -------------------- ADDITIONAL AVAILABLE-
NUMBER NUMBER NUMBER PAID-IN FOR-SALE ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL SECURITIES DEFICIT
----------- --------- ----------- --------- --------- --------- ---------- ----------- ------------

Balance--June 30,
1994.............. 112,666 $ 901 $7,897,290 $(5,945,077)
Issuance of
warrants.......... 2,920
Conversion of
convertible
subordinated
promissory notes--
net of related
costs of
$318,848.......... 65,416 524 2,118,128
Acquisitions........ 88,090 705 1,424,278
Unrealized holding
losses on
available-for-sale
securities........ (68,343)
Net loss............ (3,030,830)
----------- --------- ----- --------- --------- --------- ---------- ----------- ------------
Balance--June 30,
1995.............. 266,172 2,130 11,442,616 (68,343) (8,975,907)
Exercise of stock
options and
warrants.......... 485,100 3,880 4,428,863
Conversion of
convertible
subordinated
promissory notes--
Net of related
costs of
$383,088.......... 372,329 2,979 2,848,933
Acquisitions........ 103,015 824 819,734
Issuance of common
stock for
consulting
services.......... 667 5 8,120
Issuance of common
stock as payment
of notes
payable........... 57,699 462 666,659
Sale of preferred
stock............. 7,500 $1,605,000 4,756,875
Unrealized holding
losses on
available-for-sale
securities........ (125,000)
Net loss............ (4,411,898)
----------- --------- ----- --------- --------- --------- ---------- ----------- ------------
Balance--June 30,
1996.............. 7,500 1,605,000 1,284,982 10,280 24,971,800 (193,343) (13,387,805)
Accretion on
preferred stock... 5,895,000 (5,895,000)
Discount on and
deemed dividends
on preferred
stock............. 876,521 (876,521)
Exercise of stock
options and
warrants.......... 55,650 445 407,508
Issuance of warrants
to consultants in
connection with
the exercise of
warrants.......... 689,000
Repricing of stock
purchase
warrants.......... 2,848,765
Conversion of
convertible
subordinated
promissory notes--
Net of related
costs of $5,068... 3,704 30 44,902
Acquisitions........ 13,900 111 74,889
Issuance of stock
options........... 2,032,200

TOTAL
----------

Balance--June 30,
1994.............. $1,953,114
Issuance of
warrants.......... 2,920
Conversion of
convertible
subordinated
promissory notes--
net of related
costs of
$318,848.......... 2,118,652
Acquisitions........ 1,424,983
Unrealized holding
losses on
available-for-sale
securities........ (68,343)
Net loss............ (3,030,830)
----------
Balance--June 30,
1995.............. 2,400,496
Exercise of stock
options and
warrants.......... 4,432,743
Conversion of
convertible
subordinated
promissory notes--
Net of related
costs of
$383,088.......... 2,851,912
Acquisitions........ 820,558
Issuance of common
stock for
consulting
services.......... 8,125
Issuance of common
stock as payment
of notes
payable........... 667,121
Sale of preferred
stock............. 6,361,875
Unrealized holding
losses on
available-for-sale
securities........ (125,000)
Net loss............ (4,411,898)
----------
Balance--June 30,
1996.............. 13,005,932
Accretion on
preferred stock... 0
Discount on and
deemed dividends
on preferred
stock............. 0
Exercise of stock
options and
warrants.......... 407,953
Issuance of warrants
to consultants in
connection with
the exercise of
warrants.......... 689,000
Repricing of stock
purchase
warrants.......... 2,848,765
Conversion of
convertible
subordinated
promissory notes--
Net of related
costs of $5,068... 44,932
Acquisitions........ 75,000
Issuance of stock
options........... 2,032,200

F-7

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(CONTINUED)

Investment in joint
venture........... 364,721 2,918 3,297,082
Conversion of
preferred stock... (610) (618,738) 63,446 508 618,230
Issuance of warrants
to preferred
shareholders...... 105,000 (105,000)
Issuance of warrants
in connection with
the obtaining
preferred stock... 350,000
Cancellation of
common stock held
in escrow......... (16,667) (134) 134
Unrealized holding
losses on
available-for-sale
securities........ 193,343
Net loss............ (11,177,623)
----------- --------- ----- --------- --------- --------- ---------- ----------- ------------
Balance--June 30,
1997.............. 6,890 7,757,783 1,769,736 14,158 35,439,510 0 (31,441,949)
Exercise of stock
options........... 12,069 97 82,324
Exercise of warrants
to lender......... 3,070 $ 31 107,263 858 (889)
Discount on and
deemed dividends
on preferred
stock............. 185,272 (185,272)
Conversion of
preferred stock... (1,000) (1,125,000) 300,000 2,400 1,272,600 (150,000)
Issuance costs
incurred in
connection with
the preferred
stock
settlement........ (38,081)
Acquisitions--
pursuant to stock
price
guarantees........ 233 2 (2)
Unrealized holding
losses on
available-for-sale
securities........ (18,750)
Net loss............ (694,681)
----------- --------- ----- --------- --------- --------- ---------- ----------- ------------
Balance--September
30, 1997
(unaudited)....... 5,890 $6,818,055 3,070 $ 31 2,189,301 $ 17,515 $36,755,462 $ (18,750) ($32,471,902)
----------- --------- ----- --------- --------- --------- ---------- ----------- ------------
----------- --------- ----- --------- --------- --------- ---------- ----------- ------------

TOTAL
----------

Investment in joint
venture........... 3,300,000
Conversion of
preferred stock... 0
Issuance of warrants
to preferred
shareholders...... 0
Issuance of warrants
in connection with
the obtaining
preferred stock... 350,000
Cancellation of
common stock held
in escrow......... 0
Unrealized holding
losses on
available-for-sale
securities........ 193,343
Net loss............ (11,177,623)
----------
Balance--June 30,
1997.............. 11,769,502
Exercise of stock
options........... 82,421
Exercise of warrants
to lender......... 0
Discount on and
deemed dividends
on preferred
stock............. 0
Conversion of
preferred stock... 0
Issuance costs
incurred in
connection with
the preferred
stock
settlement........ (38,081)
Acquisitions--
pursuant to stock
price
guarantees........ 0
Unrealized holding
losses on
available-for-sale
securities........ (18,750)
Net loss............ (694,681)
----------
Balance--September
30, 1997
(unaudited)....... $11,100,411
----------
----------

See notes to consolidated financial statements

F-8

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------- ----------------------
1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ---------

(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss........................................ $(3,030,830) ($4,411,898) ($11,177,623) $(4,148,635) $(694,681)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of monitoring contract costs..... 959,574 1,765,744 2,378,969 546,024 654,851
Depreciation and amortization of property and
equipment................................... 342,634 435,150 547,464 116,695 136,438
Gain on sale of monitoring contracts.......... (91,663)
(Gain)/Loss on sale of property and
equipment................................... 13,177 39,851 15,389 11,319 (2,489)
Loss on available-for-sale securities......... 218,343
Amortization of deferred financing costs and
debt discount............................... 87,594 85,324 389,674 401,264 301,477
Amortization of goodwill (see Note 3)......... 50,000 46,250
Interest accrued and added to long-term notes
payable..................................... 14,804
Restructuring charges......................... 140,691
Loss on joint venture......................... 123,325 130,138
Issuance of common stock for interest on note
payable..................................... 11,849
Issuance of common stock for consulting
fees........................................ 8,125
Issuance of warrants for consulting fees...... 689,000 106,000
Compensation expense benefit in connection
with the issuance of stock options and
employment agreements....................... 3,689,700 862,500 (450,000)
(Increase) decrease in accounts receivable
Trade....................................... (156,123) (330,830) (29,004) (445,179) (125,546)
Net investment in sales-type leases......... (96,354) 31,344 53,843 (3,006) 15,365
Decrease in income tax refunds receivable..... 109,000
(Increase) decrease in notes
receivable--Related party................... (50,000) 50,000
(Increase) decrease in inventory.............. 180,351 (171) (146,263) (155,712) (30,639)
(Increase) decrease in prepaid expenses and
other current assets........................ 57,375 (13,203) (152,397) 3,869 (175,436)
(Increase) decrease in deposits............... (2,270) 9,014 2,697 (3,702) (625)
Increase (decrease) in accounts
payable--Trade.............................. (30,033) (78,479) 130,672 101,575 4,331
Decrease in termination benefits obligation... (409,673)
Increase (decrease) in accrued expenses and
other current liabilities................... (96,024) 196,940 (712,877) 200,477 (33,473)
Increase (decrease) in deferred revenues...... 676,264 302,488 390,395 (46,005) 198
---------- ---------- ----------- ----------- ---------
Net cash used in operating activities....... (1,289,843) (1,990,415) (3,538,693) (2,452,516) (223,841)
---------- ---------- ----------- ----------- ---------

See notes to consolidated financial statements

F-9

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------- ----------------------
1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ---------

(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in joint venture..................... (12,810)
Decrease in cash held in escrow................. 582,220
Proceeds from the sale of monitoring
contracts..................................... 298,938
Purchase of monitoring contracts (net of
purchase holdbacks)........................... (6,061,319) (6,210,340) (3,863,360) (482,183) (111,648)
Proceeds from the sale of property and
equipment..................................... 21,537 11,422 39,864 20,000
Purchase of property and equipment.............. (462,210) (459,898) (636,659) (120,730) (114,431)
---------- ---------- ----------- ----------- ---------
Net cash used in investing activities....... (5,919,772) (6,359,878) (4,472,965) (582,913) (226,079)
---------- ---------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of preferred stock... 7,500,000 7,500,000
Costs incurred in connection with the preferred
stock issuance................................ (1,012,449) (1,146,924) (38,081)
Costs incurred in connection with common stock
issuances..................................... (34,220)
Deferred financing costs incurred............... (163,550) (952,537) 22,761 (691,377) (5,000)
Convertible subordinated promissory notes issued
in connection with private placements......... 912,500 1,960,000
Proceeds of long-term notes payable............. 7,523,320 6,963,891 15,235,000 10,750,000 425,000
Principal payments on long-term debt
Notes payable................................. (1,168,081) (2,244,495) (15,292,934) (15,076,982) (12,542)
Capitalized lease obligations................. (30,772) (41,988) (82,460) (21,224) (17,616)
Net proceeds from the exercise of stock options
and warrants.................................. 4,432,743 447,745 190,000 82,421
---------- ---------- ----------- ----------- ---------
Net cash provided by financing activities... 7,073,417 10,117,614 6,783,443 1,503,493 434,182
---------- ---------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH................... (136,198) 1,767,321 (1,228,215) (1,531,936) (15,738)
CASH--BEGINNING................................... 295,643 159,445 1,926,766 1,926,766 698,551
---------- ---------- ----------- ----------- ---------
CASH--ENDING...................................... $ 159,445 $1,926,766 $ 698,551 $ 394,830 $ 682,813
---------- ---------- ----------- ----------- ---------
---------- ---------- ----------- ----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest.......................... $1,104,653 $3,012,698 $ 1,280,340 $ 199,857 $ 434,892
Cash paid (received) during the year for income
taxes--Net.................................... (109,000) -- --

See notes to consolidated financial statements

F-10

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCIAL ACTIVITIES
YEARS ENDED JUNE 30, 1995, 1996 AND 1997

During the years ended June 30, 1995, 1996 and 1997, convertible
subordinated promissory notes of $2,437,500, $3,235,000 and $50,000,
respectively, were converted into common stock. The Company reduced deferred
financing costs and additional paid-in capital in the amount of $318,848,
$383,088 and $5,068 for the years ended June 30, 1995, 1996 and 1997
respectively.

During the years ended June 30, 1995, 1996 and 1997, long-term notes payable
of $62,704, $63,933 and $74,028, respectively, were incurred for the purchase of
property and equipment.

During the years ended June 30, 1995, 1996 and 1997, capitalized lease
obligations of $59,947, $43,933 and $143,100, respectively, were incurred for
the acquisition of property and equipment.

During the years ended June 30, 1996 and 1997, the Company reduced
monitoring contract costs and the corresponding purchase holdbacks in the amount
of $838,174 and $306,808, respectively. The Company issued 4,656 shares of its
common stock, valued at $67,781, as payment for purchase holdbacks during the
year ended June 30, 1996.

During the year ended June 30, 1996, the Company increased monitoring
contract costs and the corresponding transition costs liability (included in
accrued expenses and other current liabilities) in the amount of $525,647.

During the years ended June 30, 1995, 1996 and 1997, the Company issued
88,090, 103,015 and 13,900 shares of its common stock, valued at $1,424,983,
$820,558 and $75,000, respectively, in connection with acquisitions (see Note
2). The amount includes 5,000 shares of common stock valued at $70,311 issued as
payment of deferred financing costs during the year ended June 30, 1996.

During the year ended June 30, 1996, the Company recorded a preferred stock
subscription receivable of $6,525,000 for preferred stock subscribed with a par
value of $7,500,000, net of the related placement fees of $1,138,125 (of which
$975,000 was paid from the proceeds at closing, and $163,125 was included in
accrued expenses and paid subsequently). The Company issued warrants in
connection with the sale of preferred stock valued at $3,200,000 and recorded a
discount on the preferred stock of $5,895,000.

During the year ended June 30, 1997, the Company recorded accretion to
preferred stock in the amount of $5,895,000 with a corresponding charge to
accumulated deficit. The accretion represents the intrinsic value of the
beneficial conversion feature contained within the preferred stock (see Note 9).

During the year ended June 30, 1997, the Company recorded $350,000 as
additional paid-in capital, related to the issuance of warrants to a consultant
in connection with the sale of preferred stock.

During the year ended June 30, 1997, the Company recorded a deemed dividend
in the amount of $704,271 in connection with the preferred stock issuance, with
a corresponding charge to accumulated deficit (see Note 9). As a result, the
Company recorded a discount on preferred stock in the amount of $172,250.

During the year ended June 30, 1997, $610,000 of preferred stock and $8,738
in deemed dividends were converted into 63,446 shares of common stock.

During the year ended June 30, 1997, the Company recorded additional paid-in
capital of $105,000, with a corresponding charge to accumulated deficit, to
reflect the fair value of the additional warrants issued to the preferred
shareholders.

F-11

RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCIAL ACTIVITIES
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 (CONTINUED)
During the year ended June 30, 1997, the Company issued 364,721 shares of
common stock, valued at $3.3 million in connection with a joint venture (see
Note 3).

During the year ended June 30, 1997, in connection with the repricing of
stock purchase warrants, the Company recorded deferred financing costs and
additional paid-in capital of $2,848,765.

During the year ended June 30, 1997, the Company reduced accounts
receivable-trade and accounts receivable-net investment in sales-type leases in
the amount of $28,088 and $126,482, respectively, and recorded monitoring
contract costs of $154,570, in connection with the purchase of monitoring
accounts.

During the year ended June 30, 1997, the Company recorded consulting fees in
the amount of $689,000 in connection with the exercise of warrants.

During the year ended June 30, 1996, the Company issued 57,699 shares of
common stock, valued at $667,121, as payment on notes payable.

During the year ended June 30, 1996, the Company issued 667 shares of common
stock, valued at $8,125 as payment for consulting services.

During the year ended June 30, 1995, a long term note payable of $150,000
was incurred in connection with the purchase of monitoring contracts (see Note
2).

QUARTERS ENDED SEPTEMBER 30, 1996 AND 1997

During the three months ended September 30, 1997 and 1997, long-term notes
payable of $19,049 and $29,464, respectively, were incurred for the purchase of
property and equipment. In July 1996, capitalized lease obligations of $143,000
were incurred for the acquisition of property and equipment.

During the three months ended September 30, 1996, the Company recorded
accretion to preferred stock in the amount of $5,895,000 with a corresponding
charge to accumulated deficit. The accretion represents the intrinsic value of
the beneficial convertion feature contained within the preferred stock.

During the three months ended September 30, 1996 and 1997, the Company
recorded deemed dividends and accretion on such dividends in the amount of
$230,549 and $185,272, respectively, in connection with the preferred stock
issuance, with a corresponding charge to accumulated deficit (see Note 4).

During the three months ended September 30, 1996 and 1997, $510,000 and
$1,000,000 of preferred stock, and $4,767 and $100,000 in deemed dividends were
converted into 50,357 and 300,000 shares of common stock, respectively.

During the three months ended September 30, 1996, the Company increased the
put obligation payable associated with warrants issued to the Company's lender
and the corresponding charge to deferred financing costs by $585,065 in
connection with the refinancing at June 30, 1996. On June 24, 1997, the Company,
in return for the holder of the warrants forgiving the put obligation feature,
reduced the exercise price of such warrants from $9.75 to $4.50. On August 13,
1997, the Holder exercised the warrants and received 107,263 shares of common
stock and blank check preferred stock convertible into 102,319 shares of common
stock (see Note 3).

During the three months ended September 30, 1997, the Company issued 2,900
shares of its common stock and canceled 2,667 shares of its common stock
pursuant to guarantees of stock valuations, in connection with past acquisitions
in monitoring contracts.

During the three months ended September 30, 1996, convertible subordinated
promissory notes of $50,000 were converted to common stock. As a result, the
Company reduced deferred financing costs and additional paid-in capital in the
amount of $5,068.

F-12

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Response USA, Inc. (USA), its wholly-owned subsidiaries Response Ability
Systems, Inc. (RAS), United Security Systems, Inc. (USS), and Emergency Response
Systems, Inc. (ERS) (together, the "Company"). All significant intercompany
transactions and balances have been eliminated.

UNAUDITED INTERIM FINANCIAL INFORMATION

The consolidated financial statements and related notes at September 30,
1997 and for the three months ended September 30, 1997 and 1996 are unaudited,
but include all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for the fair presentation of
the financial position and results of operations for the interim periods. The
results of operations for the three months ended September 30, 1997 are not
necessarily indicative of the operating results to be expected for the full
fiscal year.

NATURE OF BUSINESS AND REVENUE RECOGNITION

The Company leases equipment to customers principally under sales-type
leases. The lease payments to be received over the term of the leases are
recorded as receivables at the inception of the lease. Interest income
attributable to the lease contracts is initially recorded as unearned income and
subsequently recognized as finance revenue using 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 nominal at the end of the lease
period.

The Company also leases certain equipment to customers under month-to-month
operating leases, with revenues recognized as income ratably over the lease
terms.

The Company sells extended warranty and product maintenance contracts to its
customers. Revenues from these contracts are deferred and recorded as income
using the straight-line method over the term of the contracts. The Company also
provides for estimated future warranty costs as necessary.

USE OF ESTIMATES

The presentation 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 period. Actual results could differ from those estimates.

F-13

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK

The Company's products are sold directly and through distributors in the
United States to hospitals, home healthcare agencies and individual consumers.
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 maintains reserves for potential credit losses.

MARKETABLE SECURITIES

The Company's investments in marketable securities have been categorized as
available-for-sale and are stated at fair value. Realized gains and losses,
determined using the specific identification method, are included in operations;
unrealized holding gains and losses are reported as a separate component of
stockholders' equity.

Marketable securities consist of an investment in the common stock of one
company. During 1997, management concluded that a decline in the fair value of
this common stock was not temporary and recorded a writedown of $218,343 which
is included in selling, general and administrative expenses.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

An allowance for doubtful accounts is provided by the Company based on
historical collection experience and a review of the current status of existing
receivables.

INVENTORY

Inventory is stated at the lower of cost (first-in, first-out method) or
market.

MONITORING CONTRACT COSTS AND AMORTIZATION

Monitoring contracts acquired are stated at cost. The costs of acquired
monitoring contracts includes the costs of accounts purchased and any
contractual rights to related monitoring revenues purchased from alarm system
dealers and emergency response system dealers, and the estimated fair value of
the accounts acquired in business acquisitions, including an accrual for
estimated acquisition transition costs of $162,703 and $68,645 for Fiscal 1996
and Fiscal 1997, respectively. The estimated transition costs include costs
associated with transferring the customers to the Company's central monitoring
station, notification of change in service provider, and service calls to
customer premises. Costs related to sales, marketing and installation of systems
for accounts internally generated are charged to expense as incurred.

The Company records purchase holdbacks, in connection with its acquisitions
of monitoring contracts, as a liability for delinquent accounts and for future
cancellations within an agreed upon time period. Monitoring contract costs and
the corresponding purchase holdback liabilities are reduced for delinquent
accounts and cancellations as specified in each agreement.

The costs of acquired monitoring contracts purchased from emergency response
system dealers and alarm system dealers are amortized using the straight-line
method over estimated lives ranging from five to ten years. It is the Company's
policy to periodically review actual account attrition and, if necessary, to
adjust downward the remaining estimated lives of acquired account pools to
reflect their anticipated future revenue streams.

F-14

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION

Property and equipment are stated at cost. Expenditures for additions,
renewals and betterments are capitalized; expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation or amortization are eliminated
from the accounts and any resulting gain or loss is credited or charged to
operations. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets.

DEFERRED FINANCING COSTS AND AMORTIZATION

Costs incurred in connection with various financing have been deferred;
amortization is provided using the straight-line method over the terms of the
financing, and is included in interest expense.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long lived assets and intangbles for impairment whenever
events or changes in circumstances indicate that the carrying value of the asset
may not be recoverable. The Company determines the value of subscriber accounts
based on the cash flows from the monthly recurring revenue (MRR) stream using
the most recent historical attrition rate and the aggregate MRR.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for transactions in which goods or services are
received in return for the issuance of equity instruments based on the fair
value of the equity instruments or the goods or services received, whichever is
more reliably measured.

NEW ACCOUNTING PRONOUNCEMENTS

In December 1996, the Financial Accounting Standards Board issued SFAS No.
125, ACCOUNTING FOR THE TRANSFERS AND SERVICING OF FINANCIAL ASSETS, which the
Company has adopted for its fiscal year ended June 30, 1997. SFAS No. 125 does
not have any effect on the Company's financial position or results of operations
for its year ended June 30, 1997, and does not anticipate any material impact on
the financial statements of the registrant.

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, STANDARDS FOR COMPUTING AND PRESENTING EARNINGS PER SHARE (EPS), which will
be adopted by the Company in the year ended June 30, 1998, as required by this
statement. When adopted, SFAS No. 128 will not have any effect on the Company's
financial position or results of operations but will require the Company to
provide expanded disclosure regarding EPS computations.

In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
This statement, which establishes standards for reporting and disclosure of
comprehensive income, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative purposes is required under SFAS No. 130. As this statement only
requires additional disclosures in the Company's financial statements, its
adoption will not have any impact on the Company's financial position or results
of operations. The Company expects to adopt SFAS No. 130 effective July 1, 1998.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. This statement, which establishes standards
for the reporting of information about operating

F-15

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
segments and requires the reporting of selected information about operating
segments in financial statements, is effective for fiscal years beginning after
December 15, 1997, although earlier application is permitted. Reclassification
of segment information for earlier periods presented for comparative purposes is
required under SFAS No. 131. As this statement only requires additional
disclosures in the Company's financial statements, its adoption will not have
any impact on the company's financial position or results of operations. The
Company expects to adopt SFAS No. 131 effective July 1, 1998.

INCOME TAXES

The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Also, the tax benefits resulting from the
utilization of net operating loss carryforwards are recorded as ordinary income.
A valuation allowance is established for deferred tax assets not expected to be
realized.

Principal differences between the Company's financial reporting and tax
bases include accounts receivable reserves, inventory reserves, depreciation and
amortization of property and equipment, amortization of capitalized costs, and
deferred revenue.

LOSS PER COMMON SHARE

Loss per common share is computed based on the weighted average number of
common shares outstanding during each period after deducting dividends and
accretion on preferred stock. The effect of common stock equivalents on loss per
share is not applicable for loss periods.

2. ACQUISITIONS

Under the terms of an agreement in connection with an acquisition in March
1994, during the year ended June 30, 1995, the Company issued an additional
40,000 shares of common stock valued at $477,137 based on performance.

In November 1994, the Company acquired all of the outstanding common stock
of Universal Security Systems, Inc. (USSI), a New Jersey corporation, in
exchange for 25,257 shares of the Company's common stock, valued at $576,641,
issued to the former stockholders of USSI. USSI was engaged in the installation,
servicing and monitoring of electronic security systems. The Company also
entered into an employment agreement with one of the former stockholders of USSI
(see Note 14).

The following represents the assets purchased and the liabilities assumed:

ASSETS
Cash.......................................................... $ 457
Accounts receivable........................................... 57,560
Inventory..................................................... 50,665
Prepaid expenses.............................................. 8,484
Property and equipment........................................ 50,454
Monitoring contracts.......................................... 995,643
Deposits...................................................... 3,000
---------
1,166,263
---------
LIABILITIES
Notes payable--Stockholders................................... 309,902
Accounts payable.............................................. 150,356
Accrued expenses.............................................. 84,690

F-16

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS (CONTINUED)

Deferred revenue.............................................. 44,674
---------
589,622
---------
Total purchase price............................................ $ 576,641
---------
---------

Also in November 1994, the Company acquired substantially all of the assets
(monitoring contracts) of the Medical Alert Systems Monitoring Division of
Emergency Response Systems, Inc. (Division), a Delaware corporation. The
Division was engaged in the installation, servicing and monitoring of personal
emergency response systems. In consideration of this acquisition with a cost of
$1,882,930, the Company paid the Division an aggregate of $1,700,000 consisting
of $1,550,000 in cash, issued a note payable over two years in the amount of
$150,000 and issued 3,333 shares of common stock valued at $100,000 to the
shareholders and principals of the Division, and incurred acquisition costs of
$82,930. As part of this acquisition, the Company also issued 3,333 shares of
restricted common stock as payment of financing costs to the lender that
financed the acquisition.

During the year ended June 30, 1995, the Company purchased additional
monitoring contracts for an aggregate of $4,859,516. As consideration, the
Company paid $3,668,944 in cash, recorded purchase holdbacks of $937,603 (which
are payable over periods of up to eighteen months based on performance
guarantees of the seller), and issued 16,167 shares of common stock valued at
$252,969.

During the year ended June 30, 1996, the Company purchased monitoring
contracts for an aggregate of $7,996,459. As consideration, the Company paid
$5,638,637 in cash, incurred acquisition costs of $525,647, recorded purchase
holdbacks of $1,081,928 (which are payable over periods of up to 18 months based
on performance guarantees of the seller), and issued 98,015 shares of common
stock valued at $750,247. As part of the acquisitions, the Company also issued
5,000 shares of restricted common stock valued at $70,311 as payment of
financing costs to the lender that financed the acquisitions.

On March 27, 1997, the Company completed the acquisition of all the
outstanding common stock of Reliable-Hawk, Inc. (RHI), a New Jersey corporation,
after giving effect to RHI's distribution to its stockholders of all of its net
assets other than monitoring and service contracts. RHI is engaged in the
installation, servicing and monitoring of electronic security systems. In
consideration of the acquisition with a cost of $1,743,181, the Company paid
$1,469,503 in cash, incurred acquisition costs of $35,400, recorded purchase
holdbacks of $163,278 and issued 8,333 shares of its common stock valued at
$75,000. The following represents total assets acquired and the liabilities
assumed:

ASSETS
Monitoring Contracts.......................................... $1,707,781
Acquisition costs (assigned to monitoring contracts).......... 35,400
---------
Total Purchase Price............................................ $1,743,181
---------
---------

During the year ended June 30, 1997, the Company purchased additional
monitoring contracts for an aggregate of $2,425,344. As consideration, the
Company paid $1,955,209 in cash, reduced amounts receivable by $154,570,
incurred acquisition costs of $69,541 and recorded purchase holdbacks of
$246,024 (which are payable over periods of up to twenty-one months based on
performance guarantees of the seller).

During the three months ended September 30, 1997, the Company purchased
monitoring contracts for an aggregate of $267,004 (unaudited). As consideration,
the Company paid $70,018 (unaudited) in cash,

F-17

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS (CONTINUED)
including acquisition costs of $7,426 (unaudited), and recorded purchase
holdbacks of $196,986 (unaudited) (which are payable over periods of up to
eighteen months based on performance guarantees of the seller).

3. INVESTMENT IN JOINT VENTURE

On March 4, 1997, the Company entered into a purchase agreement with BKR,
Inc. BKR, a Nevada corporation and HealthLink, Ltd. (HL), a Nevada limited
liability company. The parties agreed to the purchase by the Company of a 50%
interest in the assets of BKR, the contribution of BKR's remaining 50% interest
in the assets to HL, and the contribution of the Company's 50% interest in BKR's
assets to HL. HL is engaged in the sale and monitoring of PERS to the general
public primarily through national retail and pharmacy chains. In consideration
of the HL joint venture, the Company issued 364,721 shares of its common stock,
valued at $3.3 million, to BKR for their 50% interest in HL.

At the date of the Company's investment in HL, the investment in HL exceeded
the Company's share of the underlying net assets by $1,500,000. The excess is
being amortized by the straight line method over 10 years.

The Company's investment in HL at June 30, 1997 is summarized as follows:

Initial Investment.............................................. $3,312,809
Cumulative equity in net losses of HL........................... (123,325)
Cumulative authorization of Goodwill............................ (50,000)
---------
Total........................................................... $3,139,484
---------
---------

The Company accounts for its investment in HL under the equity method.

BKR, as part of the purchase agreement, is entitled to exercise warrants to
purchase shares of the Company's common stock subject to the following
provisions: (i) for each 10,000 PERS placed on-line by HL, 10,000 shares of
common stock may be purchased at an exercise price of $9.00 per share, and (ii)
in no event shall such warrant be exercisable for more than 150,000 shares of
common stock. This warrant may be exercised in whole or in part at any time, or
from time to time, commencing on March 4, 1997 and expiring on March 3, 2002.

The following summary of financial data has been derived from the unaudited
Financial Statements of HL for the four months ended June 30, 1997:

Operating Revenues............................................. $ 305,750
Cost of Revenues............................................... 192,059
----------
Gross Profit................................................... 113,691
Selling, general and administrative expense.................... 355,962
Interest expense............................................... 4,380
----------
Net Loss....................................................... $ (246,651)
----------
----------
Current Assets................................................. $ 117,870
Working capital (deficiency)................................... (117,391)
Total Assets................................................... 3,568,176
Current Liabilities............................................ 235,621
Stockholders' equity........................................... 3,332,915

F-18

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. NET INVESTMENT IN SALES-TYPE LEASES

Information pertaining to the Company's net investment in sales-type leases
is as follows:

Minimum lease payments receivable................................. $ 363,052
Less: Unearned Interest--Finance revenue.......................... (65,976)
Allowance for doubtful accounts................................... (28,200)
---------
Net Investment in sales-type leases............................... $ 268,876
---------
---------

At June 30, 1997, minimum lease payments are receivable as follows:

YEAR ENDING JUNE 30,
- ----------------------------------------------------------------------------------

1998.............................................................................. $ 127,683
1999.............................................................................. 93,413
2000.............................................................................. 76,776
2001.............................................................................. 55,083
2002.............................................................................. 10,097
----------
$ 363,052
----------
----------

5. INVENTORY

1996 1997
---------- ----------

Parts Inventory....................................................... $ 145,098 $ 613,646
Finished Goods........................................................ 507,453 185,168
---------- ----------
$ 652,551 $ 798,814
---------- ----------
---------- ----------

6. PROPERTY AND EQUIPMENT

ESTIMATED
USEFUL
LIVES 1996 1997
----------- ------------ ------------

Office furniture and equipment....................... 5 years $ 2,080,588 $ 2,513,120
Equipment held for lease............................. 5 years 650,285 800,555
Automotive equipment................................. 3 years 297,944 343,576
Leasehold improvements............................... 5 years 95,105 217,893
----------- ------------ ------------
3,123,922 3,875,144
Less accumulated depreciation and amortization....... 1,862,915 2,363,067
------------ ------------
$ 1,261,007 $ 1,512,077
------------ ------------
------------ ------------

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

F-19

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LONG-TERM NOTES PAYABLE

SEPTEMBER 30,
JUNE 30, JUNE 30, 1997
1996 1997 (UNAUDITED)
------------- ------------- -------------

LINE OF CREDIT AGREEMENT

Note payable with interest only due through June 30, 2000 at
Prime Plus 1-3/4% on the outstanding loan balance; a commitment
fee of .5% is payable on the average daily unused credit;
collateralized by all assets of the Company..................... -- $ 12,235,000 $ 12,660,000

EQUIPMENT FINANCING

Payable in monthly installments aggregating $4,557, bearing
interest at rates ranging from 3.90% to 11.83%; final payments
due April, 1997 through March, 2000; collateralized by related
equipment....................................................... $ 93,880 88,950 105,874

REORGANIZATION DEBT

As part of the 1990 plan of reorganization of a 1987 bankruptcy,
the U.S. Bankruptcy Court approved a 30.5% settlement on the
total unsecured claims submitted; payments are due March 1 of
each year, as follows: 3% ($86,817) each year--1998 through
2000; interest imputed at 14%; net of imputed interest of
$58,894......................................................... 265,652 201,557 201,557

Federal priority tax claims payable in annual installments of
$2,211 through March 1999 and $1,896 thereafter................. 12,321 10,109 10,109

CONVERTIBLE SUBORDINATED PROMISSORY NOTES

5% convertible subordinated promissory notes due November 30,
1996............................................................ 75,000 --
10% convertible subordinated promissory notes due December 31,
1997............................................................ 50,000 --

OTHER

Note payable in declining monthly installments of $23,500 to
$8,250 from July 1996 through January 1998 including interest at
23.6%; collateralized by related monitoring contracts........... 240,536 --

Note payable in increasing monthly installments of $11,600 to
$13,750 from July 1996 through September 1998 including interest
at 24.2%; collateralized by related monitoring contracts........ 256,035 --

F-20

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LONG-TERM NOTES PAYABLE (CONTINUED)

SEPTEMBER 30,
JUNE 30, JUNE 30, 1997
1996 1997 (UNAUDITED)
------------- ------------- -------------
Notes payable in monthly installments of $431,136 including
interest at rates ranging from 24.1% to 28%; final payments due
June 1997 through February 2001; collateralized by related
monitoring contracts............................................ 10,689,455 --

Note payable in monthly installments of $11,500 through March
1997, $13,500 from April 1997 through March 1998, $15,500 from
April 1998 through March 1999, and $17,500 from April 1999
through October 2000, including interest at 25.1%;
collateralized by related monitoring contracts.................. 443,551 --

Note payable; interest at 21.5% accrued monthly and added to the
principal balance through August 1997; beginning in September
1997, payable in monthly installments of $26,000 including
interest at 21.5%; final payment due in January 2000;
collateralized by related monitoring contracts.................. 443,091 --
------------- ------------- -------------

12,569,521 12,535,616 12,977,540

Less Current Portion............................................ 194,914 100,329 104,956
------------- ------------- -------------

$ 12,374,607 $ 12,435,287 $ 12,872,584
------------- ------------- -------------
------------- ------------- -------------

Principal payments on long-term notes payable for the next five years are
due as follows: Years ending June 30, 1998--$100,329; 1999--$103,146;
2000--$12,228,020; 2001--$1,896; 2002 -$1,896.

On June 30, 1996, the Company entered into a four-year $15,000,000 revolving
bank line of credit agreement. Loans outstanding bear interest at prime plus
1 3/4%, are collateralized by all assets of the Company, and are subject to
certain restrictive covenants. The Company was not in compliance with certain
covenants as of September 30 and June 30, 1997 (see Note 16, Subsequent Events).
The agreement also provides for a commitment fee payable monthly in arrears, of
.5% based on the average daily unused credit. As of June 30, 1997, the Company
has available on its revolving credit facility the amount of $2,765,000. The
Company is prohibited from declaring dividends while any outstanding balance
exists under the line of credit.

In connection with obtaining the line of credit, the Company issued a stock
purchase warrant (the Warrant) to an affiliate of the bank which provided the
line of credit. The terms of this Warrant, which were subsequently modified (see
below), included the following: (i) number of shares, 344,045; (ii) exercise
price, $9.75 per share; (iii) put obligation feature, which the Holder of the
warrant can require, during the period between July 1, 2000 and June 30, 2001
upon 10 days notice, the Company to purchase the Warrant for the difference
between the market price of the Company's common stock and the exercise price
times 344,045 shares.

F-21

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LONG-TERM NOTES PAYABLE (CONTINUED)
The Company recorded deferred financing costs of approximately $6,800,000
related to this warrant (based on an independent valuation) and a related put
obligation payable amount. The deferred financing costs were originally to be
amortized over the life of the related line of credit (four years) using the
straight-line method. The put obligation and the deferred financing costs were
adjusted quarterly based upon the value (market price less exercise price of the
obligation).

On June 24, 1997, the Company, in return for the holder of the Warrant
forgiving the put obligation feature, reduced the exercise price of the Warrant
to $4.50. This resulted in the Company recording deferred financing costs for
the market value of the revised Warrant ($2,800,000 based on an independent
valuation), crediting additional paid-in capital for the same amount. The
remaining deferred financing costs will be amortized using the straight-line
method over the remaining life of the line of credit.

On August 13, 1997 the Holder exercised the Warrant and received 107,263
shares of common stock and blank check preferred stock convertible into 102,319
shares of common stock.

No cash was paid by the Warrant holder.

Also in connection with this agreement, the Company issued warrants to a
consultant to purchase 33,334 shares of the Company's common stock at an
exercise price of $13.50 per share; these warrants expire June 30, 2000. The
value of these warrants ($350,000) is being amortized over four years.

With the proceeds received from the issuance of preferred stock (see Note 9)
and a $10,500,000 advance on July 1, 1996, from a line of credit, the Company
paid off notes payable with balances aggregating $12,072,668 at June 30, 1996
plus a prepayment penalty. The prepayment penalty of $2,415,877 and unamortized
deferred financing costs of $133, 831 associated with the notes paid have been
recorded as an extraordinary item during the year ended June 30, 1997.

8. CAPITALIZED LEASE OBLIGATIONS

The Company leases office furniture and equipment with a cost of $245,808
and a net book value of $188,462 at June 30, 1997, under capital leases. The
following is a schedule by years of future minimum lease payments under these
leases together with the present value of the net minimum lease payments as of
June 30, 1997.

YEAR ENDING JUNE 30,
- ----------------------------------------------------------------------------------

1998.............................................................................. $ 70,069
1999.............................................................................. 51,061
2000.............................................................................. 43,933
2001.............................................................................. --
2002.............................................................................. --
----------
Total minimum lease payments...................................................... 165,063
Less amount representing interest................................................. 22,175
----------
Present value of net minimum lease payments....................................... $ 142,888
----------
----------

F-22

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. PREFERRED STOCK

In May, 1996, the Company authorized the issuance of 7,500 shares of
1996--Series A Convertible Preferred Stock with a Par Value of $1,000 per share.
The preferred shares are convertible into a number of common shares determined
based on the premium plus $1,000, divided by the conversion price. The premium
equates to an annual ten percent "deemed" dividend and the conversion price is
equal to the lesser of $15.00 or 80% of the average closing bid price of the
Company's common stock for the five days immediately preceding the date of
conversion. The holders of Preferred Stock are not entitled to receive dividends
and have no voting rights.

Up to fifty percent of the preferred stock may be converted by the holder
beginning 45 days after closing and the balance may be converted beginning 70
days after closing. Since the convertible preferred stock contained a beneficial
conversion feature at the date of issue, the company allocated a portion of the
proceeds equal to the value of that feature ($5,895,000) to additional paid-in
capital. This amount was amortized over the 70 day minimum period the preferred
shareholders were required to hold the shares before conversion was allowed.
Preferred shares were then accreted to their face value by recording $5,895,000
as a charge to accumulated deficit.

Due to an unexpectedly large volume of conversion requests, after 610 shares
of the preferred stock were converted to common shares, the company suspended
conversion of its Series A Convertible Preferred Stock due to the negative
impact of the conversions on the common stock price.

Subsequent to the suspension of the conversion of the preferred stock, three
groups of preferred shareholders (Halifax Fund, L.P., Lake Management L.D.C. and
KA Investments, L.D.C.) commenced legal action to force the company to resume
conversion of the preferred stock. In order to settle the matters of litigation,
the Company reached two separate agreements with the complainants.

During June, 1997, all preferred shareholders, other than Halifax Fund, L.P.
received 5,000 warrants to purchase common stock of the Company for $6.00 per
share for each 100 shares of preferred stock held. Fifty percent of said
warrants are exercisable after one year from issuance and the remaining fifty
percent are exercisable after two years from issuance. In return for the filing
by the Company of a registration statement with the SEC for the primary issuance
by the Company of securities to generate approximately $8,750,000 of net
proceeds for use by the Company to redeem all of the Preferred Stock (the
"Registration Statement"), on or before October 11, 1997, the preferred
shareholders agreed to refrain from all conversions of the preferred shares
until November 30, 1997. The value of these warrants, $90,000, was recorded as a
dividend to the preferred shareholders.

On June 30, 1997 the company reached an agreement with Halifax Fund, L.P.
where the company agreed to convert the 1,000 shares of preferred stock owned by
this group into 300,000 shares of the company's common stock and assisted in
locating a purchaser for the 300,000 shares from the preferred shareholders for
a total of $1,500,000. The company also issued to these former preferred
shareholders 5,000 warrants to purchase common stock of the company for $6.00
per share for each 100 shares of preferred stock held. Fifty percent of said
warrants are exercisable after one year from issuance and the remaining fifty
percent are exercisable after two years from issuance. The Company also agreed
to reimburse these preferred shareholders $150,000 for legal fees. In the event
that the Company settles with any other preferred shareholders on terms which
these shareholders, in their sole discretion, believe are better than those they
have received, these shareholders have the right to elect the alternative
settlement.

During the year ended June 30, 1997, the Company reclassified $5,895,000
which had been previously reported in the 1996 financial statements as Preferred
Stock to Additional Paid-in Capital. This was a

F-23

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. PREFERRED STOCK (CONTINUED)
result of March, 1997 comments by the Staff of the Securities and Exchange
Commission regarding the treatment of beneficial conversion features of
preferred stock.

During the year ended June 30, 1997, deemed convertible preferred stock
dividends totaling $704,271 were recorded relating to the preferred shares.

During July, 1997, 1,000 shares of Series A Preferred Stock and deemed
dividends with a total book value of $1,125,000 (unaudited) were converted into
300,000 (unaudited) shares of the Company's common stock. As a result, the
Company recorded common stock of $2,400 (unaudited), additional paid-in capital
of $1,272,600 (unaudited), charged accumulated deficit $150,000 (unaudited), and
reduced the preferred stock account for $1,125,000 (unaudited) which included a
reduction of the discount on the outstanding preferred stock in the amount of
$25,000 (unaudited).

During the three months ended September 30, 1997, deemed convertible
preferred stock dividends totaling $148,460 (unaudited) were recorded relating
to the preferred shares. As a result of the beneficial conversion feature
contained within the preferred stock dividend, the Company recorded a discount
on preferred stock in the amount of $36,812 (unaudited).

10. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

During January, 1995, through April, 1995, the Company completed a private
placement of 36.5 units. Each unit consisted of a $25,000 12% Convertible
Subordinated Promissory Note due December 31, 1996 (the "12% Notes") and Class C
Redeemable Common Stock Purchase Warrants (the "Class C Warrants") to purchase
3,334 shares of the Company's common stock. After giving effect to commissions
and other costs of the offering and an estimate as to the value of the warrants,
the Company recorded long-term debt of $912,500, debt discount of $2,920, debt
issue costs of $163,550 and additional paid-in capital of $2,920. Through June
30, 1997, all of these notes had been converted into common stock.

During July, 1995, through November, 1995, the Company completed a private
placement of three units. Each unit consisted of a $145,000 13.8% Convertible
Subordinated Promissory Note due June 30, 1997 (the "13.8% Notes"), and Class C
Warrants to purchase 2,222 shares of the Company's common stock. The Company
recorded long-term debt of $435,000, debt discount of $1,600 and additional
paid-in capital of $1,600. Through June 30, 1997, all of these notes had been
converted to common stock.

In November, 1995, the Board of Directors and Stockholders approved a
one-for-ten reverse stock split (the "Reverse Stock Split"). The Reserve Stock
Split became effective on November 20, 1995, and reduced the number of issued
and outstanding shares of common stock from 10,699,222 to 1,070,029; however,
the number of authorized shares of common stock (12,500,000 shares) will remain
the same. The accompanying consolidated financial statements and related notes
give effect to this transaction as of July 1, 1994.

The Reverse Stock Split did not alter the percentage interests of any
stockholder, except to the extent that the Reverse Stock Split results in a
stockholder of the Company owning a fractional share. In lieu of issuing
fractional shares, the Company issued an additional full share of common stock.

The Company has an Incentive Stock Option Plan which provides for the grant
of stock options to key employees of the Company to purchase a maximum of 13,334
shares of Common Stock, all of which have been granted. In addition, the Company
has a Restricted Stock Option Plan which provides for the grant of stock options
to officers, directors, employees, consultants or advisors of the Company to
purchase a

F-24

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (CONTINUED)
maximum of 3,453 shares of Common Stock, all of which have been granted. The
Company has issued Incentive Stock Options to employees in excess of the plan
and will convert the 9,017 ISO's to Non-Qualified Stock Options during Fiscal
1998.

On December 16, 1996, the Company granted 18,783 Non-Qualified Stock Options
(NQO) outside of the Restricted Stock Option Plan at $.30 per share, expiring
November 27, 2001 to employees. As a result, the Company recorded compensation
expense and increased additional paid-in capital in the amount of $142,284. In
addition, the Company granted 8,334 NQO's and 1,334 Incentive Stock Options to
employees at $7.875, the prevailing market price, expiring November 27, 2001. As
of June 30, 1997, 14,150 NQO's at $.30 and 834 NQO's at $11.625 were exercised.
The Company recorded common stock of $120 and additional paid-in capital of
$13,500.

On June 15, 1997, the Company reduced the exercise price of options for
622,800 shares of common stock, granted to officers, directors and a key
employee of the Company, from $7.50 to $4.50, the market price. On June 27,
1997, the Company further reduced the exercise price of options for 422,800
shares of common stock, granted to officers and a director of the Company, from
$4.50 to $.03, which resulted in a compensation expense of $1,889,916.

The following is a summary of stock option activity:

WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
---------- ---------------- -------------

Options outstanding at June 30, 1994............................... 331,100 $ 11.25-210.00 $ 51.24
Options granted.................................................. 387,667 $ 11.25-24.375 $ 17.49
Options canceled or expired...................................... (10,668) $ 48.75-157.50 $ 128.61
---------- ---------------- -------------
Options outstanding at June 30, 1995............................... 708,099 $ 11.25-210.00 $ 14.94
Options granted.................................................. 43,083 $ 7.50-13.35 $ 12.159
Options exercised................................................ (17,500) $ 7.50-11.625 $ 7.695
Options canceled or expired...................................... (64,288) $ 15.00-210.00 $ 22.008
---------- ---------------- -------------

Options outstanding at June 30, 1996............................... 669,394 $ 7.50-105.00 $ 7.911
Options granted.................................................. 28,450 $ 0.03-7.875 $ 2.874
Options exercised................................................ (14,983) $ 0.30-11.625 $ 0.93
Options canceled or expired...................................... (3,208) $ 11.625-105.00 $ 17.688
---------- ---------------- -------------

Options outstanding at June 30, 1997............................... 679,653 $ 0.03-13.35 $ 2.061
---------- ---------------- -------------
---------- ---------------- -------------

The Company accounts for the Plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized for
stock option awards. Had compensation cost for the Plans been determined
consistent with Statement of Financial Accounting Standards No. 123,

F-25

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (CONTINUED)
"Accounting for Stock--Based Compensation" (SFAS #123), the Company's pro forma
net loss and loss per share for June 30, 1997 and 1996 would have been as
follows:

REPORTED PRO-FORMA
------------- -------------

1997 Net Loss.................................................. $ 11,177,623 $ 11,368,594
1997 Net Loss applicable to Common Shareholders................ 18,054,144 18,245,115
1997 Net Loss per Common Share................................. 12.14 12.27
1996 Net Loss.................................................. 4,411,898 8,558,764
1996 Net Loss per Share........................................ 8.61 16.71

The weighted average fair value of the stock options during the fiscal years
ended June 30, 1996 and 1997 ranged from $3.51 to $11.43.

The fair value of options granted under the Plans during fiscals 1996 and
1997 were estimated on the date of grant using the Black--Scholes option pricing
model with the following weighted average assumptions used:

(i) no dividend yield

(ii) expected volatility of 81% and 75% for 1996 and 1997, respectively

(iii) risk free interest rate of between 5.81% and 6.25%

(iv) expected lives ranging from 2 to 10 years

During the year ended June 30, 1996, the Company issued 103,015 shares of
its common stock, valued at $820,558, in connection with acquisitions (see Note
2).

During the year ended June 30, 1996, the Company issued 10,667 shares of its
common stock, valued at $147,200, as payment of a note payable in connection
with the acquisition of a division of Emergency Response Systems, Inc. (see Note
2), and issued 47,032 shares of its common stock, valued at $519,920, as payment
of notes payable to stockholders and officers (including interest of $11,849).

During the year ended June 30, 1996, the Company issued 667 shares of its
common stock, valued at $8,125, as payment for consulting services.

The Company, in December, 1996, canceled 16,667 shares of its common stock
held in escrow, in connection with an acquisition.

In March, 1997, the Company issued 8,333 shares of its common stock in
connection with a purchase of monitoring contracts and 5,567 shares of its
common stock pursuant to a guarantee of stock valuation in connection with an
acquisition (see Note 2). As a result, the Company recorded common stock of $334
and additional paid-in capital of $74,934.

On March 4, 1997, the Company issued 364,721 shares of its common stock,
valued at $3.3 million in connection with a Joint Venture (see Note 3), pursuant
to a guarantee of stock valuation.

During January, 1996, and February, 1996, the Company completed a private
placement of 61 units. Each unit consisted of a $25,000 10% Convertible
Subordinated Promissory Note due December 31, 1997 (the "10% Notes"), and Class
C Warrants to purchase 334 shares of the Company's common stock. Through June
30, 1997, all of these notes had been converted to common stock.

F-26

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (CONTINUED)
The Company, as part of a consulting agreement, issued warrants to purchase
66,667 shares of the Company's common stock at a price of $15.375; these
warrants expire April 30, 1999. Also, as part of consulting agreements, the
Company issued warrants to purchase 428,334 shares of the Company's common stock
at prices ranging from $7.50 to $10.50; these warrants were exercised during the
year ended June 30, 1996.

In connection with the issuance of the preferred stock (see Note 9), the
Company granted transferable warrants to purchase 166,667 shares of the
Company's common stock at an exercise price of $18.39 per share and 83,334
shares of the Company's common stock at an exercise price of $24.00 per share;
these warrants expire June 30, 2001. The Company also issued warrants to a
consultant to purchase 25,000 shares of the Company's common stock at an
exercise price of $13.50; these warrants expire June 30, 2000.

During the months July, 1996, through September, 1996, 40,667 shares of the
Company's common stock were issued as a result of the exercise of Class A and
Class C Warrants. The Company recorded common stock of $325 and additional
paid-in capital of $467,335.

The following is a summary of warrant activity:

NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ------------------

Warrants outstanding at June 30, 1994............................................ 744,398 $7.50-13.50
Warrants issued in connection with 12% Notes-Class C........................... 12,167 $11.25
Warrants issued to placement agents in connection with 13.8% Notes-Class C..... 6,667 $11.25
---------- ------------------
Warrants outstanding at June 30, 1995............................................ 763,232 $7.50-13.50
Warrants issued in connection with 13.8% Notes-Class C......................... 6,667 $9.78
Warrants issued in connection with 12 % Notes--Class A......................... 10,223 $7.50
Warrants issued in connection with 10% Notes--Class C.......................... 20,333 $16.875
Warrants issued in connection with consulting agreements....................... 495,000 $7.50-15.375
Warrants issued in connection with preferred stock............................. 91,667 $13.50-24.00
Warrants issued in connection with line of credit agreement.................... 377,378 $4.50-13.50
Warrants exercised in connection with 12% Notes--Class C....................... (9,767) $11.25
Warrants exercised in connection with 10% Notes--Class C....................... (9,500) $16.875
Warrants exercised in connection with consulting agreements.................... (428,333) $7.50-10.50
---------- ------------------
Warrants outstanding at June 30, 1996............................................ 1,316,900 $4.50-24.00
Warrants issued in connection with preferred stock litigation.................. 114,833 $6.00
Warrants exercised in connection with 12% Notes- Class A....................... (10,223) $7.50
Warrants exercised in connection with 10% Notes- Class C....................... (10,000) $16.875
---------- ------------------
Warrants outstanding at June 30, 1997.......................................... 1,411,510 $4.50-24.00
---------- ------------------
---------- ------------------

F-27

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES

The differences between the provision for income taxes and income taxes
computed using the federal income statutory tax rate are as follows:

YEAR ENDED JUNE 30,
----------------------------

1996 1997
------------- -------------
Amount computed using the statutory rate............................................ ($ 1,500,050) ($ 3,800,392)
Increase (decrease) in taxes resulting from Nondeductible expenses.................. 24,400 12,626
State taxes, net of federal taxes................................................. (216,900) 0
Federal tax valuation allowance................................................... 1,692,550 3,787,766
------------- -------------
Income taxes (benefit)............................................................ $ 0 $ 0
------------- -------------
------------- -------------

At June 30, 1997, the cumulative temporary differences resulted in net
deferred tax assets or liabilities consisting primarily of:

Deferred tax assets:
Accounts receivable reserves.................................... $ 186,163
Inventory reserves.............................................. 8,366
Property........................................................ 1,069,849
Warranty reserve................................................ 55,792
Accrued vacation accrual........................................ 45,564
Uncollected Interest Revenue.................................... 100,453
Deferred Expenses............................................... 973,600
Other........................................................... 49,330
Net operating loss carryforwards................................ 6,752,044
---------
9,241,161
Less valuation allowance........................................ 9,241,161
---------
$ 0
---------
---------

F-28

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
For income tax reporting, the Company has net operating loss carryforwards
available to reduce future federal and state income taxes. If not used, the
carryforwards will expire as follows:

YEAR ENDING JUNE 30, FEDERAL STATE
- --------------------------------------------------------------- ------------- -------------

2000........................................................... -- $ 1,191,025
2001........................................................... -- 3,253,300
2002........................................................... -- 3,206,000
2003........................................................... $ 254,200 3,491,200
2004........................................................... 23,100 2,433,632
2005...........................................................
2006........................................................... 15,000
2007...........................................................
2008........................................................... 136,300
2009........................................................... 3,605,100 390,100
2010........................................................... 2,997,000 147,800
2011........................................................... 3,504,400 160,100
2012........................................................... 6,897,226 260,490
------------- -------------
$ 17,296,026 $ 14,669,947
------------- -------------
------------- -------------

The utilization of the federal net operating loss carryforwards aggregating
$277,300 expiring June 30, 2003, and 2004, are subject to an annual limitation
of $23,110 per year through June, 2004, in accordance with the provisions of the
Internal Revenue Code. This annual limitation may be adjusted due to ownership
changes in future years.

12. PROFIT SHARING PLAN

Effective June 1, 1995, the Company established a qualified profit sharing
plan under section 401(k) of the Internal Revenue Code, covering certain of its
salaried employees. The Company contributes 50% of each participant's elective
deferral up to maximum Company contributions of 2.50% of eligible salaries.
Contributions to the plan by the Company for the years ended June 30, 1995, 1996
and 1997, were $2,216, $23,008 and $36,981, respectively.

13. RECOVERY OF RESTRUCTURING CHARGES

In April, 1994, the Company initiated a plan of reorganization and
restructuring designed to reduce costs, improve operating efficiency and
increase overall future profitability as the Company refocuses its sales and
marketing efforts on security and fire alarm systems for residential and
commercial properties. As a result, the Company streamlined its organization and
closed its manufacturing and monitoring facilities. During the year ended June
30, 1995, the Company recorded a recovery of $52,920 of these costs resulting
from an overaccrual at June 30, 1994.

F-29

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

The Company has employment contracts with certain key personnel for terms
expiring in June 2000. The contracts provide for initial annual base salaries
aggregating $375,000.

The Company has employment contracts with certain key personnel of USS for
terms expiring March, 1999. The contracts provide for initial base salaries
aggregating $240,000 which are subject to incremental increases as determined by
the Board of Directors on all payments provided the following conditions are
realized: (i) if the Company increases its net alarm system subscriber accounts
by at least 10,000 accounts before March 1999, the Company shall pay each
employee $1.0 million dollars less the gross proceeds received from the sale or
exercise of their options; (ii) if the Company increases its net alarm system
subscriber accounts by at least 15,000 accounts before March, 1999, the Company
shall pay each employee $1.5 million less the gross proceeds received from the
sale or exercise of their options; and (iii) any increases in net alarm systems
between 10,000 and 15,000 accounts shall entitle certain employees to a pro
rated amount between $1.0 million and $1.5 million as determined in provisions
(i) and (ii) above. As a result, the Company recorded compensation expense and a
deferred liability at June 30, 1997 and September 30, 1997 relating to such
contracts.

CONSULTING AGREEMENT

In April, 1996, the Company entered into a two-year consulting agreement
which provides for a minimum annual fee of $42,000. In March 1997, the
consulting agreement was terminated. As a result of the termination of the
agreement, the Company recorded a charge of $63,000 to consulting fees for the
fiscal year ended June 30, 1997.

MONITORING AGREEMENT

In April, 1994, the Company entered into a three-year monitoring agreement,
which has been extended through April, 2000, providing for increases based on
the number of subscribers as defined, for monitoring services previously
provided directly by the Company. Total cost under this agreement was $435,000,
$494,000 and $703,470 for the years ended June 30, 1995, 1996 and 1997,
respectively.

If the Company elects to continue its monitoring with its current monitoring
facility, the minimum estimated monitoring costs for the following three years
will be:

FISCAL YEAR ENDED
- --------------------------------------------------------------------------------

June 30, 1998................................................................... $ 828,000
June 30, 1999................................................................... 856,500
June 30, 2000................................................................... 856,500
------------
$ 2,541,000
------------
------------

F-30

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASE COMMITMENTS

The Company leases its facilities and various equipment under operating
leases expiring at various dates through December 2000. The following is a
schedule of future minimum rental payments required under these leases:

YEAR ENDING JUNE 30,
- --------------------------------------------------------------

1998.......................................................... $ 321,074
1999.......................................................... 256,564
2000.......................................................... 40,038
2001.......................................................... 12,944
2002.......................................................... --
----------
$ 630,620
----------
----------

The leases provide that the Company pay as additional rent taxes, insurance
and other operating expenses applicable to the leased premises. Total rent
expense under all operating leases aggregated $258,379, $369,852 and $344,117
for the years ended June 30, 1995, 1996 and 1997, respectively.

CONTINGENCIES

In the normal course of business, the Company is subject to litigation, none
of which is expected to have a material effect on the consolidated financial
position, results of operations or cash flows of the Company.

As part of certain acquisitions and a joint venture, the Company has
guaranteed the value of its common stock at various prices ranging from $9.03 to
$15.00 for periods expiring at various dates through March 2000. As of June 30,
1997, the Company's contingent liabilities under these agreements aggregated
approximately $20,000, which may be settled in cash or by the issuance of common
stock; to the extent that settlement is in common stock, the holders are
entitled to piggy-back registration rights and the Company has filed a
registration statement for 31,467 shares of common stock which are expected to
be sufficient to satisfy the Company's obligation.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash approximates its fair value because of its short
maturity. The carrying amount of marketable securities, none of which are held
for trading purposes, is fair value (see Note 1.)

The carrying amount of the line of credit approximates its fair value
because the interest rates on this obligation approximate market rates.

It was not deemed practicable to estimate the fair value of the
reorganization debt due to the nature of the financing arrangements.

The carrying amount of equipment financing and capitalized lease obligations
approximates its fair value because the interest rates on these obligations
approximate market rates.

F-31

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SUBSEQUENT EVENTS

On September 30, 1997, the Company, entered into an agreement, as amended,
with Triple A Security Systems, Inc. ("Triple A"), a Pennsylvania corporation,
and Robert L. May, an individual to acquire substantially all of the assets of
Triple A Security Systems, Inc. Triple A is engaged in the installation,
servicing and monitoring of electronic security systems.

In consideration of the acquisition of approximately 14,000 subscriber
accounts, the Company will pay Triple A an aggregate of approximately
$13,000,000, consisting of $10,000,000 in cash and $2,250,000 in shares of its
common stock; additionally the Company will assume certain liabilities totaling
$750,000.

In October 1997, the Company entered into an agreement to acquire all of the
outstanding stock of Jupiter, a patrol service company. In consideration of the
acquisition, the Company will pay Jupiter approximately $1,045,000 in the
Company's common stock. Jupiter's patrol services are principally supplied in
areas in which the Company believes that Triple A is a substantial provider of
security systems services. The patrol service supplements the Company's alarm
monitoring service by providing routine patrol of a subscriber's premises and
neighborhood, response to alarm system activations and "special watch" services,
such as picking up mail and newspapers and increased surveillance when the
customer is on vacation.

Summarized combined financial data of Triple A and Jupiter for the years
ending December 31, 1995 and 1996 is as follows:

1995 1996
------------ ------------

Revenues.......................................................... $ 6,459,965 $ 6,731,592
Cost of Revenues.................................................. 3,422,221 3,930,233
Gross Profit...................................................... 3,037,744 2,801,359
Operating Expenses................................................ 2,679,924 2,497,764
Interest Expense (net)............................................ 120,332 130,632
------------ ------------
Net Income........................................................ $ 237,488 $ 172,963
------------ ------------
------------ ------------

On June 18, 1997, October 1, 1997 and November 13, 1997, Mellon amended
certain financial covenants in the Loan and Security Agreement dated June 30,
1996, as follows: (i) ratio of cash flow to interest expense; (ii) ratio of
senior funded debt to cash flow; (iii) net income (loss); and (iv) capital
expenditures. The Company was in compliance with the terms of the amended debt
covenants at June 30, 1997 and believes it will continue to be in compliance
with the amended debt covenants during fiscal 1998.

In October, 1997, the Company filed Form SB-2, Registration Statement under
the Securities Act of 1933, offering 2,400,000 shares of Common Stock, par value
$.008 per share. The Company has granted the Underwriters a 45-day option to
purchase up to an additional 360,000 shares of Common Stock solely to cover
over-allotments, if any. In connection with the offering, the Underwriters will
receive warrants to purchase up to an aggregate of 240,000 shares of Common
Stock from the Company.

The net proceeds from the sale of Stock will be used for the acquisition of
Triple A, to redeem the preferred stock and the remainder to pay down amounts
outstanding under the credit line.

On January 6, 1998, the Company delcared a one-for-three reverse stock split
which became effective on January 9, 1998. Per share information and share
amounts in these financial statements have been adjusted to reflect this stock
split.

F-32

RESPONSE USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SUBSEQUENT EVENTS (CONTINUED)
On October 30, 1997, Mellon Bank agreed to increase the revolving credit
facility from $15.0 million to $18.0 million under the same terms and conditions
as the original Loan and Security Agreement except for the amortization of the
outstanding loan. The amended amortization on the outstanding loan balance is
interest only for one year, and the reduction of principal in the amount of
$250,000 per quarter, thereafter. The increase in the line of credit is
conditional upon net proceeds received, totaling at least $7.0 million, after
the redemption of preferred shareholders and expenses, from the planned
secondary offering.

F-33

INDEPENDENT AUDITORS' REPORT

To the Stockholder of

Triple A Security Systems, Inc.:

We have audited the accompanying balance sheets of Triple A Security
Systems, Inc. as of December 31, 1996 and 1995, and the related statements of
income and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triple A Security Systems,
Inc. as of December 31, 1996 and 1995 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

Terry H. Jones, CPA
West Hazleton, PA
March 27, 1997

F-34

TRIPLE A SECURITY SYSTEMS, INC.

BALANCE SHEETS

SEPTEMBER
30, DECEMBER 31,
----------- --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED) (AUDITED) (AUDITED)

ASSETS
Current Assets:
Cash..................................................... $ 69,328 $ 126,941 $ 235,963
Marketable securities.................................... 114,853 110,176 108,583
Accounts receivable, net of allowance for doubtful
accounts of $30,000, $50,000 and $29,000,
respectively........................................... 307,024 551,432 343,589
Employee advance......................................... 2,803 6,871 5,658
Inventory and work-in-progress........................... 523,383 483,875 384,553
Prepaid expenses......................................... 58,882 14,981 8,693
Deposits................................................. 31,845 7,950 7,370
Due from stockholder..................................... 8,562 9,857 14,068
Due from affiliate....................................... 76,465 84,169 103,135
Other current assets..................................... 11,405 5,951 --
----------- --------- ---------
Total Current Assets............................... 1,204,550 1,402,203 1,211,612
----------- --------- ---------
PROPERTY AND EQUIPMENT:
Property and equipment, net of accumulated
depreciation........................................... 1,133,561 1,185,326 821,916
Property and equipment held for lease, net of accumulated
depreciation........................................... 720,479 611,251 542,624
----------- --------- ---------
1,854,040 1,796,577 1,364,540
----------- --------- ---------
INTANGIBLE ASSETS, net................................... 230,312 210,980 281,304
----------- --------- ---------
$3,288,902 $3,409,760 $2,857,456
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Demand notes payable..................................... $ 55,000 $ 65,000 $ --
Current portion of long-term............................. 356,452 344,224 259,582
Accounts payable......................................... 408,285 583,504 188,031
Deferred revenue......................................... 769,345 683,338 702,992
Accrued expenses......................................... 144,851 118,912 209,319
Payroll taxes withheld and accrued....................... 11,402 10,635 16,741
Sales and use tax payable................................ 3,456 2,555 2,881
----------- --------- ---------
Total Current Liabilities.......................... 1,748,791 1,808,168 1,379,546
LONG-TERM DEBT, net of current portion................... 1,105,149 1,215,348 1,121,678
----------- --------- ---------
Total Liabilities.................................. 2,853,940 3,023,516 2,501,224
----------- --------- ---------
COMMITMENT AND CONTINGENCY STOCKHOLDER'S EQUITY:
Common stock, $100 par, 5,000 shares authorized, 1,250
issued and outstanding................................. 125,000 125,000 125,000
Additional paid-in capital............................... 215,814 215,814 215,814
Net unrealized loss on marketable securities............. 391 (4,286) (5,696)
Retained earnings........................................ 93,757 49,716 21,114
----------- --------- ---------
Total Stockholder's Equity......................... 434,962 386,244 356,232
----------- --------- ---------
3,288,902 $3,409,760 $2,857,456
----------- --------- ---------
----------- --------- ---------

The accompanying notes are an integral part of the financial statements.

F-35

TRIPLE A SECURITY SYSTEMS, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------- --------------------
1997 1996 1996 1995
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)

REVENUES..................................... $3,906,544 $3,637,204 $5,041,574 $5,158,440
COST OF REVENUES............................. 1,776,496 1,721,048 2,319,741 2,652,662
--------- --------- --------- ---------
Gross Profit............................. 2,130,048 1,916,156 2,721,833 2,505,778
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling expenses............................. 526,550 461,389 644,213 761,250
General and administrative expenses.......... 1,042,489 937,512 1,312,056 1,106,715
--------- --------- --------- ---------
Total Operating Expenses................. 1,569,039 1,398,901 1,956,269 1,867,965
--------- --------- --------- ---------
Income Before Depreciation and
Amortization............................... 561,009 517,255 765,564 637,813
--------- --------- --------- ---------
DEPRECIATION AND AMORTIZATION:
Depreciation of property and equipment....... 325,109 252,338 380,375 325,230
Amortization of intangibles.................. 41,576 60,302 70,323 77,204
--------- --------- --------- ---------
Total Depreciation and Amortization...... 366,685 312,640 450,698 402,434
--------- --------- --------- ---------
Income From Operations....................... 194,324 204,615 314,866 235,379
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Finance and service charge income............ 5,416 46,968 65,930 31,134
Miscellaneous income......................... 22,720 14,104 31,028 17,034
Interest income.............................. 3,650 10,471 14,303 22,310
Gain on sale of assets....................... -- -- 4,890 207
Dividend income.............................. 2,851 2,453 3,957 4,335
Interest expense............................. (92,475) (83,906) (120,219) (140,007)
Loss on abandonment.......................... -- -- (55,783) --
Conversion costs............................. -- -- (41,214) (45,352)
Relocation expense........................... (5,255) -- (29,130) --
--------- --------- --------- ---------
Other Expense, Net....................... (63,093) (9,910) (126,238) (110,339)
--------- --------- --------- ---------
NET INCOME................................... 131,231 194,705 188,628 125,040
RETAINED EARNINGS:
Beginning of year............................ 49,716 21,114 21,114 39,724
Distributions................................ (87,190) (136,800) (160,026) (143,650)
--------- --------- --------- ---------
End of year.................................. $ 93,757 $ 79,019 $ 49,716 $ 21,114
--------- --------- --------- ---------
--------- --------- --------- ---------

The accompanying notes are an integral part of the financial statements.

F-36

TRIPLE A SECURITY SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------

(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 131,231 $ 194,705 $ 188,628 $ 125,040
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 325,105 252,338 380,375 325,230
Amortization of intangible assets......................... 41,576 60,302 70,323 77,204
Other amortization........................................ -- -- (182) (231)
Gain on sale of assets.................................... (2,800) -- (4,890) (207)
Loss on abandonment....................................... -- -- 55,783 --
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable................................... 244,408 (84,511) (207,843) 100,408
Employee advances..................................... 4,068 3,175 (1,213) 12,566
Inventory and work-in-progress........................ (39,508) (74,254) (99,322) 100,591
Prepaid expenses...................................... (43,902) (7,692) (14,551) 52,563
Deposits.............................................. (23,895) (3,080) (580) 1,347
Due from affiliate.................................... 7,704 18,940 27,246 17,701
Other current assets.................................. (5,454) (20,785) (5,951) --
Increase (decrease) in liabilities:
Accounts payable...................................... (175,219) 273,935 395,473 (108,596)
Deferred revenue...................................... 85,907 19,913 (19,654) (47,954)
Accrued expenses...................................... 23,733 (151,901) (90,407) 88,898
Payroll taxes withheld and accrued.................... 767 (1,561) (6,106) 2,043
Sales and use tax payable............................. 900 47 (326) (793)
----------- ----------- ----------- -----------
Net Cash Provided by Operating Activities................... 574,625 479,571 666,803 745,810
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities......................... -- -- -- (3,200)
Proceeds from sale of equipment........................... 2,800 -- 4,890 2,900
Capital expenditures...................................... (443,481) (489,565) (652,452) (354,199)
Advances to stockholder................................... 1,295 (42,306) (52,216) (19,657)
----------- ----------- ----------- -----------
Net Cash Used in Investing Activities....................... 439,386 (531,871) (699,788) (374,156)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on demand notes................................ (10,000) -- 65,000 --
Proceeds from long-term debt.............................. 198,495 141,900 292,650 105,274
Payments on long-term debt................................ (294,157) (221,035) (330,097) (233,846)
Distributions to stockholder.............................. (87,190) (95,800) (103,600) (70,900)
----------- ----------- ----------- -----------
Net Cash used in Financing Activities....................... (192,852) (174,935) (76,047) (199,472)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH............................. (57,613) (227,235) (109,022) 172,182
CASH--BEGINNING............................................. 126,941 235,963 235,963 63,781
----------- ----------- ----------- -----------
CASH--ENDING................................................ $ 69,328 $ 8,728 $ 126,941 $ 235,963
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 98,558 $ 83,906 $ 118,567 $ 140,076
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Fair value of property and equipment acquired and
liabilities assumed..................................... -- $ 215,750 $ 215,750 $ 31,941
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Payment on stockholder loan through non-cash
distributions........................................... -- -- 56,426 72,750
Payment on stockholder loan from personal assumption of
note payable--unsecured................................. $ -- -- -- $ 148,254
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

The accompanying notes are an integral part of the financial statements.

F-37

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

NATURE OF OPERATIONS

Triple A Security Systems, Inc. (the company) is engaged in the sale, lease,
installation, service and monitoring of security systems to commercial and
residential customers. The company grants credit to customers throughout
Northeastern Pennsylvania. Consequently, the company's ability to collect the
amounts due from customers is affected by economic fluctuations within the
geographic area.

REVENUE RECOGNITIONS

Rental, monitoring and service fees related to operating leases, monitoring
and service contracts are recorded as income when earned. All contracts contain
an initial noncancellable three or five year term with subsequent annual
renewals cancellable within sixty days of the anniversary date. Advance billings
are reflected as deferred revenue in the accompanying balance sheet.
Installation fees are recognized when the leased equipment is installed.

At December 31, 1996, the retail monthly recurring revenues were
approximately $245,576 and the wholesale monthly recurring revenues were
approximately $13,567.

INVENTORY AND WORK-IN-PROGRESS

Inventory consisting of equipment held for sale or lease and related repair
parts is valued at the lower of cost or market determined on a first-in,
first-out basis. Work-in-progress inventory is valued at cost.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:

YEARS
---------

Monitoring equipment.................................................................. 10-12
Other equipment....................................................................... 3-12
Office furniture and fixtures......................................................... 5-12
Vehicles.............................................................................. 5
Leasehold improvements................................................................ 7-40

Expenditures for maintenance and repairs are charged to operations as
incurred. Cost of replacement and renewals are capitalized.

Upon sale or other disposition, the asset account and related deprecation
account are relieved, and any gain or loss is included in operations.

MARKETABLE SECURITIES

Effective January 1, 1995, the company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The company's investment securities are classified
as available-for-sale. Accordingly, unrealized gains and losses are

F-38

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
excluded from earnings and reported as a separate component of stockholders'
equity. Realized gains or losses are computed based on specific identification
of the securities sold.

SFAS No. 115 superseded SFAS No. 12, "Accounting for Certain Marketable
Securities," under which investment securities were generally carried at the
lower of aggregate market or amortized cost and unrealized gains were not
recognized. The effect of the initial adoption of SFAS No. 115 was not material.

INTANGIBLE ASSETS

Costs incurred in connection with the organization of the company and
purchases of contracts from predecessor entities are being amortized using the
straight-line method over the following lives:

YEARS
-----

Monitoring contracts................................................................... 7-8
Goodwill............................................................................... 5
Noncompete agreements.................................................................. 3-11
Loan origination fees.................................................................. 5-11
Deferred acquisition costs............................................................. 5

INCOME TAXES

The company has elected to be taxed as an "S" Corporation as provided in the
Federal and State Income Tax Codes. All income and losses are passed through to
the stockholder and are taxed at the individual level. As such, no provision for
federal or state income taxes is included in the financial statements.

RECLASSIFICATIONS

Certain accounts for the year ended December 31, 1995 have been reclassified
for comparative purposes to conform with the year ended December 31, 1996.

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

F-39

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 2: MARKETABLE SECURITIES

The following tables reflect the amortized cost and estimated fair values of
marketable debt and equity securities held at December 31, 1996 and 1995. All
investments held by the company are classified as available-for-sale.

1996
-----------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------

Equity securities................................................ $ 7,805 $ 1,525 $ 16 $ 9,314
U.S. government obligations...................................... 12,292 2,873 -- 15,165
Mortgage-backed securities....................................... 40,664 -- 2,927 37,737
Mutual funds..................................................... 53,700 -- 5,740 47,960
---------- ----------- ----------- ----------
$ 114,461 $ 4,398 $ 8,683 $ 110,176
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------

1995
-----------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------

Equity securities................................................ $ 7,805 $ 588 $ 279 $ 8,114
U.S. government obligations...................................... 12,086 2,644 -- 14,730
Mortgage-backed securities....................................... 40,688 -- 3,266 37,422
Mutual funds..................................................... 53,700 -- 5,383 48,317
---------- ----------- ----------- ----------
$ 114,279 $ 3,232 $ 8,928 $ 108,583
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------

U.S. government obligations mature in 2024 and mortgage-backed securities
mature in 2023. The change in net unrealized holding losses on marketable debt
and equity securities in the amount of $1,359 and $11,632 has been charged to
stockholder's equity for the years ended December 31, 1996 and 1995,
respectively.

NOTE 3: INVENTORY AND WORK-IN-PROGRESS

Inventory and work-in-progress consists of the following at December 31:

1996 1995
---------- ----------

Raw materials......................................................... $ 347,679 $ 264,942
Work-in-progress...................................................... 136,196 119,611
---------- ----------
$ 483,875 $ 384,553
---------- ----------
---------- ----------

NOTE 4: RELATED PARTY TRANSACTIONS

The balance due from stockholder is an unsecured loan requiring interest
only at 5.65%. The balance at December 31, 1996 and 1995 due from affiliate of
$84,169 and $103,135 represents money advanced to a

F-40

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 4: RELATED PARTY TRANSACTIONS (CONTINUED)
company which is substantially owned by the stockholder of Triple A Security
Systems, Inc. Interest has been accrued on the 1996 and 1995 average balance at
prime plus 1%. Interest accrued for the years ended December 31, 1996 and 1995
was $8,280 and $9,341, respectively.

NOTE 5: PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

1996 1995
----------- -----------

Monitoring equipment............................................... $ 686,851 $ 686,851
Other equipment.................................................... 1,266,810 1,378,284
Office furniture & fixtures........................................ 267,595 402,975
Vehicles........................................................... 470,447 355,615
Leasehold improvements............................................. 328,746 123,781
----------- -----------
3,020,449 2,947,506
Less accumulated depreciation...................................... (1,835,123) (2,125,590)
----------- -----------
$ 1,185,326 $ 821,916
----------- -----------
----------- -----------

NOTE 6: OPERATING LEASES

LESSOR TRANSACTIONS

The company is the lessor of security monitoring equipment under operating
leases expiring in various years through 2001.

Property on or held for lease consists of the following at December 31:

1996 1995
------------ ------------

Monitoring equipment.............................................. $ 1,480,778 $ 1,303,611
Less accumulated depreciation..................................... (869,527) (760,987)
------------ ------------
$ 611,251 $ 542,624
------------ ------------
------------ ------------

LESSEE TRANSACTIONS

The company is currently leasing its facilities under several one year or
month-to-month renewable operating lease agreements. Annual rentals were $47,715
and $43,478, in 1996 and 1995, respectively.

RELATED PARTY TRANSACTIONS

The company leases two of its facilities from the stockholder on a triple
net basis. One agreement is a noncancellable lease requiring payments that
increase annually at predetermined amounts through June, 2000. Thereafter,
payments are adjusted annually in accordance with the Consumer Price Index. The
other

F-41

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 6: OPERATING LEASES (CONTINUED)
is a month-to-month lease at $1,070 per month. Rent expense for the year ended
December 31, 1996 was $69,533.

At December 31, 1996, minimum future lease payments under the noncancellable
lease are as follows:

YEAR ENDING LEASE
DECEMBER 31 OBLIGATION
- -------------------------------------------------------------------------------- ------------

1997............................................................................ $ 97,067
1998............................................................................ 109,867
1999............................................................................ 122,667
2000............................................................................ 128,000
2001............................................................................ 128,000
Thereafter...................................................................... 1,845,000
------------
$ 2,430,601
------------
------------

NOTE 7: INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization consist of the following
at December 31:

1996 1995
---------- ----------

Monitoring contracts.................................................. $ 82,051 $ 112,507
Goodwill.............................................................. 605 1,815
Noncompete agreements................................................. 114,824 132,642
Loan origination fees................................................. 4,147 6,280
Deferred acquisition costs............................................ 9,353 28,060
---------- ----------
$ 210,980 $ 281,304
---------- ----------
---------- ----------

F-42

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 8: DEMAND NOTES PAYABLE

The company has available $130,000 under a line of credit agreement with
Summit Bank, expiring June 30, 1997. The terms are interest payable monthly at
prime plus 1% on the outstanding balance, with principal and interest due in
full at the expiration of the term. This note is cross-collateralized with the
company's other notes with Summit Bank. At December 31, 1996, the company had
$55,000 outstanding on this line of credit.

The company has available $158,000 under a revolving line of credit
agreement with Summit Bank, expiring April, 1997. The terms are interest payable
monthly at prime plus .25% on the outstanding balance, with principal and
interest due in full at the expiration of the term. This note is cross-
collateralized and cross-defaulted with the company's other notes with Summit
Bank. At December 31, 1996, the company had $10,000 outstanding on this line of
credit.

NOTE 9: LONG-TERM DEBT

Long-term debt consists of the following at December 31:

1996 1995
------------ ------------

Summit Bank:

Term loan payable in monthly installments of $15,946, including interest at 8.13%,
maturing October, 2000. Pledged as collateral is accounts receivable. The loan is
personally guaranteed by the stockholder. The loan has cross-default provisions with
the other Summit Bank notes......................................................... $ 642,544 $ 774,783
Term loan payable in monthly installments of $1,200, including interest at 8.13%,
maturing October, 2000. Pledged as collateral is accounts receivable. The loan is
personally guaranteed by the stockholder. The loan has cross-default provisions with
the other Summit Bank notes......................................................... 48,355 58,306
Revolving line of credit, payable monthly, at 1.67% of the outstanding principal
balance plus interest at prime plus 1%, with a floor of 6% and a ceiling of 10%,
maturing October, 1999. Maximum borrowing under this agreement is $500,000. Pledged
as collateral are accounts receivable, inventory, machinery, equipment, furniture
and fixtures. The loan is personally guaranteed by the stockholder. The note is
cross-collateralized and has cross-default provisions with the other summit Bank
notes............................................................................... 234,731 176,321
Term note payable in monthly installments of $1,670, including interest at 8.5%,
maturing September, 1997. Pledged as collateral are accounts receivable, inventory,
machinery, equipment, furniture and fixtures. The loan is personally guaranteed by
the stockholder. The note is cross-collateralized and has cross-default provisions
with the other Summit Bank notes.................................................... 16,428 34,204
Term note payable in monthly installments of $2,556, including interest at 8.35%,
maturing October, 2001. Pledged as collateral are accounts receivable, inventory,
machinery, equipment, furniture and fixtures. The loan is personally guaranteed by
the stockholder. The note is cross-collateralized and has cross-default provisions
with the other Summit Bank notes.................................................... 121,180 --

F-43

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 9: LONG-TERM DEBT (CONTINUED)

1996 1995
------------ ------------

Former owner--Acquired Company:

Promissory note payable in monthly installments of $3,744, including interest at 8%
maturing October, 2003. Pledged as collateral are assets acquired in acquisition as
well as the personal guarantee of the stockholder and the common stock of Triple A
Security Systems, Inc............................................................... 233,757 258,886

Fidelity Bank:

Two notes payable in monthly installments of $706, including interest at prime plus
.5%, maturing in April, 1997 and January, 1998. Pledged as collateral are vehicles
with a book value of $11,292........................................................ 7,340 14,781
Note payable in monthly installments of $1,707, including interest at prime plus .75%,
maturing April, 1997. Pledged as collateral are vehicles with a book value of
$20,660............................................................................. 6,237 25,176

First Heritage Bank:

Note payable in monthly installments of $266, including interest at prime plus .5%,
maturing December, 1998. Pledged as collateral is a vehicle with a book value of
$3,917.............................................................................. 5,827 8,390
Note payable in monthly installments of $798, including interest at prime plus .5%,
maturing January, 1999. Pledged as collateral are vehicles with book value of
$19,690............................................................................. 18,173 25,734
Note payable in monthly installments of $6,252, including interest at 8.75%, maturing
June, 2000. Interest of $1,640 was payable monthly through December, 1996. Pledged
as collateral are vehicles with a book value of $193,934............................ 225,000 --

Lake Ariel Bank:

Installment note payable matured November, 1996....................................... -- 4,679
------------ ------------
1,559,572 1,381,260
Less current portion.............................................................. 344,224 259,582
------------ ------------
$ 1,215,348 $ 1,121,678
------------ ------------
------------ ------------

F-44

TRIPLE A SECURITY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 9: LONG-TERM DEBT (CONTINUED)
The aggregate principal payments required on the long-term debt obligations
at December 31, 1996 are as follows:

YEAR ENDING
DECEMBER 31 AMOUNT
- -------------------------------------------------------------------------------- ------------

1997............................................................................ $ 344,224
1998............................................................................ 332,404
1999............................................................................ 465,758
2000............................................................................ 282,587
2001............................................................................ 61,433
Thereafter...................................................................... 73,166
------------
$ 1,559,572
------------
------------

NOTE 10: COMMITMENT AND CONTINGENCY

COMMITMENT--SUMMIT BANK LOAN COVENANTS

Under the terms of the company's loan agreements with Summit Bank there are
various covenants including minimum debt coverage ratio requirements, maximum
officer salary, limitations on distributions to the stockholder, and limitations
on acquisitions of other companies. The company must also maintain a primary
depository relationship with Summit Bank. The company was in compliance with all
covenants at December 31, 1996 and 1995.

CONTINGENCY

A customer, to which the company provides installation, repair and alarm
monitoring service, incurred a loss of approximately $817,008, due to a burglary
at its warehouse in October, 1993. Counsel for the company's customer has
advised the company that it has considered the possibility of seeking
contribution or indemnity from the company to the extent of its loss.

Counsel for the company has advised that there is no litigation with regard
to this matter at the time of the release of these financial statements. The
company believes that any potential claim would be without merit and will defend
its position vigorously. The company maintains $10 million of commercial general
liability/errors and omissions insurance.

NOTE 11: PROFIT SHARING PLAN

The company maintains a voluntary 401K profit-sharing plan that covers
substantially all of the employees. Contributions to the plan are at the
discretion of the Board of Directors. For the years ended December 31, 1996 and
1995, contributions of $8,792 and $5,772 have been made to the plan.

NOTE 12: SUBSEQUENT EVENT

The company borrowed $50,000 from Summit Bank in February, 1997. The note
requires monthly payments of $1,019, including interest at 8.22% through
February, 2002. The note is cross-collateralized and has cross-default
provisions with the other Summit Bank notes.

F-45

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
The Jupiter Group, Inc.:

We have audited the accompanying balance sheets of The Jupiter Group, Inc.
as of December 31, 1996 and 1995, and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Jupiter Group, Inc. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Terry H. Jones, CPA
West Hazleton, PA
November 21, 1997

F-46

THE JUPITER GROUP, INC.

BALANCE SHEETS

DECEMBER 31,
----------------------
1996 1995
SEPT. 30, ---------- ----------
-----------
1997 (AUDITED) (AUDITED)
-----------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash...................................................................... $ 163,879 $ 70,010 $ 64,911
Accounts receivable, net of allowance for doubtful accounts of $9,000,
$5,390, and $5,390, respectively:
Trade................................................................... 149,426 132,716 129,497
Affiliate............................................................... 5,024 3,790
Prepaid expenses.......................................................... 13,333 16,398 16,939
----------- ---------- ----------
Total Current Assets.................................................. 326,638 224,148 215,137

EQUIPMENT, net of accumulated depreciation.................................. 108,678 60,904 86,390

OTHER ASSETS:
Intangible assets, net of amortization.................................... 23,769 33,727 47,006
Deposits.................................................................. 300 300 300
----------- ---------- ----------
$ 459,385 $ 319,079 $ 348,833
----------- ---------- ----------
----------- ---------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt......................................... $ 77,494 $ 46,074 $ 51,577
Accounts payable.......................................................... 10,679 13,294 11,338
Accrued expenses.......................................................... 29,270 19,097 38,495
Payroll taxes withheld and accrued........................................ 13,788 12,175 7,452
Due to affiliate.......................................................... 76,465 84,169 103,135
----------- ---------- ----------
Total Current Liabilities............................................. 207,686 174,809 211,997

LONG-TERM DEBT, net of current portion...................................... 59,444 52,746 68,235
----------- ---------- ----------
Total Liabilities..................................................... 267,140 227,555 280,232
----------- ---------- ----------

STOCKHOLDERS' EQUITY:
Common stock, $1 par, 10,000 shares authorized, 625 shares issued and
outstanding............................................................. 625 625 625
Additional paid-in capital................................................ 22,375 22,375 22,375
Retained earnings......................................................... 169,245 68,524 45,601
----------- ---------- ----------
Total Stockholders' Equity............................................ 192,245 91,524 68,601
----------- ---------- ----------
$ 459,385 $ 319,079 $ 348,833
----------- ---------- ----------
----------- ---------- ----------

The accompanying notes are an integral part of the financial statements.

F-47

THE JUPITER GROUP, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

NINE MONTHS ENDED SEPT.
30, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------
1997 1996 1996 1995
------------ ------------ ------------ ------------

(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
REVENUES................................................. 1,339,872 1,153,108 $ 1,524,984 $ 1,321,433

COST OF REVENUES......................................... 1,080,798 940,442 1,277,571 1,102,480
------------ ------------ ------------ ------------

Gross Profit........................................... 259,074 212,666 247,413 218,953
------------ ------------ ------------ ------------

OPERATING EXPENSES:
Selling................................................ 5,095 5,178 8,068 4,948
General and administrative............................. 123,519 134,852 173,002 148,272
------------ ------------ ------------ ------------
Total Operating Expenses............................. 128,614 140,030 181,070 153,220
------------ ------------ ------------ ------------
Income From Operations............................... 130,460 72,636 66,343 65,733
------------ ------------ ------------ ------------

OTHER INCOME (EXPENSE):
Interest income........................................ 1,338 1,067 1,379 1,351
Gain (loss) on sale of asset........................... 1,800 (1,150) (1,150) 1,500
Interest expense....................................... (7,881) (14,707) (18,649) (19,724)
------------ ------------ ------------ ------------
Other Expense, Net................................... (4,743) (14,790) (18,420) (16,873)
------------ ------------ ------------ ------------

NET INCOME............................................... 125,717 57,846 47,923 48,860

RETAINED EARNINGS (DEFICIT):
Beginning of year...................................... 68,526 45,601 45,601 (3,259)
Distributions.......................................... (25,000) (25,000) (25,000) --
------------ ------------ ------------ ------------
End of year............................................ 169,243 78,447 $ 68,524 $ 45,601
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

The accompanying notes are an integral part of the financial statements.

F-48

THE JUPITER GROUP, INC.

STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED YEAR ENDED DECEMBER
SEPTEMBER 30, 31,
---------------------- ----------------------

1997 1996 1996 1995
---------- ---------- ---------- ----------

(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... 125,719 57,847 $ 47,923 $ 48,860
Adjustments to reconcile net income to net cash provided by
operating activities.......................................
Depreciation............................................... 49,752 52,838 70,451 60,837
Amortization............................................... 9,959 9,959 13,279 13,279
Gain (loss) on sale of assets.............................. 1,800 1,150 1,150 (1,500)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable.................................... (11,686) 2,542 (4,453) (44,774)
Prepaid expenses....................................... 3,065 (12,548) 541 (4,236)
Deposits............................................... -- (300)
Increase (decrease) in liabilities:
Accounts payable....................................... (2,615) 2,812 1,956 664
Accrued expenses....................................... 10,173 (17,692) (19,398) 29,088
Payroll taxes withheld and accrued..................... 1,614 3,412 4,723 4,473
Due to affiliate....................................... (7,704) (18,940) (18,966) (17,701)
---------- ---------- ---------- ----------
Net Cash Provided by Operating Activities.................. 180,077 81,380 97,206 88,690
---------- ---------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets................................. 1,800 10,850 10,850 1,500
Capital expenditures......................................... (97,526) (11,005) (11,005) (47,055)
---------- ---------- ---------- ----------
Net Cash Used by Investing Activities........................ (95,726) (155) (155) (45,555)
---------- ---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on long-term debt.................................. 93,326 -- -- 42,259
Payment on long-term debt.................................... (58,808) (61,611) (66,952) (61,874)
Distributions to stockholders................................ (25,000) (25,000) (25,000) --
---------- ---------- ---------- ----------
Net Cash Used by Financing Activities........................ 9,518 (86,611) (91,952) (19,615)
---------- ---------- ---------- ----------

NET INCREASE IN CASH........................................... 93,869 (5,386) 5,099 23,520
CASH -- BEGINNING.............................................. 70,010 64,911 64,911 41,391
---------- ---------- ---------- ----------
CASH -- ENDING................................................. $ 163,879 $ 59,525 $ 70,010 $ 64,911
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest........................... $ 7,881 $ 8,497 $ 10,369 $ 10,382
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Fair value of equipment acquired and liabilities assumed..... -- $ 46,758 $ 46,758 $ 27,851
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

The accompanying notes are an integral part of the financial statements.

F-49

THE JUPITER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

NATURE OF OPERATIONS

The company provides guard and patrol service to commercial and residential
customers. Operations are conducted from rented facilities in Hamlin,
Pennsylvania. The company grants credit to commercial and residential customers
throughout Northeastern Pennsylvania. Consequently, the company's ability to
collect the amounts due from customers is affected by economic fluctuations
within the geographic area.

EQUIPMENT

Equipment is carried at cost with depreciation computed primarily using the
straight-line method over the following estimated useful lives:

YEARS
---------

Vehicles.............................................................................. 2
Office equipment...................................................................... 3 - 7
Guard and patrol equipment............................................................ 5 - 7

Expenditures for maintenance and repairs are charged to operations as
incurred. Cost of replacement and renewals are capitalized.

Upon sale or other disposition, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.

INTANGIBLE ASSETS

Costs incurred in connection with the organization of the company and the
purchase of the predecessor entity are being amortized on a straight-line basis
over the following lives:

YEARS
---------

Goodwill............................................................................. 5
Noncompete agreements................................................................ 5 - 11
Organization costs................................................................... 5

INCOME TAXES

RECLASSIFICATIONS

Certain accounts for the year ended December 31, 1995 have been reclassified
for comparative purposes to conform with the year ended December 31, 1996.

F-50

THE JUPITER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
ESTIMATES

NOTE 2: EQUIPMENT

Equipment consists of the following at December 31:

1996 1995
---------- ----------

Vehicles.............................................................. $ 184,244 $ 214,475
Office equipment...................................................... 23,063 12,308
Guard and patrol equipment............................................ 5,200 5,200
---------- ----------
212,507 231,983
---------- ----------
Less accumulated depreciation......................................... 151,603 145,593
---------- ----------
$ 60,904 $ 86,390
---------- ----------
---------- ----------

NOTE 3: INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization, consist of the following
at December 31:

1996 1995
--------- ---------

Goodwill................................................................ $ 349 $ 973
Noncompete agreements................................................... 30,310 37,674
Organization costs...................................................... 3,068 8,359
--------- ---------
$ 33,727 $ 47,006
--------- ---------
--------- ---------

F-51

THE JUPITER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 4: LONG-TERM DEBT

Long-term debt consists of the following at December 31:

1996 1995
--------- ---------

Former owner:

Promissory note payable in monthly installments of $822, including interest at 8%, maturing
December, 2002. Pledged as collateral is equipment with book value of $2,836, customer
accounts and customer contracts. $ 51,313 $ 56,829

Bank:

Installment notes payable in monthly installments of $2,592, including interest at prime
plus .5%, maturing February through June, 1997. The notes contain a floor of 7% and a
ceiling of 12%. Vehicles with a book value of $8,990 are pledged as collateral. 9,774 38,547

Installment note payable in monthly installments of $629, including interest at prime plus
.5%, maturing December, 1997. The note contains a floor of 6.75% and a ceiling of 11.75%. A
vehicle with a book value of $6,494 is pledged as collateral. 7,131 13,732

Installment note payable in monthly installments of $632, including interest at prime plus
.5%, maturing March, 1998. The note contains a floor of 6.25% and a ceiling of 11.25%. A
vehicle with a book value of $8,298 is pledged as collateral. 8,938 --

Installment note payable in monthly installments of $1,442, including interest at 8.25%,
maturing April, 1998. Vehicles with a book value of $20,656 are pledged as collateral. 21,664 --

Installment note payable, matured December, 1996............................................ -- 5,554

Installment note payable, matured April, 1996............................................... -- 5,150
--------- ---------

98,820 119,812

Less current portion.................................................................... 46,074 51,577
--------- ---------

$ 52,746 $ 68,235
--------- ---------
--------- ---------

F-52

THE JUPITER GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1995

NOTE 4: LONG-TERM DEBT (CONTINUED)
The aggregate principal payments required on the long-term debt obligations
at December 31, 1996 are as follows:

YEAR ENDING
DECEMBER 31, AMOUNT
- ----------------------------------------------------------------------------------- ---------

1997............................................................................... $ 46,074
1998............................................................................... 13,875
1999............................................................................... 7,007
2000............................................................................... 7,588
2001............................................................................... 8,218
Thereafter......................................................................... 16,058
---------
$ 98,820
---------
---------

NOTE 5: DUE TO AFFILIATE

At December 31, 1996 and 1995, the balance due to affiliate of $84,169 and
$103,135, respectively, represents money advanced from a company which is wholly
owned by the majority stockholder of the Jupiter Group, Inc. Interest has been
accrued on the 1996 and 1995 average balance at prime plus 1%. Interest accrued
for the years ended December 31, 1996 and 1995 was $8,280 and $9,341,
respectively.

NOTE 6: OPERATING LEASES

For the years ended December 31, 1996 and 1995, total rental expense under a
vehicle operating lease was $3,863 and $1,783, respectively. At December 31,
1996, the company was obligated under the noncancellable lease as follows:

YEAR ENDING LEASE
DECEMBER 31, OBLIGATIONS
- --------------------------------------------------------------------------------- -----------

1997............................................................................. $ 1,783
-----------
-----------

TRANSACTIONS WITH RELATED PARTIES

The company leases its offices from an affiliated company which is owned by
the majority stockholder of The Jupiter Group, Inc. The lease is classified as a
month-to-month operating lease and provides for rental of $500 per month.

F-53

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements as of
September 30, 1997 and for the three months and year ended September 30, 1997,
and June 30, 1997, respectively, gives effect for the following: (i) the sale of
3,000,000 shares of common stock through a secondary offering and the use of the
net proceeds therefrom to redeem preferred stock, (ii) a one-for-three reverse
stock split, (iii) the Company's acquisition of Triple A Security Systems, Inc.
(Triple A), and (iv) the Company's acquisition of The Jupiter Group, Inc.
(Jupiter) as if such events had been completed at July 1, 1996 for purposes of
the pro forma statements of operations and as of September 30, 1997 for purposes
of the pro forma balance sheet. The pro forma information is based on the
historical financial statements of the Company, Triple A, and Jupiter, giving
effect to the transactions under the purchase method of accounting and the
assumptions and adjustments described in the accompanying notes to the unaudited
pro forma financial statements. In the preparation of the pro forma combined
balance sheet, the columns pertaining to Triple A and Jupiter contain
information as to the assets and the liabilities acquired as of its date of
acquisition.

These pro forma statements of operations may not be indicative of the
results that actually would have occurred if the acquisition had occurred on
July 1, 1996.

F-54

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 1997

HISTORICAL PRO FORMA
--------------------------------- ------------------------------
RESPONSE TRIPLE A JUPITER ADJUSTMENTS COMBINED
----------- ---------- -------- ---------------- -----------
ASSETS

Current Assets
Cash........................................................ $ 682,813 $ 69,328 $163,879 $17,295,000(a) $ 916,020
(10,000,000)(b)
(7,295,000)(d)
Marketable securities....................................... 56,250 114,853 171,103
Accounts receivable (net)................................... 1,669,234 307,024 149,426 2,125,684
Inventory................................................... 829,453 523,382 1,352,835
Prepaid expenses and other current assets................... 446,524 158,118 13,333 (85,027)(b) 532,948
----------- ---------- -------- ---------------- -----------
Total current assets.................................. 3,684,274 1,172,705 326,638 (85,027) 5,098,590
----------- ---------- -------- ---------------- -----------

Monitoring Contract Costs (net)............................. 18,045,284 230,312 (230,312)(b) 28,872,112
10,026,828(b)
800,000(c)
----------- ---------- -------- ---------------- -----------

Property and Equipment (net).................................. 1,522,023 1,854,040 108,678 3,484,741
----------- ---------- -------- ---------------- -----------

Other Assets
Accounts receivable (net)................................... 202,073 202,073
Deposits.................................................... 45,935 31,845 300 78,080
Investment in joint venture................................. 2,963,096 2,963,096
Intangible assets, net of amortization...................... 23,769 (23,769)(c)
Deferred compensation expense............................... 517,500 517,500
Deferred financing costs (net).............................. 3,316,249 3,316,249
----------- ---------- -------- ---------------- -----------
7,044,853 31,845 24,069 (23,769) 7,076,998
----------- ---------- -------- ---------------- -----------
$30,296,434 $3,288,902 $459,385 $10,487,720 $44,532,441
----------- ---------- -------- ---------------- -----------
----------- ---------- -------- ---------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt........................... $ 157,815 $ 411,452 $ 77,494 $ (411,452)(b) $ 235,309
Accounts payable-Trade...................................... 738,909 408,285 10,679 (408,285)(b) 749,588
Purchase holdbacks.......................................... 571,120 571,120
Accrued expenses and other current liabilities.............. 1,076,485 159,809 43,058 (159,809)(b) 1,119,543
Due to affiliate............................................ 76,465 (76,465)(c)
Deferred revenue 1,981,698 769,245 2,750,943
----------- ---------- -------- ---------------- -----------
4,526,027 1,748,791 207,696 (1,056,011) 5,426,503
----------- ---------- -------- ---------------- -----------
Long term Liabilities
Long-term debt.............................................. 12,944,996 1,105,149 59,444 (1,105,149)(b) 14,386,375
(7,295,000)(d)
8,676,935(e)
Deferred compensation expense............................... 1,725,000 1,725,000
----------- ---------- -------- ---------------- -----------
14,669,996 1,105,149 59,444 276,786 16,111,375
----------- ---------- -------- ---------------- -----------
Stockholders' Equity
Preferred stock-Series A.................................... 6,818,055 (6,818,055)(e)
Preferred stock-Series B.................................... 31 31
Common stock................................................ 17,514 125,000 625 (125,000)(b) 45,545
2,745(b)
24,000(a)
(625)(c)
1,286(c)
Additional paid-in capital.................................. 36,755,463 215,814 22,375 (215,814)(b) 55,439,248
2,228,010(b)
17,271,000(a)
(1,858,880)(e)
(22,375)(c)
1,043,655(c)
Unrealized holding losses................................... (18,750) 391 (18,359)
Accumulated Deficit......................................... (32,471,902) 93,757 169,245 (93,757)(b) (32,471,902)
(169,245)(c)
----------- ---------- -------- ---------------- -----------
11,100,411 434,962 192,245 11,266,945 22,994,563
----------- ---------- -------- ---------------- -----------
$30,296,434 $3,288,902 $459,385 $10,487,720 $44,532,441
----------- ---------- -------- ---------------- -----------
----------- ---------- -------- ---------------- -----------

F-55

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997

HISTORICAL PRO FORMA
-------------------------------- -------------------------------
RESPONSE TRIPLE A JUPITER ADJUSTMENTS COMBINED
----------- --------- -------- ------------ --------------
Operating Revenues

Product Sales............................................. $ 662,846 $ 408,596 $ 1,071,442
Monitoring and service.................................... 2,585,038 911,076 $535,949 4,032,063
----------- --------- -------- ------------ --------------
3,247,884 1,319,672 535,949 5,103,505
Cost of Revenues............................................ 1,167,181 560,273 432,319 2,159,773
----------- --------- -------- ------------ --------------
Gross Profit................................................ 2,080,703 759,399 103,630 2,943,732
----------- --------- -------- ------------ --------------
Operating Expenses
Selling, general and administrative....................... 1,615,635 568,617 22,143 2,206,395
Compensation-Employment Contracts......................... (450,000) (450,000)
Depreciation and amortization............................. 837,539 128,120 19,705 ($17,199)(f) 1,238,836
270,671(g)
Interest.................................................. 643,780 24,011 2,601 (24,011)(h) 681,793
35,412(i)
----------- --------- -------- ------------ --------------
2,646,954 720,748 44,449 264,873 3,677,024
----------- --------- -------- ------------ --------------
Income/(Loss) From Operations............................... (566,251) 38,651 59,181 (264,873) (733,292)
----------- --------- -------- ------------ --------------
Other Income/(Expense)
Interest income........................................... 1,708 1,876 442 4,026
Joint venture loss........................................ (130,138) (130,138)
----------- --------- -------- ------------ --------------
(128,430) 1,876 442 0 (126,112)
----------- --------- -------- ------------ --------------
Net Income/(Loss)........................................... (694,681) 40,527 59,623 (264,873) (859,404)
Dividends and accretion on preferred stock.................. (335,272) 335,272(j) 0
----------- --------- -------- ------------ --------------
Net Loss Applicable to Common Shareholders.................. ($1,029,953) $ 40,527 $ 59,623 $ 70,399 ($ 859,404)
----------- --------- -------- ------------ --------------
----------- --------- -------- ------------ --------------
Loss per common share
Loss before extraordinary item............................ ($0.33) ($0.15)
Extraordinary item........................................ $ 0.00 $ 0.00
----------- --------------
Net loss ($0.33) ($0.15)
----------- --------------
----------- --------------
Net loss applicable to common shareholders.................. ($0.48) ($0.15)
----------- --------------
----------- --------------
Weighted average number of shares outstanding............... 2,132,533 3,503,953(k) 5,636,486
----------- ------------ --------------
----------- ------------ --------------

F-56

RESPONSE USA INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED JUNE 30, 1997

HISTORICAL PRO FORMA
------------------------------------------ ------------------------------
RESPONSE TRIPLE A JUPITER ADJUSTMENTS COMBINED
-------------- ------------ ------------ -------------- --------------

Operating Revenues
Product Sales...................... $ 2,938,618 $ 1,787,897 $ 4,726,515
Monitoring and service............. 9,784,285 3,345,642 $ 1,646,808 14,776,735
-------------- ------------ ------------ -------------- --------------
12,722,903 5,133,539 1,646,808 19,503,250
Cost of Revenues..................... 4,097,415 2,353,190 1,352,105 7,802,710
-------------- ------------ ------------ -------------- --------------
Gross Profit......................... 8,625,488 2,780,349 294,703 11,700,540
-------------- ------------ ------------ -------------- --------------
Operating Expenses
Selling, general and
administrative..................... 9,126,641 2,044,430 95,914 11,266,985
Compensation--Options/ Employment
contracts.......................... 3,689,700 3,689,700
Depreciation and amortization...... 2,976,433 463,914 81,274 (68,812 (f) 4,535,493
1,082,684(g)
Interest........................... 1,349,480 128,574 14,525 (128,574 (h) 1,505,653
141,648(i)
-------------- ------------ ------------ -------------- --------------
17,142,254 2,636,918 191,713 1,026,946 20,997,831
-------------- ------------ ------------ -------------- --------------
Income/(Loss) From Operations........ (8,516,766) 143,431 102,990 (1,026,946) (9,297,291)
-------------- ------------ ------------ -------------- --------------
Other Income/(Expense)
Interest Income.................... 12,176 13,755 1,573 27,504
Joint Venture Loss................. (123,325) (123,325)
-------------- ------------ ------------ -------------- --------------
(111,149) 13,755 1,573 0 (95,821)
-------------- ------------ ------------ -------------- --------------
Income/Loss Before Extraordinary
Item............................... (8,627,915) 157,186 104,563 (1,026,946) (9,393,112)
Extraordinary Item
Loss on debt extinguishment........ 2,549,708 2,549,708
-------------- ------------ ------------ -------------- --------------
Net Income/(Loss).................... (11,177,623) 157,186 104,563 (1,026,946) (11,942,820)
Dividends and accretion on preferred
stock.............................. (6,876,521) 6,876,521(j) 0
-------------- ------------ ------------ -------------- --------------
Net Loss Applicable to Common
Shareholders....................... ($ 18,054,144) $ 157,186 $ 104,563 $ 5,849,575 $ (11,942,820)
-------------- ------------ ------------ -------------- --------------
-------------- ------------ ------------ -------------- --------------
Loss per common share
Loss before extraordinary item..... ($ 5.80) ($ 1.88)
Extraordinary item................. ($ 1.71) ($ 0.51)
-------------- --------------
Net loss........................... ($ 7.51) ($ 2.39)
-------------- --------------
-------------- --------------
Net loss applicable to common
shareholders....................... ($ 12.14) ($ 2.39)
-------------- --------------
-------------- --------------
Weighted average number of shares
outstanding........................ 1,487,574 3,503,953 (k) 4,991,527
-------------- -------------- --------------
-------------- -------------- --------------

The accompanying notes are an integral part of the financial statements.

F-57

RESPONSE USA INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

UNAUDITED PRO FORMA BALANCE SHEET

(a) To reflect the net proceeds from the Secondary Offering as if it
occurred on September 30, 1997 of $17,295,000

(b) To record the acquisition of Triple A. The purchase price of $13,000,000
(payable in cash of $10,000,000, stock valued at $2,230,755, and assumption of
$769,245 in liabilities) which was allocated to the assets acquired and
liabilities assumed based on their fair value with the remainder, $10,026,828,
classified as Monitoring Contract Costs.

(c) To record the acquisition of Jupiter. The purchase price of $1,044,941
(payable in stock) which was allocated to the assets acquired and liabilities
assumed based on their fair value with the remainder, $800,000, classified as
Monitoring Contract Costs.

(d) To record principal paid on the line of credit from the remaining
proceeds from the Secondary Offering of 7,295,000.

(e) To record the redemption of the preferred stock for $8,676,935.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

(f) To eliminate amortization of monitoring contracts purchased from Triple
A and amortization of intangible assets not acquired from Jupiter previously
recorded in Triple A's and Jupiter's historical financial statements.

(g) To provide amortization on the net increase of purchased monitoring
contracts. Monitoring contracts purchased from Triple A and Jupiter are
amortized using the straight-line method over a ten-year estimated life.

(h) To eliminate interest expense on debt not acquired from Triple A.

(i) To record additional interest expense on the net increase in long-term
debt as a result of additional borrowings needed to redeem the preferred stock
after the acquisition of Triple A with the proceeds from the offering.

(j) To eliminate dividends and accretion on preferred stock, since this
preferred stock is presumed to have been retired in these pro forma financial
statements.

(k) In calculating earnings per share, effect has been given to the shares
issued in the acquisitions of Triple A (343,193 shares) and Jupiter (160,760
shares), and the Secondary Offering (3,000,000) shares.

F-58

The Company's logo appears on the top of the page. Beneath the logo is the
phrase "Providing Security for Living, Protection for Life" followed by three
rows of three pictures each depicting the Company's products, services and
customers. Beneath the pictures is the phrase "Making Your World a Safer Place."

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------------

TABLE OF CONTENTS

PAGE
---------

Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 17
Price Range of Common Stock..................... 18
Dividend Policy................................. 18
Capitalization.................................. 19
Selected Financial Information.................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business........................................ 31
Management...................................... 46
Principal Stockholders.......................... 54
Certain Relationships and Related
Transactions.................................. 55
Description of Securities....................... 56
Shares Eligible for Future Sale................. 60
Underwriting.................................... 62
Legal Matters................................... 64
Experts......................................... 64
Available Information........................... 65
Index to Financial Statements................... F-1

3,000,000 SHARES

RESPONSE USA, INC.

COMMON STOCK

---------------------

PROSPECTUS

---------------------

GRUNTAL & CO., L.L.C.

HAMPSHIRE SECURITIES
CORPORATION

FEBRUARY 5, 1998

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