SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                  FORM 10-KSB

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

For the fiscal year ended December 31, 1997     Commission file number 0-28238

                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


                Delaware                                54-1521616
        (STATE OR OTHER JURISDICTION              (I.R.S. EMPLOYER
      OF INCORPORATION OR ORGANIZATION)           IDENTIFICATION NO.)

      22570 Markey Court, Dulles, Virginia              20166
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)          (ZIP CODE)

      Issuer's telephone number:                      703-444-7931


Securities registered under Section 12(b) of the Exchange Act:   NONE

Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.001 par value
                                Class A Warrants
                                (Title of Class)

     Check  whether  the Issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
                                                                      ---  ---
     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

     Issuer's revenues for its most recent fiscal year were $1,154,970.

     The aggregate market value of the voting stock held by non-affiliates as of
March 31,  1998 was  approximately  $980,000  based on the average bid and asked
prices of such stock.

     The number of shares outstanding of issuer's Common Stock, $.001 par value,
as of March 31, 1998 was 1,114,201.


                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      NONE

Transitional Small Business Disclosure Format (check one)
Yes    No  X
   ---    ---


<PAGE>



                                     PART I

ITEM 1                       DESCRIPTION OF BUSINESS

GENERAL

     Guardian Technologies  International,  Inc. (referred to hereinafter as the
Company) was originally  incorporated  in 1989 in the  Commonwealth of Virginia,
and commenced  full  production of its products in December,  1990. In 1996, the
Company was  reincorporated in the State of Delaware.  The Company  manufactures
its  products  under its own label at its  facility  in  Dulles,  Virginia.  The
Company currently employs 30 people.


OPERATIONS

     The Company manufactures and distributes  ballistic  protective  equipment,
including equipment commonly referred to as body armor.

     The  Company's   product  lines  include  four  basic  types  of  ballistic
protective vests,  ballistic protective shields, K-9 ballistic protective vests,
aircraft ballistic protective equipment, and assorted other ballistic protective
devices, such as ballistic protective blankets and seat cover liners.

     The  Company's  four main product lines of ballistic  protective  vests are
manufactured  in six styles,  each providing  varying  degrees of protection and
certified under guidelines established by the National Institute of Justice (the
"NIJ").  All of the Company's body armor products are certified  under the NIJ's
Standard 0101.03 for Police Armor.

PRODUCTS

     The  Company's   life-saving  products  are  manufactured   primarily  with
AlliedSignal's  High  Performance  Materials  which are  Spectra(R)  1000  woven
fabric, and non-woven composite  ballistic materials Spectra Shield(R),  Spectra
Flex(TM),  Gold  Shield(TM)  and Gold  Flex(TM).  Based on studies  and  testing
performed at H.P. White  Laboratory,  Inc., an independent  testing  laboratory,
tests  prepared by  AlliedSignal  and the  Company's  own test  experience,  the
Company  believes  that  protective  vests  and  equipment   manufactured   with
AlliedSignal  High  Performance  Materials  provide,  pound for  pound,  greater
ballistic  protection  and  reduced  blunt  trauma  to  the  wearer,  at  higher
projectile  velocities and with longer  durability  than similar  equipment made
with other forms of ballistic resistant materials.

     The Company has been assigned rights to U.S.  patents  numbered  5,327,811;
5,448,938;  and 5,377,577 for, respectively,  a Lightweight Ballistic Protective
Device,  a Removable  Ballistic  Resistant Armor Seat Cover and Floor Mat, and a
Ballistic  Shield.  These patents include  related  production  techniques.  The
Company  also  acquired  the  rights to  manufacture  and  distribute  two other
patented products: a two-panel set of thin,  lightweight rigid  bullet-resistant
armor for police patrol bicycles,  and a prisoner  restraint device for improved
security when  transporting a prisoner.  For the latter device,  the Company was
granted the trademark MAXI-MITT(TM).

MANUFACTURING

     The Company  manufactures  substantially  all of its products.  The Company
manufactures  its  products  under  its own  label at its  facility  in  Dulles,
Virginia.

<PAGE>


RESEARCH AND DEVELOPMENT

     The Company concluded research and development during 1996 on a new line of
ballistic  protective vests marketed as the Thin Blue Line (TBL). The TBL vests,
made with  AlliedSignal's  newly  developed  High  Performance  Materials,  Gold
Flex(TM) and Gold Shield(TM),  are light, flexible and cost less to produce. The
TBL products are more competitively  priced than Guardian's other four lines and
should be attractive to the price conscious consumer.

     Also in 1996,  the  Company  introduced  a  two-panel  set of thin and very
lightweight rigid armor which can be easily installed on police patrol bicycles.
The introduction of this product followed the  introductions of a newly designed
ballistic-protective  vest for  police  dogs and a  restraint  device  used when
prisoners are being transported.

     The Company did not initiate any new R&D efforts during 1997.

RAW MATERIALS, SOURCES AND AVAILABILITY

     The Company is dependent upon a single supplier for the majority of its raw
materials. These materials are available only from AlliedSignal, which holds the
patent for the unidirectional fiber/resin process incorporating Spectra(R) ultra
high molecular weight  polyethylene  fibers or aramid fibers.  AlliedSignal also
controls the  proprietary  thermoplastic  process used to manufacture its Shield
and Flex materials.

CUSTOMERS

     The Company has set a goal of a 50%  increase in sales over the total sales
obtained in 1997.  To achieve this goal,  the Company  will focus on  increasing
foreign sales efforts and overall sales to U.S. government agencies. As of March
31, 1998, the Company has completed  production on $350,000 in orders which were
in backlog at December 31, 1997. Additionally,  the Company is currently working
on a sales order of $330,000  (not  included  in backlog at December  31,  1997)
which is expected to be completed during the second quarter of 1998.

     In 1997,  4% of  Guardian's  total  sales were made to  foreign  police and
military organizations. The Company is pursuing opportunities in several nations
of the Pacific Rim, in Central and South America, in Eastern and Central Europe,
and the Middle East.

     Government   contract  work  and  sales  to  U.S.  military   organizations
represented  7% of  total  sales in  1997.  The  Company  intends  to team  with
manufacturers  of compatible armor products and/or materials to obtain contracts
by  bringing  together  technical  expertise,  sales and  marketing  efforts and
production capabilities.

     The Company's relationship with Government  Micro-Resources,  Inc. (GMR), a
supplier to the General Services Administration (GSA) - the federal government's
principal  procurement  channel - ended in mid-1996 when GMR's contract with GSA
was  terminated.  The Company  established a new contract with GSA which enables
the Company to sell all its products  directly  through  GSA. The new  four-year
contract was signed and became effective on June 1, 1997.

     In 1996,  the  Company's  planned  expansion of its  regional  domestic law
enforcement  distribution  network  through  dealer  sales did not  achieve  the
expected goals.  Only a limited number of dealers  provided the high standard of
customer service which the Company expects.  Therefore, the Company modified the
sales plan in order to emphasize a larger effort in direct  Company sales backed
with  strong  customer  service  while  continuing  to  strongly  support  sales
generated by selected dealers.  The Company's sales  representatives  are making
intensive efforts to make direct contact with key procurement personnel in small
and medium size law  enforcement  agencies as well as  responding  to agency and
department solicitations for bids and proposals.

     The Company  maintains  ties to two large  police  fraternal  organizations
which resulted in sales throughout 1996 and 1997.

<PAGE>


MARKETING AND DISTRIBUTION

     The  Company's  products are  marketed  directly by the Company and through
selected  local  dealers  of police  equipment  to  local,  state,  and  federal
agencies,  private security  companies,  and private individuals with legitimate
security  needs.   Marketing  methods  include  personal  sales   presentations,
advertising  in  magazines  and   periodicals   aimed  at  the  law  enforcement
profession, direct mail information dissemination,  participation by the Company
sales personnel at selected trade shows and conferences.

     The  Company  entered  the  Internet   universe  with  its  own  home  page
(www.guardiantech.com)   and  E-Mail  address   (gti@interramp.com)   which  are
developing  into  resources  for marketing its products in the United States and
around the world.

     The Company also  subscribes to two other  marketing  services:  BidNet and
FACNet.  BidNet tracks bids and solicitations for proposals from local and state
jurisdictions  throughout  the United  States.  FACNet  provides  information on
federal  procurements  and  is a  required  on-line  service  for  GSA  contract
suppliers  seeking to sell to the U.S.  Department of Defense (DOD). In order to
respond to DOD solicitation  opportunities,  the Company seeks out manufacturers
of compatible  products  and/or  materials  with which the Company can match its
technical expertise, sales and marketing efforts and production capabilities.

BACKLOG

     At  December  31,  1997,  the  Company's  estimated  backlog  of sales  was
$350,000.  A year earlier, at December 31, 1996, the Company's estimated backlog
of sales was $80,000.  The increase in backlog at December 31, 1997 was due to a
significant  sale  under  the  Company's  contract  with  the  General  Services
Administration  (GSA) of approximately  $466,000 of which $302,000 was completed
during 1997 and $164,000 remained in backlog at December 31, 1997.

COMPETITION

     The ballistic protective  equipment business is highly competitive.  In the
domestic law enforcement,  federal government and military markets,  the Company
has at least five major  competitors.  The Company  believes  that the principal
elements  of  competition  in the  sale of  ballistic  protective  vests  are 1)
materials used in  construction,  2) style and design of the vest, and 3) price.
In the law enforcement  and military  markets,  the Company  frequently bids for
orders  in  response  to  invitations   for  bidding  which  set  forth  product
performance specifications.  Although the Company's products are priced slightly
higher than the competition's  products,  the Company believes its higher prices
are justified by better craftsmanship, higher ballistic capability of materials,
more body area coverage,  and a longer warranty.  In international  markets, the
Company's  competition  consists  of  several  American  competitors  and  a few
international companies.

ITEM 2                    DESCRIPTION OF PROPERTY

     Throughout  1996,  the  Company's   executive   offices  and  manufacturing
facilities were located at 45472 Holiday Drive, Sterling,  Virginia. The Company
occupied  approximately  12,000 square feet at this location pursuant to a seven
(7)  month  extension  to its  original  lease.  The  original  lease  and lease
extension, which expired in June, 1996, had a base rent of approximately $14,000
per month. From July through  December,  1996, the Company occupied the premises
on a month to month basis at the rental rate of approximately  $17,000 per month
while the Company's new facility was under construction.

     The Company vacated the leased premises to occupy its new facility at 22570
Markey  Court,  Dulles,  Virginia  on January 23,  1997.  The total cost for the
33,741  square foot  facility at December  31, 1997 was  $2,762,119  composed of
$237,339  for land and  $2,524,780  in  building  costs.  At  December  31, 1997
management had leased  approximately  24% of the building to other  tenants.  At
February 1, 1998, an additional 32% was leased.

<PAGE>


ITEM 3                        LEGAL PROCEEDINGS

     There are no material legal proceedings in which the Company is involved.

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


     On December 8, 1997,  the Annual Meeting of  Shareholders  was held. At the
meeting, the following items were submitted for shareholder approval:


     1.  To elect four  directors to serve on the Board of  Directors  until the
         next  annual  meeting  of  shareholders  or until  successors  are duly
         elected and qualified.

     With respect to the election of directors, the following votes were cast:

                                            For     Withheld
                                          -------   --------
            Stephen G. Calandrella        823,400      2,422
            Herbert M. Jacobi             823,400      2,422
            John C. Power                 823,400      2,422
            Hugh G. Sawyer                823,400      2,422


     Oliver L. North, Joseph F. Fernandez and Travis Y. Green continued as
directors of the Company as their terms were not up for re-election at this
meeting.


     2.  To approve the Board of Directors'  selection of Thompson,  Greenspon &
         Co., P.C., as the Company's independent public accountants to audit the
         consolidated  financial  statements  of the Company for the fiscal year
         ending December 31, 1997.

     With respect to the  selection of  Thompson,  Greenspon & Co.,  P.C. as the
Company's independent public accountants, the following votes were cast:

                      For             824,906
                      Against             249
                      Abstain               0


     3.  To adopt and approve the Company's  1997  Incentive  Stock Option Plan,
         pursuant to which  300,000  shares of Common Stock will be reserved for
         issuance to all  persons in the service of the Company or a  subsidiary
         of the Company and the members of the Board of Directors of the Company
         who are not otherwise employees.


     With respect to the adoption and approval of the Company's  1997  Incentive
Stock Option Plan, the following votes were cast:

                      For             626,750
                      Against          10,104
                      Abstain           3,376









<PAGE>



                                    PART II

ITEM 5    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The common  stock of the Company is traded on the NASDAQ Stock Market under
the symbol GRDN.  The prices  listed below are the high and low sales for common
shares since the initial public offering on May 14, 1996.




                                            Price
                                     --------------------
            Quarter Ended               Low        High
            -------------            ---------  ---------

               6/30/96               $17.25     $38.25
               9/30/96               $ 2.8125   $19.50
              12/31/96               $ 1.21875  $ 4.40625
               3/31/97               $ 0.84375  $ 2.53125
               6/30/97               $ 0.875    $ 2.625
               9/30/97               $ 1.375    $ 4.00
              12/31/97               $ 2.50     $ 3.375



     The common stock purchase  warrants of the Company are traded on the NASDAQ
Stock Market under the symbol  GRDNW.  The prices  listed below are the high and
low sales prices for common share warrants since the initial public  offering on
May 14, 1996.




                                            Price
                                     ---------------------
              Quarter Ended             Low         High
              -------------          ---------   ---------

                 6/30/96             $12.75      $34.50
                 9/30/96             $ 0.9375    $15.75
                12/31/96             $ 0.1875    $ 2.90625
                 3/31/97             $ 0.09375   $ 0.750
                 6/30/97             $ 0.0625    $ 0.250
                 9/30/97             $ 0.03125   $ 0.46875
                12/31/97             $ 0.250     $ 0.375



     There have been no dividends declared since inception.

     The  Company  did not sell any  equity  securities  during  the year  ended
December 31, 1997.


<PAGE>


ITEM 6   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

GENERAL

The following discussion of the financial condition and results of operations of
the  Company  should  be read in  conjunction  with the  consolidated  financial
statements and related notes thereto.

OVERVIEW

As disclosed  in the  Company's  independent  auditors  report on the  financial
statements as of and for the years ended December 31, 1997 and 1996 (and further
discussed  in Note 2 to the  financial  statements)  the  Company  has  suffered
continued  losses from operations since inception that raise  substantial  doubt
about its ability to continue as a going  concern.  In an effort to reverse this
trend and achieve  profitability  management has taken, or intends on taking the
following actions:

      1.) Maximize facility  utilization by leasing out all non-essential  space
          in the  Company's  Dulles,  Virginia  building  to third  parties.  As
          discussed in footnote 8 of the financial  statements,  the Company has
          now  leased   approximately   18,800  square  feet  (representing  all
          available space) to 4 third party tenants. These leases carry terms of
          from five to seven years and provide estimated annual rental income of
          $196,500   including   base  rent,   operating   expenses  and  annual
          escalation.  The rental  income on the facility  will be sufficient to
          service the related  mortgage  placed on the  facility  (see below and
          also footnote 16 of the financial statements).

      2.) Reduce  interest costs by  refinancing  existing debt. As disclosed in
          footnote 16 of the  financial  statements,  the Company has accepted a
          commitment from a commercial entity to provide  $1,900,000 in the form
          of a mortgage.  Subsequent to the audit date,  on March 25, 1998,  the
          Company closed the above  referenced loan in the amount of $1,900,000.
          The loan  provides for monthly  payments of principal  and interest of
          $15,306,  including  interest at 7.5  percent  per annum.  The loan is
          being  amortized over a twenty year period with a ten year balloon and
          is collateralized by a first deed of trust on the Company's office and
          manufacturing  facility  located  in  Dulles,  Virginia  as well as an
          assignment of all tenant  occupancy  leases.  Further,  if the loan is
          prepaid  in full  before  the end of the fifth  year of the loan,  the
          Company will be subject to certain  prepayment  premiums computed as a
          percent of the unpaid principal  balance.  The purpose of the loan was
          to  refinance an  outstanding  note payable of $900,000 as of December
          31,  1997  bearing  interest  at 15 percent  per annum.  The  interest
          savings  related  to this  portion  of the  financing  arrangement  is
          approximately  $67,500 per year.  In  addition,  the loan will provide
          approximately $1,000,000 of excess funding which will be available for
          working capital purposes.

      3.) Reduce or eliminate the use of all outside consultants.

      4.) Initiate  head-count  reductions across all  administrative  and sales
          departments.

      5.) Perform time and motion  studies to determine if excess labor capacity
          exists in the  manufacturing  function.  Knowledge  of this will allow
          management to take necessary corrective action.

      6.) Perform an  assessment  of  non-critical  manufacturing  functions  to
          determine  if  it  would  be  cost-effective  to  out-source   certain
          functions.

      7.) Initiate  discussions  with primary  suppliers of raw  materials in an
          effort to achieve larger discounts on the Company's  purchases as well
          as  establish  "just-in-time"  inventory  status to  generate  greater
          inventory turnover.
<PAGE>


      8.) Establish  manufacturing cost accounting controls to capture labor and
          material  costs  more  effectively  through  the  implementation  of a
          job-order system.  This will allow the Company to better determine the
          profitability  of  each of its  products  which  will in turn  provide
          management with information to better price the Company's products.

      9.) Focus sales efforts  primarily on large quantity,  more "standard fit"
          orders  which  create  manufacturing   efficiencies.   Management  has
          determined  that  small,  custom  orders  are less  profitable  due to
          "start-up"  and "shut down" of production  efforts and has shifted the
          Company's  focus  accordingly.  In addition,  when a smaller  order is
          accepted,  a  surcharge  has been  added to the  pricing to offset the
          manufacturing inefficiency created by the order.

     10.) Pursuit of "funded"  development  efforts to continue to provide state
          of the art products without using internal funds for such efforts.

     1l.) Utilize the specific  expertise of senior  management in the fields of
          law   enforcement,   security   and   protective   devices  to  pursue
          opportunities  for providing  consulting  services to private industry
          and government agencies.

      For  these   reasons,   management   believes  that  no   adjustments   or
      reclassifications  of recorded assets and liabilities is necessary at this
      time.  There  can be no  assurances,  however,  that the  Company  will be
      successful in these plans.

<PAGE>


RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net sales for 1997 were $1,154,970 compared to $1,475,577 in 1996, a decrease of
$320,607 or 21.7%.  The decrease in sales is attributable to a decrease in sales
to foreign  governments  and agencies  (from $314,850 or 21% of sales in 1996 to
$42,059 or 4% of sales in 1996), a decrease of $272,791.

The  Company  sustained  a gross loss in 1997 of  $(82,135)  compared to a gross
profit of $156,834 in 1996.  The  reduction  in gross  margin for the year ended
December  31,  1997 as  compared  to 1996  resulted  from  lower  sales  volume,
production  inefficiencies  attributed to a large number of small orders and the
disposition of approximately $33,000 of obsolete inventory.

Total operating expenses were $779,822 for 1997 compared to $1,202,237 for 1996.
General and  administrative  costs  decreased  $277,322 from $799,077 in 1996 to
$521,755 in 1997.  This  decrease  was  primarily  attributable  to decreases in
professional  fees of $125,000  and salary  decreases  for  officers of $85,000.
Selling expenses  decreased  $145,093 from $403,160 in 1996 to $258,067 in 1997.
This decrease was due to an $85,000 decrease in sales  consultants and a $40,000
decrease in sales commissions  attributable to lower sales volume.  Advertising,
conference and exhibit costs decreased by $11,000.

The 1997 non-operating financing income for the Company decreased from income of
$91,719 in 1996 to expense of $100,303 in 1997. The net financing income in 1996
resulted  because the proceeds from the May, 1996 public  offering were invested
in US Government  agency debt securities.  These securities served as collateral
for a line of  credit  with a  broker.  The  Company  used  the  line of  credit
borrowings  to pay  off  outstanding  loans,  finance  the  construction  of its
production and  headquarters  facility and to provide for working capital needs.
Additionally, on February 7, 1997, the Company executed a note for $900,000 with
a commercial entity.  Interest at 15 percent,  annual rate, is due monthly.  The
note is  secured  by a first  deed of  trust  on the  office  and  manufacturing
facility in Dulles, Virginia. The net financing expense in 1997 resulted from an
excess of the  interest  costs from the line of credit  borrowings  and from the
$900,000 note over the interest  earned in securities.  Interest  capitalized in
connection  with the  construction  of the new facility  amounted to $21,509 for
1996 and $19,000 in 1997.

Rental income  increased from nil in 1996 to $101,150 in 1997 as the Company was
able to  lease  excess  space  in its new  facility.  The net  loss for 1997 was
$861,110 compared to $953,684 for 1996.



<PAGE>


YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Net sales for 1996 were $1,475,577  compared to $838,121 in 1995, an increase of
$637,456 or 76%. The increase in sales is  attributable  to an increase in sales
to foreign  governments  and  agencies  (from nil in 1995 to  $314,850 or 21% of
sales in 1996),  and a $345,600  sale to the US  Government  under a subcontract
which  amounted  to 23% of  sales,  while  maintaining  domestic  sales at their
previous levels.

The Company's  1996 gross profit was $156,836 or 10.8% of sales compared to $844
in 1995. The improvement in the Company's gross profit margin for the year ended
December  31, 1996 as compared to 1995  resulted  from  production  efficiencies
achieved on large orders and volume  discounts on purchases of raw  materials in
bulk  quantities.  The Company's gross profit margin for the year ended December
31, 1995 was  adversely  affected by the  Company's  inability  to purchase  raw
materials  in bulk and  decreased  direct sales which have a higher gross margin
than sales through  dealer/distributors.  However,  cost of goods sold increased
57.5% from $837,277 in 1995 to  $1,318,741  in 1996,  primarily due to increased
direct  labor costs as the number of employees  increased  during the first nine
months of the year and an increase in indirect costs.

Total operating expenses were $1,202,237 for 1996 compared to $486,326 for 1995.
General and  administrative  costs  increased  $426,887 from $372,190 in 1995 to
$799,077 in 1996.  This  increase  was  primarily  attributable  to increases in
professional  fees of $93,000,  fees of $26,000 related to maintenance of public
company status, insurance premiums of $11,000,  consulting fees of $146,000, and
salary increases for officers in accordance with employment agreements.  Selling
expenses  increased from $114,136 in 1995 to $403,160 in 1996. This increase was
due to reorganization of the sales function,  additional salesmen which resulted
in a $32,000 increase in sales salaries,  $146,000 in sales consulting fees, and
a $36,000 increase in commissions. Advertising costs and conference and exhibits
costs  increased  by  $60,000.  The Company has  terminated  certain  consulting
agreements  and  expects  advertising  and other  promotional  costs to decrease
during 1997.

The 1996 non-operating  interest income for the Company increased  significantly
over the 1995 total  because  proceeds  from the May,  1996 public  offering are
invested in US Government  agency debt  securities.  These  securities  serve as
collateral for a line of credit with a broker.  The Company has used the line of
credit borrowings to pay off outstanding loans,  finance the construction of its
production and  headquarters  facility and to provide for working capital needs.
Interest  capitalized in connection  with the  construction  of the new facility
amounted to $21,509  for 1996.  The net loss for 1996 was  $953,684  compared to
$512,716 for 1995.




<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1997 the Company had total assets of  $3,729,872  compared to
total  assets of  $6,068,588  as of December  31,  1996, a decrease in assets of
$2,338,716.  Total  liabilities  decreased  significantly  from $2,917,955 as of
December 31, 1996 to  $1,451,084  as of December 31, 1997.  Total  stockholders'
equity decreased $871,845 to $2,278,788 as of December 31, 1997.

Total current assets as of December 31, 1997 were $890,309 and consisted of cash
and equivalents of $109,461,  net accounts receivable of $269,425,  inventory of
$452,335 and prepaids of $59,088.  Total current  liabilities as of December 31,
1997 were $523,936  comprised  primarily of trade  accounts  payable and accrued
expenses of $377,180,  customer  deposits of $85,087 and the current  portion of
notes payable of $61,669.  Working  capital as of December 31, 1997 was $366,373
representing  a decrease in working  capital for the period of  $208,337.  Total
current  assets  decreased  $2,513,540  during the  twelve  month  period  ended
December 31, 1997  primarily due to the  liquidation of $2,501,753 in securities
available for sale.  Proceeds from the sale of the  securities  were used to pay
down a line of credit of $1,850,554,  reduce accounts  payable of  approximately
$530,009 and to partially offset the Company's operating loss for the year.

As of  December  31,  1997 the  Company  reported  total  assets  of  $3,729,872
including net property and equipment of $2,788,378 (comprised primarily of costs
associated   with  the  Company's   acquisition   of  land  and  the  subsequent
construction of executive  offices and a manufacturing  facility  thereon),  net
intangibles  (certification  costs for the  Company's  protective  products)  of
$24,975 and deposits of $26,210.

Total liabilities as of December 31, 1997 of $1,451,084  include, in addition to
current  liabilities of $523,936 discussed above, the long term portion of notes
payable of  $927,148.  The long term  portion of notes  payable is  comprised of
$900,000 in long term debt received from a commercial entity bearing interest at
15%  per  annum  and  $27,148  associated  with  an  insurance  premium  finance
agreement. Long term debt as of December 31, 1996 was $88,816 comprised entirely
of debt associated with this finance agreement.

As of December 31, 1997 the Company reported  stockholders equity of $2,278,788.
This  represents  a decrease of $871,845  from  December  31, 1996  stockholders
equity. The decrease is attributable primarily to the Company's net loss for the
year of $(861,110).


FORWARD-LOOKING STATEMENTS

The Company believes that this report contains forward-looking statements within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the Securities Exchange Act of 1934, as amended, that are subject
to certain risks and  uncertainties.  Forward-looking  statements  represent the
Company's  expectations  or beliefs  concerning  future  events,  including  the
following:  any statements  regarding future sales and gross profit percentages,
any statements  regarding the continuation of historical  trends, any statements
regarding the sufficiency of the Company's cash balances and cash generated from
operating  and  financing  activities  for the  Company's  future  liquidity and
capital  resource  needs,  any  statements  regarding  the effect of  regulatory
changes,  the success of development and enhancement of the Company's  products,
the  adequacy  of the  Company's  facilities,  potential  acquisitions,  and any
statements  regarding  the future of the industry  and the various  parts of the
markets in which the Company  conducts its business.  The Company  cautions that
any  forward-looking  statements  made by the Company in this report or in other
announcements  made by the Company are further  qualified by  important  factors
that  could  cause  actual  results  to  differ  materially  from  those  in the
forward-looking statements.


<PAGE>




ITEM 7   FINANCIAL STATEMENTS

                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                                FINANCIAL REPORT
                     YEARS ENDED DECEMBER 31, 1997 AND 1996




                                    CONTENTS


                                      Page


INDEPENDENT AUDITOR'S REPORT ON THE
  FINANCIAL STATEMENTS                                         14

FINANCIAL STATEMENTS

  Balance Sheets                                               15

  Statements of Operations                                     17

  Statements of Stockholders' Equity                           18

  Statements of Cash Flows                                     19

  Notes to Financial Statements                                21















<PAGE>








                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Guardian Technologies International, Inc.
Dulles, Virginia


     We have audited the  accompanying  balance sheets of Guardian  Technologies
International, Inc. as of December 31, 1997 and 1996, and the related statements
of operations,  stockholders'  equity,  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 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 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  Guardian  Technologies
International,  Inc.  as of December  31, 1997 and 1996,  and the results of its
operations  and its cash  flows for the years then  ended,  in  conformity  with
generally accepted accounting principles.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered continued losses from operations
that raise  substantial  doubt about its ability to continue as a going concern.
Management's  plans in regard to these matters are also described in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


                         THOMPSON, GREENSPON & CO., P.C.


Fairfax, Virginia
March 3, 1998





                                     - 14 -

<PAGE>





                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996






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

       ASSETS

       CURRENT ASSETS
         Cash and cash equivalents                 $   109,461  $   119,703
         Trade accounts receivable                     269,425       60,998
         Accrued interest receivable                         -       60,448
         Inventories                                   452,335      585,582
         Prepaid assets and other                       59,088       75,365
         Securities available for sale                       -    2,501,753
                                                   -----------  -----------
                  Total Current Assets                 890,309    3,403,849
                                                   -----------  -----------

       PROPERTY AND EQUIPMENT
         Land                                          237,339      237,339
         Building                                    2,524,780            -
         Office furniture and equipment                118,763       85,213
         Manufacturing equipment                        74,494       63,477
         Leasehold improvements                              -      115,394
         Construction in progress                            -    2,306,527
                                                   -----------  -----------
                  Total Cost                         2,955,376    2,807,950
         Less accumulated depreciation                (166,998)    (197,778)
                                                   -----------  -----------
                  Net Property and Equipment         2,788,378    2,610,172
                                                   -----------  -----------

       OTHER ASSETS
         Deposits                                       26,210       26,697
         Certification costs, net of amortization       24,975       27,870
                                                   -----------  -----------
                  Total Other Assets                    51,185       54,567
                                                   -----------  -----------

       TOTAL ASSETS                                $ 3,729,872  $ 6,068,588
                                                   ===========  ===========




THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                     - 15 -


<PAGE>





                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996
                                  (continued)





                                                           1997         1996
                                                       -----------  -----------
  LIABILITIES AND STOCKHOLDERS' EQUITY

  CURRENT LIABILITIES
    Trade accounts payable                             $   337,615  $   867,624
    Line of credit payable                                       -    1,850,554
    Current portion of notes payable                        61,669       57,016
    Accrued expenses                                        39,565       49,946
    Customer deposits                                       85,087        3,999
                                                       -----------  -----------
            Total Current Liabilities                      523,936    2,829,139

  LONG TERM PORTION OF NOTES PAYABLE                       927,148       88,816
                                                       -----------  -----------
            Total Liabilities                            1,451,084    2,917,955
                                                       -----------  -----------

  STOCKHOLDERS' EQUITY
    Preferred stock, $0.20 par value, 1,000,000 shares
      authorized; no shares issued and outstanding in
      1997 and 1996                                              -            -
    Common stock, par value $0.001, 15,000,000 shares
      authorized; 1,114,201 shares issued and outstanding
      in 1997 and 1996                                       1,114        1,114
    Additional paid-in capital                           4,107,424    4,140,503
    Less notes receivable for purchase of common stock           -      (33,080)
    Net unrealized gain on securities available for sale         -       10,736
    Accumulated  deficit since  December 7, 1995
      (termination  of S corporation status in which
      a deficit of $2,320,227 was applied against
      additional paid-in capital)                       (1,829,750)    (968,640)
                                                       -----------  -----------
            Total Stockholders' Equity                   2,278,788    3,150,633
                                                       -----------  -----------

  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $ 3,729,872  $ 6,068,588
                                                       ===========  ===========





                                     - 16 -


<PAGE>




                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                            STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996




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

   SALES                                              $ 1,154,970  $ 1,475,577

   COST OF GOODS SOLD                                   1,237,105    1,318,743
                                                      -----------  -----------

             Gross (Loss) Profit                          (82,135)     156,834
                                                      -----------  -----------

   GENERAL AND ADMINISTRATIVE EXPENSES                    521,755      799,077

   SELLING EXPENSES                                       258,067      403,160
                                                      -----------  -----------
                                                          779,822    1,202,237
                                                      -----------  -----------

             Operating Loss                              (861,957)  (1,045,403)

   RENTAL INCOME                                          101,150            -

   FINANCING (EXPENSE) INCOME                            (100,303)      91,719
                                                      -----------  -----------

   NET LOSS                                           $  (861,110) $  (953,684)
                                                      ===========  ===========

   NET LOSS PER COMMON SHARE                          $      (.77) $      (.96)
                                                      ===========  ===========

   NET LOSS PER DILUTIVE SHARE                        $      (.77) $      (.96)
                                                      ===========  ===========

   AVERAGE COMMON SHARES OUTSTANDING                    1,114,201      994,565
                                                      ===========  ===========





THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                     - 17 -


<PAGE>





                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996







<TABLE>
<CAPTION>
                                                                                                  Net
                                                                                            Unrealized Gain
                                                                      Additional             on Securities
                                                             Common     Paid-in     Notes      Available   Accumulated
                                                  Shares     Stock      Capital   Receivable    for Sale     Deficit      Total
                                                ----------  --------  ----------  ----------  -----------  -----------  ----------

<S>                                            <C>         <C>         <C>       <C>         <C>           <C>         <C>
Balance, December 31, 1995, as reported          2,364,983  $  2,365  $  457,390  $  (33,080) $         -  $   (14,956) $  411,719
  Effect of reverse stock split - 1 for 3       (1,576,615)   (1,577)      1,577           -            -            -           -
                                                ----------  --------  ----------  ----------  -----------  -----------  ----------
Balance, December 31, 1995, as restated            788,368       788     458,967     (33,080)           -      (14,956)    411,719

  Sale of common stock and warrants,
    adjusted for split                             325,833       326   3,594,287           -            -            -   3,594,613
  Contributed services                                   -         -      37,500           -            -            -      37,500
  Stock options issued in exchange for
    other services                                       -         -      49,750           -            -            -      49,750
  Net change in unrealized gains on securities
    available for sale, net of taxes of $2,500           -         -           -           -       10,736            -      10,736
  Net loss                                               -         -           -           -            -     (953,684)   (953,684)
                                                ----------  --------  ----------  ----------  -----------  -----------  ----------
Balance, December 31, 1996                       1,114,201  $  1,114  $4,140,504  $  (33,080) $    10,736  $  (968,640) $3,150,634
                                                ==========  ========  ==========  ==========  ===========  ===========  ==========

Balance, December 31, 1996, as reported          3,342,483  $  3,343  $4,138,275  $  (33,080) $    10,736  $  (968,640) $3,150,634
  Effect of reverse stock split - 1 for 3       (2,228,282)   (2,229)      2,229           -            -            -           -
                                                ----------  --------  ----------  ----------  -----------  -----------  ----------
Balance, December 31, 1996, as restated          1,114,201     1,114   4,140,504     (33,080)      10,736     (968,640)  3,150,634
  Net change in unrealized gain on
    securities available for sale                        -         -           -           -      (10,736)           -     (10,736)
  Cancellation of common stock subscriptions             -         -     (33,080)     33,080            -            -           -
  Net loss                                               -         -           -           -            -     (861,110)   (861,110)
                                                ----------  --------  ----------  ----------  -----------  -----------  ----------
Balance, December 31, 1997                       1,114,201  $  1,114  $4,107,424  $        -  $         -  $(1,829,750) $2,278,788
                                                ==========  ========  ==========  ==========  ===========  ===========  ==========

</TABLE>




THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.



                                     - 18 -




<PAGE>





                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996



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

  CASH FLOWS FROM OPERATING ACTIVITIES
    Cash received from customers                       $ 1,118,436  $ 1,460,751
    Cash paid to suppliers and employees                (2,307,986)  (1,986,184)
    Interest received                                      157,641       47,802
    Interest paid                                         (211,681)     (43,085)
                                                       -----------  -----------
           Net Cash Used in Operating Activities        (1,243,590)    (520,716)
                                                       -----------  -----------

  CASH FLOWS FROM INVESTING ACTIVITIES
    Payments for construction in progress                 (199,253)  (2,285,018)
    Purchase of property and equipment                     (44,567)     (66,940)
    Purchase of land                                             -     (237,339)
    Proceeds from called securities                              -      500,754
    Proceeds from sale of securities available for sale  3,512,311            -
    Purchase of securities available for sale           (1,022,758)  (2,991,771)
    Investment in certification costs                       (5,303)     (39,608)
    Decrease (increase) in deposits                            487      (22,672)
                                                       -----------  -----------
           Net Cash Provided (Used) by Investing
             Activities                                  2,240,917   (5,142,594)
                                                       -----------  -----------

  CASH FLOWS FROM FINANCING ACTIVITIES
    Principal payments of borrowings                    (1,907,569)    (163,459)
    Proceeds from borrowings                               900,000    1,993,804
    Principal payments on related party borrowings               -     (101,200)
    Proceeds from issuance of common stock and warrants          -    3,677,561
                                                       -----------  -----------
           Net Cash (Used) Provided by Financing
             Activities                                 (1,007,569)   5,406,706
                                                       -----------  -----------

  NET (DECREASE) IN CASH AND CASH EQUIVALENTS              (10,242)    (256,604)

  CASH AND  CASH EQUIVALENTS, BEGINNING OF YEAR            119,703      376,307
                                                       -----------  -----------

  CASH AND CASH EQUIVALENTS, END OF YEAR               $   109,461  $   119,703
                                                       ===========  ===========





THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.



                                     - 19 -


<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
                                  (continued)

<TABLE>
<CAPTION>
                                                                1997          1996
                                                            -----------   -----------

<S>                                                         <C>           <C>
RECONCILIATION OF NET LOSS TO NET CASH USED
  IN OPERATING ACTIVITIES
    Net loss                                                 $ (861,110)  $  (953,684)
    Interest capitalized in connection with construction
      in progress                                               (19,000)      (21,509)
    Noncash (income) expenses included in net loss
      Depreciation and amortization                              92,812        47,555
      Contributed services                                            -        37,500
      Stock options issued in exchange for consulting
        services                                                      -        49,750
      Realized loss on securities available for sale              1,464             -
      Change in assets and liabilities
        (Increase) decrease in accounts receivable             (208,427)       39,246
        (Increase) decrease in accrued interest receivable       60,448       (60,448)
        (Increase) decrease in inventories                      133,247      (348,559)
        (Increase) decrease in prepaid expenses                  16,277        (2,654)
        Increase (decrease) in accounts payable and
          accrued expenses                                     (540,389)      746,159
        Increase (decrease) customer deposits                    81,088       (54,072)
                                                            -----------   -----------
             Net Cash Used in Operating Activities          $(1,243,590)  $  (520,716)
                                                            ===========   ===========

SUPPLEMENTAL DISCLOSURE OF INVESTING AND
  FINANCING ACTIVITIES
    Purchase of prepaid insurance by installment
      note payable                                          $         -   $    43,750
                                                            ===========   ===========

  Cancellation of common stock subscriptions                $    33,080   $         -
                                                            ===========   ===========

    Increase in common stock and additional
      paid-in capital                                       $         -   $ 4,986,228
    Public and private offering costs paid in cash                    -      (280,743)
    Public and private offering costs deducted from
      proceeds                                                        -    (1,027,924)
    Noncash - prepaid fees for public offering                        -       (82,948)
                                                            -----------   -----------
             Net Proceeds from Issuance of
               Common Stock and Warrants                    $         -   $ 3,594,613
                                                            ===========   ===========

    Net Unrealized Gain on Securities Available for Sale    $         -  $    10,736
                                                            ===========   ===========


</TABLE>
                                      - 20 -


<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS

      Guardian Technologies  International,  Inc. (the Company) was incorporated
      in Virginia on October 30, 1989 and commenced full production in December,
      1990.  The  Company  manufactures  and  distributes  soft armor  products,
      primarily superior quality ballistic protective vests, for law enforcement
      officers,  armed forces  personnel,  and other  legitimate  individuals or
      groups requiring protective equipment.

      In February, 1996, the Company was reincorporated in the State of Delaware
      under  the  name of  Guardian  Technologies  International,  Inc.  and was
      authorized to issue  15,000,000  shares of common stock,  $.001 par value,
      and  1,000,000  shares of  preferred  stock,  $.20 par value.  Thereafter,
      pursuant to approval of the Company stockholders at a special stockholders
      meeting,  a Plan of Agreement  and Merger  between  Guardian  Technologies
      International,  Inc., the Virginia  corporation and Guardian  Technologies
      International,  Inc., the Delaware corporation was executed and filed with
      2,364,983 shares of common stock of the Delaware  corporation  issued in a
      share  for  share  exchange  for  the  2,364,983  shares  of the  Virginia
      corporation then outstanding.

      Effective May 23, 1997, the Board of Directors  authorized a one-for-three
      reverse stock split for the Company's  common shares and Class A warrants,
      thereby  decreasing the number of issued and outstanding  common shares to
      1,114,201  and  reducing  issued  and  outstanding  purchase  warrants  to
      814,417. All references in the accompanying financial statements and notes
      to  financial  statements  to the number of common  shares  and  per-share
      amounts for 1996 have been restated to reflect the reverse stock split.

      METHOD OF ACCOUNTING

      The financial statements are presented on the accrual basis of accounting.

      REVENUE RECOGNITION

      Manufacturing  revenue is  recognized  upon  shipment of  product.  Rental
      income is recorded as earned in connection with tenant lease agreements at
      the Company's office and manufacturing facility.

      FINANCIAL STATEMENT ESTIMATES

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosures  of  contingent  assets  and  liabilities  at the  date of the
      financial  statements and reported  amounts of revenue and expenses during
      the reporting  period.  Due to their  prospective  nature,  actual results
      could differ from those estimates.



                                     - 21 -


<PAGE>



                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

      FINANCIAL INSTRUMENTS

      The  estimated  fair  value  of  cash  and  cash   equivalents,   accounts
      receivable,  accounts payable and accrued  expenses and other  liabilities
      approximate their carrying amounts in the financial statements.

      Based on the borrowing rates currently  available to the Company for loans
      with  similar  terms and average  maturities,  the fair value of long-term
      debt is $1,021,000.

      CONCENTRATIONS OF CREDIT RISK

      Financial   instruments   which   potentially   subject   the  Company  to
      concentrations  of credit risk consist of trade  accounts  receivable  and
      cash.  The Company grants credit terms in the normal course of business to
      its customers,  who are primarily dealers or municipal,  state and Federal
      law  enforcement  agencies,  and who are  located  throughout  the  United
      States. As part of its ongoing procedures, the Company monitors the credit
      worthiness of its customers.

      The Company  maintains  cash in  commercial  banks in  accounts  which are
      insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000
      per customer and in uninsured accounts. The Company has amounts on deposit
      with banks which at times exceed the $100,000 insured threshold.  The cash
      amount  presented  on the balance  sheet  reflects  the actual  amounts on
      deposit  with banks  reduced  for  outstanding  checks and  increased  for
      deposits in transit. There were no uninsured bank balances at December 31,
      1997 or 1996.

      CASH AND CASH EQUIVALENTS

      For  purposes of the  statement of cash flows,  cash and cash  equivalents
      include  demand  deposits  and all highly  liquid  debt  instruments  with
      original maturities of three months or less.

      ACCOUNTS RECEIVABLE

      It is the  practice of  management  to write off  receivables  in the year
      amounts are  determined  to be  uncollectible.  No allowance  for doubtful
      accounts is  reflected  in these  financial  statements  since  management
      believes  all  accounts  to be fully  collectible.  There  was no bad debt
      expense in 1997 or 1996.

      INVENTORIES

      Inventories  are  stated at the lower of cost or  market,  with cost being
      determined  on a first-in,  first-out  basis for raw materials and work in
      progress. Finished goods are stated at standard cost.

      SECURITIES AVAILABLE FOR SALE

      Securities  to be held for  indefinite  periods of time are  classified as
      securities  available for sale.  Unrealized  gains and losses are excluded
      from earnings and shown as a separate  component of stockholders'  equity,
      net of  applicable  income  taxes.  The  investments  are recorded at fair
      value.




                                     - 22 -



<PAGE>



                   GUARDIAN TECHNOLOGIES INTERNATIONAL, INC

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

      PROPERTY AND EQUIPMENT

      Property and  equipment  are recorded at cost and  depreciated  over their
      estimated  useful lives.  Leasehold  improvements are amortized over their
      useful  lives or the related  lease  period,  whichever  is  shorter.  The
      Company uses the  straight-line  and accelerated  methods of depreciation,
      respectively, for financial statement and income tax reporting purposes.

      A summary of the estimated useful lives follows:

            Building                                           40 years
            Office furniture and equipment                  5 - 7 years
            Manufacturing equipment                         7 - 8 years
            Leasehold improvements                          2 - 7 years


      Expenditures  for maintenance  and repairs which do not materially  extend
      the useful lives of property and equipment  are charged to earnings.  When
      property  or  equipment  is sold or  otherwise  disposed  of, the cost and
      related accumulated  depreciation are removed from the respective accounts
      with the resulting gain or loss reflected in earnings.

      Long-lived assets and identifiable intangibles of the Company are reviewed
      for impairment should events or changes in circumstances indicate that the
      carrying amount of an asset may not be  recoverable.  At December 31, 1997
      and 1996, there were no impaired assets.

      Depreciation  expense for the years ended  December  31, 1997 and 1996 was
      $84,614 and $17,318, respectively.  There was no amortization of leasehold
      improvements in 1997. Amortization expense was $8,312 for 1996.

      CERTIFICATION COSTS

      The Company has capitalized certain costs associated with certification of
      its  products.  Certification  costs are carried at cost less  accumulated
      amortization.  Amortization is taken on the straight-line  basis over five
      years. Amortization expense for the years ended December 31, 1997 and 1996
      was $8,198 and $10,760, respectively.

      CONTRIBUTED SERVICES

      During 1996,  the Company  recognized  as additional  paid-in-capital  the
      value of  uncompensated  services  provided by the President and the Chief
      Executive Officer.

      ADVERTISING COSTS

      The Company charges advertising costs to expense as incurred.  Advertising
      expense was $47,476 for 1997 and $52,199 for 1996.




                                     - 23 -


<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

      INCOME TAXES

      The Company utilizes the liability method for accounting for income taxes.
      The  liability  method  accounts  for  deferred  income  taxes by applying
      enacted statutory rates in effect at the balance sheet date to differences
      between   financial   statement  amounts  and  tax  bases  of  assets  and
      liabilities. The resulting deferred income tax liabilities are adjusted to
      reflect changes in tax laws and rates.  Temporary  differences  consist of
      the  difference  in financial  statement and income tax bases for property
      and equipment.  Deferred income taxes related to an asset or liability are
      classified as current or  noncurrent  based on the  classification  of the
      related asset or liability.

      Prior  to  December  7,  1995,  the  Company,  with  the  consent  of  its
      stockholders,  had elected S corporation  status under Section 1372 of the
      Internal  Revenue Code and similar  sections of the state income tax laws.
      On December 7, 1995, Guardian Technologies International,  Inc. terminated
      its S corporation election and became subject to corporate income taxes.

      NET LOSS PER COMMON SHARE

      The  Company has  adopted  Statement  of  Financial  Accounting  Standards
      ("SFAS") No. 128 which establishes  standards for computing and presenting
      earnings per share (EPS) for entities with publicly held common stock. The
      standard  requires  presentation  of two categories of earnings per share,
      basic EPS and diluted EPS. Basic EPS excludes  dilution and is computed by
      dividing income available to common  stockholders by the  weighted-average
      number of common shares outstanding for the year. Diluted EPS reflects the
      potential  dilution that could occur if  securities or other  contracts to
      issue  common  stock were  exercised  or  converted  into common  stock or
      resulted in the  issuance of common stock that then shared in the earnings
      of the Company.  The 1996 net loss per common share  information  has been
      restated to account for the provisions of SFAS 128.

      The financial  statements and related footnotes  provide  information that
      considers the effect of the one-for-three reverse stock split on all years
      presented.

<TABLE>
<CAPTION>

                                             1997                                1996
                              ---------------------------------   ---------------------------------
                                  Net                 Per-Share        Net                Per-Share
                                 Loss       Shares      Amount        Loss      Shares      Amount
                              ----------  ----------  ---------   ----------  ----------  ---------
<S>                           <C>         <C>         <C>         <C>         <C>         <C>

     Basic EPS and
       Diluted EPS
       Loss available
         to common
         stockholders         $ (861,110)  1,114,201   $  (0.77)  $ (953,684)    994,565  $   (0.96)
                                                       ========                           =========

</TABLE>


                                     - 24 -




<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

      NET LOSS PER COMMON SHARE (continued)

      Options  to  purchase  33,333  of common  shares  at $1.32 per share  were
      outstanding in 1997 and 1996. The assumed  conversion of the options would
      be antidilutive due to the loss from continuing  operations and therefore,
      is excluded  from the  computation  of diluted  EPS for 1997.  The options
      expire on January 2, 2000.

      Common stock purchase warrants of 814,417 with an exercise price of $15.00
      per share were outstanding in 1997 and 1996. The assumed conversion of the
      warrants would be antidilutive  due to the loss from continued  operations
      and therefore is excluded from the computation of diluted EPS for 1997 and
      1996.

      ACCOUNTING PRONOUNCEMENTS

      In June,  1997,  the Financial  Accounting  Standards  Board (FASB) issued
      Statement No. 130, "Reporting Comprehensive Income". Comprehensive income,
      as defined by the statement,  includes all changes in stockholders' equity
      exclusive of  transactions  with owners.  The  statement is effective  for
      financial statements for periods beginning after December 15, 1997.

      Also in June, 1997, FASB Statement No. 131, "Disclosures about Segments of
      an  Enterprise  and  Related   Information"  was  issued.  This  statement
      establishes  standards  for the  reporting  of financial  and  descriptive
      information  by  public  business  enterprises   regarding  its  operating
      segments  and  also  provides  standards  for  related  disclosures  about
      products  and  services,   geographic  areas,  and  major  customers.  The
      statement is effective  for  financial  statements  for periods  beginning
      after December 15, 1997.

      Management does not anticipate the adoption of FASB Statements No. 130 or
      No. 131 will have a material effect on the financial statements.


2. GOING CONCERN CONSIDERATIONS

      The  Company  has  incurred  losses  of  approximately   $4,150,000  since
      inception.  These continuing  losses, a decline in sales during 1997, high
      production costs and gross margin declining from 10 percent in 1996 to nil
      in 1997 raise  doubt  about the  Company's  ability to continue as a going
      concern.  Its continued existence is dependent upon its ability to achieve
      profitable operations by increasing sales while controlling production and
      other costs.

      To achieve  profitable  operations,  management  intends to  continue  and
      expand cost reduction measures instituted in early 1997 by initiating head
      count  reductions in  administrative  and sales  departments,  reducing or
      eliminating the use of outside  consultants,  and improving  manufacturing
      cost and inventory controls.  Cost reduction efforts in 1997 have resulted
      in a decrease in general and administrative expenses of about 35 percent.



                                     - 25 -
<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



2.  GOING CONCERN CONSIDERATIONS (continued)

      The  Company  will  focus  sales  efforts   primarily  on  large  quantity
      standardized  orders  which will create  manufacturing  efficiencies.  The
      backlog of sales  orders at December 31, 1997 is  approximately  $350,000.
      The  Company is  pursuing  "funded"  development  efforts to  continue  to
      provide state of the art  products.  In addition,  the Company  intends to
      utilize  the  specific  expertise  of senior  management  in fields of law
      enforcement,  security and protective devices by pursuing opportunities to
      provide consulting services to private industry and government agencies.

      As  discussed  in Note 16, the Company has  accepted a  commitment  from a
      commercial  entity to provide  $1,900,000  in the form of a mortgage.  The
      mortgage will bear interest at the rate of 7.5 percent per annum,  will be
      amortized  over 20 years with a 10 year balloon and will  require  monthly
      principal and interest  payments of approximately  $15,300.  Proceeds from
      the  refinancing  will be used to repay an existing  note  payable  with a
      balance of $900,000 at December 31, 1997, which bears interest at the rate
      of 15 percent per annum, and to provide additional working capital.

      Commencing  February 1, 1998,  the Company will have full occupancy of all
      leasable space in the facility in Dulles, Virginia. Annual base rent under
      the leases is  approximately  $196,500,  including common area maintenance
      charges.  Tenant leases also provide for 2 to 3.5 percent annual increases
      in base rent.

      For  these   reasons,   management   believes  that  no   adjustments   or
      reclassifications  of recorded assets and liabilities is necessary at this
      time.


3. SECURITIES AVAILABLE FOR SALE

      All  securities  available  for sale were called or sold by the Company in
      1997.  Securities  available  for sale as shown  in the  balance  sheet at
      December 31, 1996, are as follows:


                                           Gross         Gross      Approximate
                                         Unrealized    Unrealized     Market
                             Cost          Gains         Losses        Value
                           ----------    ----------    ----------   -----------

      U.S. Government and
        agency securities  $2,491,017     $10,736         $    -    $2,501,753
                           ==========     =======         ======    ==========


      Securities  available  for sale  with  carrying  amount of  $2,501,753  at
      December 31, 1996, were pledged as collateral on a line of credit.

4. INVENTORIES

      Inventories consist of the following:



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

         Raw materials                     $ 352,410  $ 266,925
         Work in process                       7,497      7,695
         Finished goods                       92,428    140,984
         Raw materials in transit                  -    169,978
                                           ---------  ---------
                                           $ 452,335  $ 585,582
                                           =========  =========






                                     - 26 -

<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


5. CONSTRUCTION IN PROGRESS

      During 1996, the Company entered into various contracts for the design and
      construction  of a  manufacturing  and  office  facility  on a  parcel  of
      unimproved  land that was purchased in May,  1996 for $237,339.  The total
      cost  of  the  building  was  $2.5  million.   Interest   incurred  during
      construction has been capitalized as part of the building. The capitalized
      interest was $19,000 for 1997 and $21,509 for 1996.

      The Company commenced occupancy of the facility on January 31, 1997.

6. LINES OF CREDIT

      The Company has a $100,000 line of credit arrangement with a bank, through
      December 31,  1998.  Interest is at 2 percent in excess of the bank's base
      lending  rate. No principal  was  outstanding  as of December 31, 1997 and
      1996.  The line of  credit  is  guaranteed  by an  officer,  director  and
      stockholder of the Company. Borrowings and repayments were $40,000 in 1997
      and $75,000 in 1996.

      In 1996,  the  Company  entered  into a line of  credit  agreement  with a
      securities  broker which allowed it to borrow against U.S.  Government and
      agency securities available for sale (Note 3). The borrowings were charged
      interest at the broker's  interest  rate and were  payable on demand.  The
      interest rate at December 31, 1996 was 7.5 percent,  payable  monthly.  At
      December  31,  1996,  a total of  $1,850,554  had been drawn  against  the
      securities.  In 1997, an  additional  $290,000 was drawn under the line of
      credit.  At December 31,  1997,  all  borrowings  under the line of credit
      agreement had been paid from the sale of the securities.


7. NOTES PAYABLE

      On February 7, 1997,  the  Company  executed a one year note for  $900,000
      with a  commercial  entity.  Interest  at a 15 percent  annual rate is due
      monthly.  The note is  secured  by a first deed of trust on the office and
      manufacturing facility in Dulles,  Virginia. In April, 1997, the agreement
      was modified to include  additional  funds of $650,000 (up to a maximum of
      $900,000 when the building was fully  leased).  In addition,  the due date
      was extended to February 7, 1999 when the  original  principal of $900,000
      plus any  borrowings  under the credit  facility are due and payable.  See
      Note 16.

      Also included in notes payable is an insurance  premium finance  agreement
      totalling  $88,817.  The  agreement  matures  in May,  1999 and  calls for
      monthly  payments of principal  and interest of $5,539 with  interest at 8
      percent.

      The  following is a schedule of future  principal  payments as of December
      31, 1997.

              Year ending December 31,:
              ------------------------
                      1998                             $  61,669
                      1999                               927,148
                                                       ---------
                                                       $ 988,817
                                                       =========



                                     - 27 -

<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


8.  LEASE COMMITMENTS

      The Company has executed lease  agreements  with three tenants,  effective
      February  1,  1997  and  one  tenant  effective   February  1,  1998,  for
      approximately 18,800 square feet of office space in the Company's facility
      located in  Dulles,  Virginia.  The  leases are from five to seven  years,
      provide for  monthly  payments of base rent and  operating  expenses,  and
      include a 2 to 3.5 percent increase in base rent annually.

      At December 31, 1997,  future  minimum lease  payments  receivable  are as
follows:

            1998                                   $174,679
            1999                                    186,943
            2000                                    193,322
            2001                                    199,947
            2002 and thereafter                     192,205
                                                   --------
                                                   $947,096
                                                   ========

      The Company  leased  office and warehouse  space under two  month-to-month
      agreements prior to occupying its new facility on January 31, 1997.

      In connection with these agreements,  the Company  sub-leased office space
      to other  parties on a  month-to-month  basis.  Office  rental  expense of
      $12,058  and  $136,299  for the years  ended  December  31, 1997 and 1996,
      respectively,  are net of sublease  rental  income of $3,463 and  $36,162,
      respectively.


9. INCOME TAXES

      There was no provision  for income taxes for the years ended  December 31,
      1997 or 1996 due to net operating losses,  and because deferred tax assets
      were offset by a valuation allowance.

      The deferred tax asset for the years ended  December 31, are  comprised of
      the following items:


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

           Deferred tax assets:
             Net operating loss carryforward    $(703,000) $(352,000)
             Property and equipment                63,000    (25,000)
             Accrued expenses                      (3,000)    (6,000)
                                                ---------  ---------
                   Gross deferred tax assets     (643,000)  (383,000)

           Deferred tax liability:
             Net unrealized gain on securities
               available for sale                       -      5,000
           Less:  deferred tax asset valuation
             allowance                            643,000    378,000
                                                ---------  ---------
                   Net deferred tax asset       $       -  $       -
                                                =========  =========





                                     - 28 -


<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


9. INCOME TAXES (continued)

      A reconciliation between the amount of reported Federal income tax benefit
      and the amount  computed by multiplying the applicable  statutory  Federal
      income tax rate is as follows:

<TABLE>
<CAPTION>
                                         1997                                  1996
                                 -----------------------           --------------------------
<S>                                <C>          <C>                <C>               <C>
Computed expected tax benefit      $(292,780)   (34.00)%           $ (324,250)       (34.00)%
(Increase) decrease in tax
  benefit resulting from:
    State tax benefit                (51,670)    (6.00)               (57,250)        (6.00)
    Other                             79,450      9.25                 16,500          1.45
                                   ---------   -------             ----------       -------
                                    (265,000)   (30.75)              (365,000)       (38.55)
                                   ---------   -------             ----------       -------

Allowance to reduce tax benefit
  to net realizable value:
    Beginning of year              $(378,000)   (43.90)            $  (13,000)        (1.40)
    End of year                      643,000     74.65                378,000         39.55
                                   ---------   -------             ----------       -------
                                     265,000     30.75                365,000         38.55
                                   ---------   -------             ----------       -------
Income tax benefit                 $       -      0.00%            $        -          0.00%
                                   =========   =======             ==========       =======

</TABLE>

      At December 31, 1997, the Company has net operating loss  carryforwards of
      approximately  $1,850,000  available  under  provisions  of  the  Internal
      Revenue  Code  to  be  applied  against  future  taxable   income.   These
      carryforwards are subject to annual  limitations on utilization and expire
      on December 31, 2016.

10.   MAJOR CUSTOMERS

      The Company sells its products  primarily to authorized dealers for resale
      to municipal,  county and state law  enforcement  agencies  throughout the
      United States.  Approximately 4 percent of sales in 1997 and 21 percent of
      sales in 1996 were to foreign governments and agencies.

      Percentage  of sales to major  domestic  customers  at December 31, are as
      follows:


                                                      1997         1996
                                                      ----         ----

          U.S. Government Agency                       26%          0%
          Municipal law enforcement agency             11%          9%
          U.S. Government subcontract                   7%         23%

11. MAJOR SUPPLIER CONCENTRATION

      The ballistic resistant products of the Company are primarily manufactured
      with the raw materials Spectra 1000 woven fabric and Spectra Shield. These
      two products are manufactured and distributed only by Allied-Signal,  Inc.
      As of December  31, 1997 and 1996,  Guardian  Technologies  International,
      Inc., owed $129,444 and $276,765, respectively, to Allied-Signal, Inc.




                                     - 29 -


<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


12. CONTRIBUTED CAPITAL

      There were no outstanding shares of preferred stock in 1997 or 1996.

      In May, 1996, the Company  completed an initial public offering of 325,833
      shares of common  stock at $15.30  per share  with  325,833  common  stock
      purchase  warrants.  The warrant entitles the holder to purchase one share
      of common stock at an exercise price of $15.00 during the five year period
      following  the effective  date of the  offering.  At December 31, 1997 and
      1996, no warrants had been exercised. The offering also registered 244,278
      additional shares of common stock,  488,523 warrants and 488,523 shares of
      common stock underlying the warrants by existing stockholders. No proceeds
      from the resale of these shares will be received by the Company. Total net
      proceeds from the offering were $3,594,613  after  deducting  commissions,
      fees and other costs of the sale.

      There were 814,356  warrants,  with an exercise price of $15.00 per share,
      outstanding at December 31, 1997 and 1996.

      On  February  20,  1995,  the  stockholders  of the  Company  approved  an
      amendment of the  articles of  incorporation  to increase  the  authorized
      shares of common  stock to  5,000,000  shares and to  authorize  1,000,000
      shares of preferred  stock. The amendment was filed on March 22, 1996 with
      the State Corporation Commission of Virginia.

      In 1995,  the Company  sold 64,863  shares to investors at $.51 per share,
      accepting notes receivable of $33,080.  The notes were due April 16, 1996,
      with  interest at the rate of 9 percent.  The notes  receivable of $33,080
      were canceled in 1997.

13. STOCK PRICES SINCE INITIAL PUBLIC OFFERING

      The common stock of the Company is traded on the NASDAQ Stock Market under
      the symbol GRDN. The prices listed below are the high and low sales prices
      for common shares since the initial public offering on May 14, 1996.


                                              Price
                                      ----------------------
              Quarter Ended              Low         High
              ------------            ---------    ---------

                  6/30/96             $17.25       $38.25
                  9/30/96             $ 2.8125     $19.50
                 12/31/96             $ 1.21875    $ 4.40625
                  3/31/97             $ 0.84375    $ 2.53125
                  6/30/97             $ 0.875      $ 2.625
                  9/30/97             $ 1.375      $ 4.00
                 12/31/97             $ 2.50       $ 3.375




                                     - 30 -

<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


13. STOCK PRICES SINCE INITIAL PUBLIC OFFERING (continued)

      The common stock purchase warrants of the Company are traded on the NASDAQ
      Stock Market under the symbol GRDNW.  The prices listed below are the high
      and low sales prices for common share  warrants  since the initial  public
      offering on May 14, 1996.


                                              Price
                                         --------------------
                     Quarter Ended          Low       High
                     -------------       ---------  ---------

                       6/30/96           $12.75     $34.50
                       9/30/96           $ 0.9375   $15.75
                      12/31/96           $ 0.1875   $ 2.90625
                       3/31/97           $ 0.09375  $ 0.750
                       6/30/97           $ 0.0625   $ 0.250
                       9/30/97           $ 0.03125  $ 0.46875
                      12/31/97           $ 0.250    $ 0.375

14. STOCK COMPENSATION

      On  December  8,  1997,  the  stockholders  approved a stock  option  plan
      authorizing  options for 300,000  shares of the  Company's  common  stock.
      Under the terms of the plan, the exercise price of  non-qualified  options
      will be the lesser of the book  value per share of the common  stock as of
      the end of the  Company's  fiscal year  immediately  preceding the date of
      such grant or 50 percent of the fair market  value per share of the common
      stock on the date of such grant. For incentive stock options, the exercise
      price  shall not be less than fair  market  value per share at the date of
      such grant.  Options  shall expire on the date  specified by the Board but
      not more  than ten  years  from the date of grant  for  non-qualified  and
      incentive  stock  options.  At December  31,  1997,  there were no options
      granted under the stock plan. See Note 16.

      The  Company  has  adopted  the   provisions  of  Statement  of  Financial
      Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation".
      SFAS 123 establishes  standards of financial  accounting and reporting for
      stock-based   compensation  plans  including  stock  option  plans,  stock
      purchase plans and other  arrangements by which employees or other related
      parties receive shares of stock or equity  instruments based on the market
      value of an  entity's  stock.  The  Company  has  elected to  account  for
      employee stock plans using the intrinsic value method.

      On November 14,  1996,  the Company  granted an option to purchase  33,333
      shares at an exercise price of $1.32 per share, to a consultant  providing
      advisory  services  to the  Company.  At that date,  the market  price was
      $2.82. The option is exercisable at any time after January 2, 1997, and on
      or  before  January  2,  2000.  Consulting  expense  of  $49,750  has been
      recognized in the year ending December 31, 1996.

      The fair  value  of the  Company's  stock  options  used is the  estimated
      present value at grant date using the Black Scholes pricing model with the
      following assumptions for 1996: a risk free interest rate of 5.58 percent,
      no estimated  dividend yield, an expected  volatility of 24 percent and an
      expected holding period of three years.



                                     - 31 -

<PAGE>



                  GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

15. EMPLOYMENT AGREEMENTS

      Effective  January 1, 1997,  the  Compensation  Committee  of the Board of
      Directors reduced the base salary of the Vice President to $77,900 and the
      base salary of the  President  to $21,150 for 1997,  only.  The  officers'
      employment agreements permit the Board to increase,  but not decrease, the
      base salaries of the officers  during the remaining four year terms of the
      contracts.  The Board or Compensation Committee, in their sole discretion,
      may  award  bonuses  to  the  officers.  The  amended  agreements  include
      provisions  for  additional  compensation  payable to the  officers in the
      event of  termination  of  employment  without  cause,  or upon  change of
      control of the Company.

16. SUBSEQUENT EVENTS

      REFINANCE OF NOTE PAYABLE

      On  March 3,  1998,  the  Company  accepted  a  commitment  letter  from a
      commercial  entity  to  obtain  a  loan  of  $1,900,000  to  refinance  an
      outstanding  note  payable  of  $900,000  as of  December  31,  1997.  The
      commitment  letter,  which is valid until April 20, 1998,  calls for a ten
      year term and 20 year amortization schedule and is to be collateralized by
      a first deed of trust on the office and manufacturing  facility in Dulles,
      Virginia,  as well as  assignment  of all  tenant  occupancy  leases.  The
      commitment also provides for monthly payments of principal and interest of
      $15,306,  including  interest at 7.5 percent per annum, with the remaining
      principal due at maturity. If the loan is prepaid in full before the first
      five years of the loan, the Company will be subject to certain  prepayment
      premiums computed as a percent of the unpaid balance.

      STOCK COMPENSATION

      On January  28,  1998,  at a special  meeting  of the Board of  Directors,
      options to purchase common stock were granted to officers and employees of
      the Company with an exercise price of $2.50.  Also at the meeting,  common
      stock  options  were  granted to  directors  of the  Company.  All options
      granted expire January 28, 2000.  Compensation  expense for the directors'
      options  granted  using the Black Scholes  pricing model is  approximately
      $36,500 with the following assumptions:  a risk-free interest rate of 5.63
      percent, no estimated dividend yield, an expected volatility of 36 percent
      and an expected  holding period of two years. No  compensation  expense is
      recognized for the employee  options  granted,  which are valued using the
      intrinsic value method.  However,  for disclosure  purposes,  compensation
      expense would be $36,500 for the employee common stock options.




                                     - 32 -


<PAGE>






ITEM 8  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURES

None.

                                    PART III

ITEM 9  DIRECTORS AND EXECUTIVE OFFICERS

     The executive officers and directors of the Company are listed in the table
below and  brief  summaries  of their  business  experience  and  certain  other
information with respect to them are set forth thereafter.


     NAME                   AGE             POSITION

Oliver L. North...........   54   Chairman of the Board, President and Secretary
Joseph F. Fernandez.......   61   Director, Vice President and Treasurer
Travis Y Green............   42   Director
Herbert M. Jacobi.........   53   Director
Hugh Sawyer...............   46   Director
John C. Power.............   35   Director
Stephen G. Calandrella....   38   Director

     The  Company's  Articles of  Incorporation  authorize  three (3) classes of
Directors which classes serve for varying terms.  The Articles also grant to the
sitting  Directors  the  authority to fill any  vacancies on the Board and/or to
appoint members to the Board to fill any vacancies resulting from an increase in
the authorized number of Directors.  As at the date hereof,  there are seven (7)
directors,  four (4) of whom  have been  appointed  by the  original  Directors.
Messrs. North and Fernandez' terms as Directors are for a three (3) year period,
Mr.  Green  for a two (2)  year  period  and the  appointees  for a one (1) year
period.

     Oliver L.  North  has  served  as  Chairman  of the  Board,  President  and
Secretary from  inception.  He graduated from the United States Naval Academy in
June 1968 and served in the United States Marine Corps for twenty-two years. His
service  included  a tour of duty in Vietnam  where he earned a Silver  Star for
heroism, a Bronze Star with a "V" for valor, and two Purple Hearts for wounds in
action.  From 1981  through  1986,  he served  as a member of  President  Ronald
Reagan's   National  Security  Council  staff  and  became  Deputy  Director  of
Political-Military  Affairs. In this capacity,  he helped plan the liberation of
Grenada,  the capture of terrorists  who hijacked the cruise ship Achille Lauro,
and the U.S. raid on Quaddafi's  terrorist  training camps in Libya.  He retired
from the Marine Corps in 1988.


     In March,  1988,  Mr.  North was  indicted  on charges  arising  out of the
so-called Iran-Contra affair. Four of the charges were dismissed prior to trial.
On May 4, 1989 Mr. North was  acquitted on nine counts and convicted on three in
the United  States  District  Court in  Washington,  D.C. The  convictions  were
appealed  to the United  States  Court of Appeals  for the  District of Columbia
Circuit.  On July 20, 1990,  the Court of Appeals  vacated all the  convictions,
reversed one conviction outright,  and sent the case back to the District Court.
The  Independent  Counsel  who had  brought  the case then  declined to continue
further  prosecution  and all  remaining  charges were  dismissed.  There are no
outstanding criminal charges or convictions against Mr. North today.



<PAGE>


     Joseph F.  Fernandez has served as Vice  President,  Treasurer and Director
since  inception.  Mr.  Fernandez  began  his  career as a Police  Officer  with
Miami/Dade County Police Department and served in this position for eight years.
In 1967,  he was  employed  by the U.S.  Central  Intelligence  Agency.  In this
capacity,  he served in both  foreign and  domestic  posts  dealing  with highly
sensitive  national  security issues and  intelligence  operations.  As a Senior
Operations Officer in the Clandestine Services, he directly supervised CIA units
of  up  to  35  persons  in  day-to-day  operational  assignments  and  planned,
distributed and accounted for budgets in excess of $8 million.

     On June 22,  1988,  Mr.  Fernandez  was  indicted on five  criminal  counts
arising  out  of  the  so-called  Iran-Contra  Affair.  These  indictments  were
dismissed without prejudice on October 13, 1988. On April 4, 1989, Mr. Fernandez
was  re-indicted in a different venue on four criminal counts arising out of the
Iran-Contra Affair. This indictment was dismissed with prejudice on November 24,
1989. The Independent  Counsel lodged an appeal in the U.S. Court of Appeals. In
September,  1990,  that Court  upheld the  dismissal of the  indictment,  and on
October 5, 1990,  the mandate of the Court of Appeals was issued  thereby making
final  the  dismissal  of  all  charges  against  Mr.  Fernandez.  There  are no
outstanding criminal charges or convictions against Mr. Fernandez today.

     Travis Y Green has been a Director since  inception.  He holds a Masters in
International  Business  Studies from the University of South  Carolina,  and he
graduated  with  a  Bachelors  Degree  in  Business  Administration  from  Emory
University.  Mr. Green was an Account Executive at Dresdner Bank AG, in New York
in 1978,  and continued  his  financial  career at the Wall Street firm of Brown
Brothers  Harriman  & Co.  for 10 years  from 1982  through  1992.  In 1993,  he
established  the  investment  banking  firm of  Green,  Morris &  Associates  in
Atlanta, Georgia where he serves as President.

     Herbert M. Jacobi has been an attorney in private practice in New York, New
York since 1967.

     Hugh Sawyer has served as  President  of  National  Linen  Service,  a $500
million in sales  subsidiary  of National  Service  Industry,  based in Atlanta,
Georgia  since early 1996.  He was  formerly  president  of Wells Fargo  Armored
Services Division of Borg Warner.

     John C.  Power has  served as  President  and Chief  Executive  Officer  of
Redwood  MicroCap Fund,  Inc.  ("MicroCap")  since February,  1992.  MicroCap is
registered as an Investment Company under the Investment Company Act of 1940, as
amended  (the "40  Act"),  but is  attempting  to  de-register  from the 40 Act.
MicroCap has majority and/or  wholly-owned  subsidiaries  engaged in oil and gas
exploration,  production and management and radio  broadcasting.  Since November
1996, Mr. Power has been the Managing  Member of Northern  Lights  Broadcasting,
L.L.C., a limited  liability  company engaged in the acquisition and development
of radio  stations in Montana and North Dakota.  Since  November 1996, Mr. Power
has also been  President  of Power  Surge,  Inc.  Mr.  Power has also  served as
president of Power Curve,  Inc., a private  investment and consulting firm since
1986,  and as an officer and  director of Signature  Wines of Napa Valley,  Inc.
from  September,  1995 to June 1996.  From March,  1994 to September,  1995, Mr.
Power served as a general  partner of  Signature  Wines,  a  California  general
partnership,  a predecessor  entity of Signature Wines of Napa Valley,  Inc. Mr.
Power served as a director of BioSource  International,  Inc. (NASDAQ:BIOI) from
August, 1993 to December,  1994, of Optimax Industries,  Inc. (NASDAQ:OPMX) from
April 1993 to March 1995, and of AirSoft Corporation,  a manufacturer of network
communications  software and systems, from 1993 to June 1996. Mr. Power received
his formal  education at Occidental  College and at the University of California
at Davis.




<PAGE>



     Stephen G. Calandrella has been President and a Director of The Rockies
Fund, Inc. since  February, 1991, and Chief Executive Officer since January 30,
1994.  Mr. Calandrella has  previously served as a Director of Kelly Motors,
Ltd., Good Times Restaurants, Inc., Southshore Corp., and Cogenco International,
Inc. Mr. Calandrella also served as a Director for Combined Penny Stock Fund,
Inc. and Redwood MicroCap Fund, Inc., both of which are closed-end  investment
companies registered under the Investment Fund Act of 1940.  Mr. Calandrella
currently  serves as a member of the Board of Directors of several publicly held
companies.  Mr. Calandrella has also engaged in financing and consulting
activities for development stage companies which consist of advising public and
private companies on capital formation methods, enhancing shareholder
valuations, mergers, acquisitions and corporate restructurings as well as
arranging for bridge loans and equity purchases.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

     Section 16 (a) of the Securities Exchange Act of 1934, as amended, requires
the Company's  executive  officers,  directors and persons who own more than ten
percent of the Common Stock (collectively,  "Reporting Persons") to file initial
reports of  ownership  and changes of ownership of the Common Stock with the SEC
and the NASDAQ  Stock  Market.  Reporting  Persons  are  required to furnish the
Company with copies of all forms that they file under Section 16(a). The Company
is not aware of any failure on the part of any Reporting  Persons to timely file
reports required pursuant to Section 16(a).

ITEM 10 EXECUTIVE COMPENSATION

     The following table sets forth the executive  compensation and distribution
paid to each  executive  officer of the Company  during the years ended December
31.

                          EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>

                                Annual Compensation                   Long Term Compensation
                            ---------------------------           ----------------------------------

Name                     Year                                        Restricted       Restricted
Principal                Ended                       Other           Stock     Options  LTIF      All other
Other Position           December Salary      Bonus  Compensation    Awards    SARA     Payouts   Compensations
-----------------------  -------- -------     -----  ------------    ------    ----     -------   -------------
<S>                      <C>       <C>         <C>     <C>            <C>       <C>     <C>         <C>
Oliver L. North          1997      $ 16,014     --     --              --        --      --         (1)
President and
  Secretary              1996      $113,740     --     --              --        --      --         (1)

Joseph F. Fernandez      1997      $ 72,849     --     --              --        --      --         (1)
Vice President
and Treasurer            1996      $117,074     --     --              --        --      --         (1)

</TABLE>
(1)  Contributed  services for Oliver L. North and Joseph F.  Fernandez for 1997
     and 1996 that were  recorded as  additional  paid-in  capital  were nil and
     $37,500,  respectively,  for both years.  No shares were issued in exchange
     for the contributed services.






<PAGE>




EMPLOYMENT CONTRACTS

     Oliver L. North and Joseph F. Fernandez executed employment  contracts with
the Company  effective May 31, 1996.  The contracts are for a four (4) year term
with compensation at a rate of $150,000 for the first year of the term,  subject
to increases  as  determined  by the Board of  Directors,  plus fringe  benefits
including health insurance.

Effective  January 1, 1997, the employment  agreements of the President and Vice
President  were amended to reduce the base  salaries  payable to each to $77,900
for 1997, only. Subsequently, the Compensation Committee reduced the base salary
of the President to $21,150 for 1997 only.  The  agreements  permit the Board to
increase,  but not  decrease,  the base  salaries  of the  officers  during  the
remaining terms of the contracts.  The Board or Compensation Committee, in their
sole  discretion,  may award  bonuses to the  officers.  The amended  agreements
include  provisions for additional  compensation  payable to the officers in the
event of termination of employment  without cause,  or upon change of control of
the Company.

     Oliver L. North,  President,  devotes approximately three (3) hours per day
to a radio program of which he is the host during which program Mr. North is not
at the  Company's  offices.  Nonetheless,  the Company  believes  that Mr. North
devotes a full business day to the Company's affairs.

ITEM 11         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth certain  information,  as of March 31, 1998
with respect to the  beneficial  ownership of shares of Common Stock by (i) each
stockholder  known by the Company to be the  beneficial  owner of more than five
percent (5%) of the  outstanding  shares of Common Stock;  (ii) each director of
the Company;  (iii) each  executive  officer  named in the Summary  Compensation
Table appearing  below under  "Executive  Compensation",  and (iv) all executive
officers and  directors as a group.  Except as indicated in the footnotes to the
table,  persons  named in the table have sole voting and  investment  power with
respect to all shares of Common Stock which they respectively own beneficially.




         Name and Address               Number of Shares       Percent
         of Beneficial Owner          Beneficially Owned*     of Class*
         ---------------------------------------------------  ---------

         Oliver L. North (1)                  157,990           14.2%
         Rt. 1, Box 560
         Bluemont, VA  20135

         Joseph F. Fernandez (2)               94,350            8.5%
         9542 Whitecedar Court
         Vienna, VA  22180

         Travis Y. Green                        3,700            0.3%
         Lenox Towers, Suite 625
         3400 Peachtree Road NE
         Atlanta, GA  30326

         John C. Power (3)                    103,100            9.3%
         Redwood MicroCap Fund, Inc.
         7518 Elbow Bend Road
         Carefree, AZ  85377

         Stephen G. Calandrella (4)           400,366           32.0%
         Rockies Fund
         4465 Northpark Drive, Suite 400
         Colorado Springs, CO  80907

         Herbert M. Jacobi                          0            0.0%
         8 West 38th Street
         New York, NY  10018

         Hugh E. Sawyer                         1,000            0.1%
         3800 Falls Landing Drive
         Alpharetta, GA  30202



<PAGE>






         Name and Address               Number of Shares        Percent
         of Beneficial Owner            Beneficially Owned*   of Class*
         -------------------            --------------------  -----------

         All Events Consulting Inc.(5)        150,000           12.4%
         7 Hampton Street
         Hauppauge, NY  11787

         Helmsley Finance Ltd.(6)             100,001            8.5%
         39 Dan St. Jersey
         Channel Island
         JFU 8 UA

         Michael Iovino(7)                     60,000            5.2%
         2530 4th Avenue
         East Meadow, NY  11554

         John Magliocco (8)                    75,000            6.4%
         14 Applegreen Drive
         Westbury, NY  11568

         M.D. Iabbah (9)                       75,000            6.4%
         708 Greenwich St
         Apt 5C, New York
         NY  10014

         All Officers and Directors
         as a Group (7 persons)               760,506           60.8%



     *    Under applicable rules of the Securities and Exchange
          Commission (the "SEC"), a person is deemed to be the beneficial owner
          of share of Common Stock if, among other things, he or she directly
          or indirectly has or shares voting power or investment power with
          respect to such shares.  A person is also considered to beneficially
          own shares of Common Stock which he or she does not actually own but
          has the right to acquire presently or within the next sixty (60)
          days, by exercise of warrants or otherwise.  The percentage of
          ownership was determined by assuming that all Warrants held by this
          securityholder have been exercised and that Warrants held by other
          securityholders have not been exercised.

(1)  All of the shares of Mr. North have been donated to various  trusts created
     for the benefit of Mr. North's  family.  Though Mr. North is not one of the
     beneficiaries of such trusts,  he continues to maintain voting control over
     all shares.

(2)  All of the  shares  of Mr.  Fernandez  have been  gifted to Mr.  Fernandez'
     children,  however,  Mr. Fernandez  continues to retain voting control over
     all shares.

(3)  Redwood  MicroCap  Fund,  Inc. a company  registered  under the  Investment
     Company  Act of 1940  purchased  103,200  shares of Common  Stock in March,
     1997.  John C. Power,  President of the Fund, was appointed to the Board of
     Directors of the Company on March 4, 1997.

(4)  The Rockies Fund, Inc., a company  registered under the Investment  Company
     Act of 1940,  purchased in a series of  transactions in February and March,
     1997,  103,867  shares of Common Stock and 137,000  Common  Stock  purchase
     Warrants.  Stephen G. Calandrella,  President of the Fund, was appointed to
     the Board of Directors of the Company on March 4, 1997.

(5)  All Events  Consulting,  Inc.  ("All  Events") is a company  engaged in the
     promotion of events.  Vincent Caruso is the principal  beneficial  owner of
     the Company.  All Events is the beneficial owner of 50,000 shares of Common
     Stock and 100,000 Warrants, each to purchase one share of Common Stock.





<PAGE>




(6)  Helmsley  Finance  Limited  ("Helmsley") is a British Virgin Island company
     engaged in providing financial investment  services.  Charles HNE Wilson is
     the  principal  beneficial  owner of Helmsley.  Helmsley is the  beneficial
     owner of 33,334  shares  of  Common  Stock  and  66,667  Warrants,  each to
     purchase one share of Common Stock.

(7)  Michael Iovino is the beneficial owner of 20,000 shares of Common Stock and
     40,000 Warrants, each to purchase one share of Common Stock.

(8)  John Magliocco is the beneficial owner of 25,000 shares of Common Stock and
     50,000 Warrants, each to purchase one share of Common Stock.

(9)  M.D.  Iabba is the  beneficial  owner of 25,000  shares of Common Stock and
     50,000 Warrants, each to purchase one share of Common Stock.


ITEM 12         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

ITEM 13         EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits





             Exhibit
             Number   Description
             -------  ---------------------------------------------

             3.1      Certificate of Incorporation of the Company.*

             3.2      Bylaws of the Company.*

             4.1      Form of Common Stock Certificate.*

             4.2      Form of Warrant.*

            10.1      Employment Agreement between the Company and
                      Oliver L. North.**

            10.2      Employment Agreement between the Company and
                      Joseph F. Fernandez.**

            10.3      Revolving Line of Credit Agreement dated
                      December 7, 1995 among the Company, Creditanstalt
                      Corporate Finance, Inc., and Oliver L. North, as
                      Guarantor.**

            10.4      Promissory Note dated December 7, 1995 from the Company to
                      Creditanstalt Corporate Finance, Inc.**

            10.5      Guaranty dated December 7, 1995 from Oliver L. North to
                      Creditanstalt Corporate Finance, Inc.**





<PAGE>




10.6   Amendment dated November 26, 1996 relating to Revolving Loan of Credit
       Agreement among the Company, Creditanstalt Corporate Finance, Inc. and
       Oliver L. North, as Guarantor.**

10.7   Margin  Agreement  dated June 24, 1996 between the Company and  Pershing,
       Division of Donaldson, Lufkin & Jenrette Securities Corporation.**

10.8   Promissory Note dated February 7, 1997 from the Company to Dashco, Inc.**

10.9   Deed of Trust between the Company and Marc A. Busman and Rosalyn R.
       Busman, Trustees.**

10.10  Deed of Lease dated  January 23, 1997 between the  Company,  as Landlord,
       and Freedom Alliance, as Tenant.**

10.11  Letter re: Line of Credit facility between the Company and Adler
       Financial Group.**

10.12  Letter re: Loan  commitment  between the Company and The  Baltimore  Life
       Insurance Company/Life of Maryland, Inc.

11     Statement re: Computation of Per Share Earnings.

23     Consent of Thompson, Greenspon & Co., P.C.

27     Financial Data Schedule

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

*    Filed as an Exhibit to the Company's Registration Statement on Form SB-2
     dated March 22, 1996 (Reg. No. 333-2712-NY) and incorporated herein by
     reference.

**   Filed as an Exhibit to the Company's  1996 Form 10-KSB dated April 15, 1997
     and incorporated herein by reference.


(b)  Reports on Form 8-K

     No reports on Form 8-K were filed by the Company  during the quarter  ended
December 31, 1997.





<PAGE>




                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) of the Exchange  Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                    GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
                                  (Registrant)

Date:  March 31, 1998                 By: /s/ Joseph F. Fernandez
                                         ---------------------------
                                             Joseph F. Fernandez
                                             Vice President

     In  accordance  with the Exchange Act of 1934,  this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.

By: /s/ Oliver L. North                         Date:  March 31, 1998
    ---------------------------------------
     Oliver L. North
       President (Principal Executive
     Officer) and Director

By: /s/ Joseph F. Fernandez                     Date:  March 31, 1998
    ---------------------------------------
     Joseph F. Fernandez
       Vice President and Treasurer
     (Principal Accounting and Financial
     Officer) and Director

By: /s/ Travis Y. Green                         Date:  March 31, 1998
    ---------------------------------------
     Travis Y. Green
     Director

By: /s/ Herbert M. Jacobi                       Date:  March 31, 1998
    ---------------------------------------
     Herbert M. Jacobi
     Director

By:  /s/ Hugh E. Sawyer                         Date:  March 31, 1998
     --------------------------------------
     Hugh E. Sawyer
     Director

By: /s/ John C. Power                           Date:  March 31, 1998
    ---------------------------------------
     John C. Power
     Director

By:  /s/ Stephen G. Calandrella                 Date:  March 31, 1998
     --------------------------------------
     Stephen G. Calandrella
     Director



<PAGE>



                                                                   Exhibit 10.12

                         STATEMENT RE: LOAN COMMITMENT


                              GUARDIAN TECHNOLOGIES
                                  INTERNATI0NAL
                             The Life-Saving Company

                                  March 3, 1998


Baltimore Life Insurance Co./Life of Maryland, Inc.
10075 Red Run Boulevard
P.O. Box 1050
Owings Mills, Maryland 21117-6050

         Re:      33,715 Ft.  Office/Industrial Building
         Dulles, Virginia
         Guardian Technologies, Intl., Inc., Borrower

Gentlemen:

         This letter  serves as an  amendment  to the  commitment  letter  dated
         February  23,   1998,   In  regard  to  the  above   captioned   matter
         ("Commitment").  It is agreed by the  parties  that this  letter  shall
         become an integral  part of the  Commitment  and shall  modify  certain
         terms as provided below.

         1.  Page 4 of  Commitment,  Item 9 -  Notwithstanding  anything  to the
         contrary,  the parties  agree that the loan  documents  shall contain a
         provision that Lender shall provide the Borrower with written notice of
         non-monetary  defaults  and  provide  a ten (1O) day grace  period  for
         monetary  defaults and a thirty (30) day grace  period for  nonmonetary
         defaults.

         2. Page 4 of Commitment,  Item C(2) -  Notwithstanding  anything to the
         contrary,  Lender's  approval shall not be necessary for any individual
         lease  that  represents  less than  twenty  percent  (20'/o) of the net
         rentable  square footage of the building or twenty percent (20%) of the
         annual rental income.

         3. Page 8 of Commitment, Item D - The parties acknowledge that the cost
         for the  retention  of  local  counsel  is  included  in the  estimated
         $6,000.00 legal fees provided on page 10, item C(2) of the Commitment.

         4. Page 8 of Commitment,  Item G(l) -  Notwithstanding  anything to the
         contrary,  the  Lender  shall  not  exercise  it's  option to apply the
         insurance  proceeds  to reduce the Loan,  provided  that the  insurance
         proceeds are $500,000.00 or less.

         5.  Pages  9 and  10 of the  Commitment,  Item  A(2) -  Notwithstanding
         anything to the contrary,  the parties agree that in the event the Loan
         is  not  closed  due to  Lender's  fault,  the  Borrower  shall  not be
         obligated to pay such fees and expenses.

<PAGE>


Baltimore Life Insurance Co./Life of Maryland, Inc.
Page 2




         6. Page 3 of the Commitment,  Item H(l) -  Notwithstanding  anything to
         the  contrary,  the parties  agree that the time period for providing a
         sworn itemized  statement of gross annual income and  expenditures,  as
         well  as  audited   financial   statements  of  Guardian   Technologies
         International,  Inc. shall be extended to no later than ninety (90)days
         after the end of its fiscal year.  This amendment shall be reflected in
         the loan documents.

         7. All other  terms  and  conditions  of the  Commitment  shall  remain
         unchanged.

                                Very truly yours,


                             GUARDIAN TECHNOLOGIES
                               INTERNATIONAL, INC.


ACCEPTED:

GUARDIAN TECHNOLOGIES
INTERNATIONAL


                                  (SEAL)      Date:




THE BALTIMORE LIFE INSURANCE
COMPANY/LIFE OF MARYLAND, INC.



By:                               (SEAL)       Date:

William D. Ward, CFA, FLMI
                                 Vice President
                                   Investments
<PAGE>


                                 BALTIMORE LIFE
                                LIFE OF MARYLAND

February 23, 1998



Guardian Technologies International, Inc,
c/o Elizabeth A. Kraft
Smithy Braedon
1150 Connecticut Avenue, N.W., Suite 300
Washington, D.C. 20036

RE:        33,715 Ft.2 Office/Industrial Building
           Dulles, Virginia
           Guardian Technologies Intl., Inc., Borrower

Gentlemen:

Your  application  of December  12, 1997 for a first  mortgage  loan  secured by
property  described  in  Section  11 has been  approved  by The  Baltimore  Life
Insurance  Company and Life of Maryland,  Inc., either or both of which shall be
the "Lender." Upon your returning an executed copy of this letter,  constituting
an acceptance  hereof,  to the Lender by the Commitment  Acceptance  Deadline of
March 2, 1998,  the Lender will make a first mortgage loan ("Loan") to the above
named "Borrower" (and no other) subject to the following provisions,  terms, and
conditions:

SECTION 1. LOAN TERMS AND CONDITIONS:

A.  AMOUNT:  $1,900,000

B.  INTEREST RATE:  7.5% per annum

C.  TERM OF LOAN:  1O years

D.  REPAYMENT: Amortization shall be on a 20-year basis.  The Loan is to be
    repaid in 120  monthly  installments;  the  first 119 shall be in the amount
    of $15,306.27 each, including principal and interest, commencing the first
    day of the second month  following  funding of the Loan to the Borrower,
    and the final  payment shall be for the  unpaid  balance  of principal,
    estimated to be $1,289,473, plus interest thereon. Interest for the period
    from date of disbursement of the Loan to the first day of the next
    succeeding month will be due and payable upon disbursement.
<PAGE>


E.  PREPAYMENT:  The Borrower is given the  privilege of prepaying the Loan in
    full after  the first  five  Loan  years on any  interest  payment  date,
    provided the  Borrower  has given the Lender  sixty days'  prior  written
    notice of Borrower's intention to so prepay the Loan.  Such  prepayment,
    however,  shall be  accompanied by a  prepayment  premium  computed  as a
    percent  of the  unpaid principal balance  of the  Loan.  If the Loan is
    prepaid during the sixth Loan year,  said prepayment premium shall be at the
    rate of 5%, which  premium shall reduce at the rate of 1% per year to 2% in
    the ninth year. (Loan year shall be calculated from the first day of the
    first month  succeeding  funding of the Loan to  Borrower.)  No prepayment
    premium shall be required thereafter. Except as  above  provided, Borrower
    agrees  that  the  Loan may not be  otherwise prepaid.

F.  ESCROW DEPOSITS:  The Borrower shall pay  concurrently with each installment
    of principal and interest  payable  on the Note a deposit  in an  amount  as
    in the  Lender's discretion  will  enable the Lender  to pay (out of  monies
    so paid to the Lender) at least  thirty  days  before due all  taxes,
    assessments, hazard insurance premiums, and similar charges affecting the
    Security. At closing a deposit will be made in an amount sufficient to cover
    the necessary accrued tax and insurance expenses.  No interest or other
    compensation shall be paid by Lender to Borrower on the funds so held and
    accumulated, and Lender shall in no way act as Borrower's agent for the
    payment of said items.

G.  NON-ALIENATION:  The property  cannot be sold subject to this Loan without
    Lender's  written approval.  The Loan documents will provide that upon
    Lender's review of and written approval of the prospective purchaser,  terms
    of the sale, and sale price itself, and upon receipt of payment of I% of the
    then outstanding loan balance, the Lender will permit the property to be
    sold subject to the Loan.  In reviewing the prospective purchaser,  Lender
    shall specifically judge its experience in development and management of
    office/industrial  space in the greater Washington, D.C. market and its
    financial condition. Beyond that, no successive owner shall have any right
    or privilege to transfer the ownership of the property subject to the Loan.

    If the property is sold  without the consent of Baltimore  Life prior to the
    fifth  Loan  year,  the Loan must be  prepaid  at the  greater of either the
    prepayment  penalty  (5%  if  during  the  closed  period)  or a  "makewhole
    premium." The make-whole premium is determined as follows:

    1. At the time of notification of a pending sale,  Lender will select a U.S.
       Treasury "primary" issue with a similar weighted average maturity as this
       Loan.  In the event  there is no market  activity  involving  the primary
       issue at the  time of  notification,  Lender  will  choose  a  comparable
       Treasury bond, note, or bill ("secondary" issue) which Lender deems to be
       similar to the primary issue's  characteristics  (i.e.,  rate,  remaining
       time to maturity,  yield).  The yield on the selected issue published two
       weeks prior to the date of prepayment  shall determine the  "reinvestment
       yield."

    2. The "present  value of the  mortgage" is determined  by  discounting  all
       payments  of  principal  and  interest  required  under  the  Note at the
       reinvestment  yield for the number of months  remaining  from the date of
       impending prepayment to the maturity date.


                                  Page 2 of 12
<PAGE>


    3. The amount by which the present value of the mortgage  exceeds the amount
       of principal and interest  required to repay the Loan without  penalty is
       the  differential.  If the  differential  is positive,  it represents the
       make-whole  premium.  If  the  differential  is  zero  or  negative,  the
       makewhole premium is zero.

H.  COVENANTS BY BORROWER:  In addition to the  foregoing  Loan terms and the
    standard mortgage covenants,  the Security  documents must provide the
    following covenants by the Borrower:

    1. That a sworn itemized  statement of gross annual income and  expenditures
       reflecting in detail the operations of the Security will be famished each
       year by the Borrower to the Lender within sixty days after the end of the
       Borrower's federal tax year. Upon default,  Lender will have unrestricted
       right, at Borrower's  expense, to require full audit of Borrower's books.
       Lender reserves the right to request the use of a standard format. If the
       Borrower  fails to comply with this  covenant,  Lender may, at Borrower's
       expense, commission a real estate appraiser to reappraise the property.

       Also,   audited   financial    statements   of   Guardian    Technologies
       International, Inc. shall be submitted within sixty days after the end of
       its fiscal year.

    2. That no adverse  material  changes in the terms of the leases referred to
       in this  Commitment  will be made without the consent of the Lender,  and
       that  rent  will be  collected  only as it  accrues,  and not in  advance
       thereof.

    3. That condemnation awards not used to restore the property, if any, are to
       be  applied  to reduce  the  mortgage  loan  balance at the option of the
       Mortgagee.

    4. That secondary liens will not be attached to the Security.

    5. That no operating  equipment or other  personal  property in which Lender
       has a security  interest will be sold,  assigned,  or  encumbered  except
       under  written  authority  from the Lender or unless  disposed  of in the
       ordinary course of business and replaced by items of at least  comparable
       quality  and  value,  free  and  clear of all  liens  or title  retention
       devices.

    6. That there  will be  maintained  in effect  upon the  Security  insurance
       against loss or damage by such  hazards by such  insurers in such amounts
       of such types and containing such provisions as Lender may specify.

    7. That the Borrower will comply with any and all federal,  state,  or local
       legislation, rules, and regulations relating to environmental protection,
       including, but not limited to, the Comprehensive  Environmental Response,
       Compensation,  and Liability Act of 19000  ("CERCLA"),  as amended by the
       Superfund  Amendments  and  Reauthorization  Act of 1986,  and such other
       legislation,  rules, and regulations as are in, or may come into,  effect
       and apply to the  Borrower,  the Lender,  the  transactions  contemplated
       hereby, or the collateral or any occupancy

                                  Page 3 of 12
<PAGE>


       users thereof, whether as lessees, tenants, licensees, or otherwise.

    8. That  the  Borrower  shall  comply  with  all  requirements  of  the  ADA
       (Americans with  Disabilities  Act) as they apply and shall indemnify and
       hold  Lender  harmless  against any and all  claims,  costs,  or expenses
       relating to the requirements of the Act.

    9. That  if any  sum  required  under  the  terms  of the  Note  or  Deed of
       Trust/Mortgage  is not received  within ten days from its due date by the
       Lender,  a late  charge  of 5% of the total  payment  must be paid to the
       Lender.

   10. That if the Loan be  accelerated  either because of default or because of
       maturity of the debt,  or if the Lender shall have  expended its funds in
       the protection or perfection of the Loan security,  then, in the event of
       acceleration,  the  entire  unpaid  principal  balance  (and in  event of
       Lender's  advancing funds,  those funds advanced) shall be subject to and
       shall earn the Default Rate of Interest, which is 12.5%.


SECTION II.  SECURITY FOR THE LOAN:

A.  REAL PROPERTY:  The Loan is to be secured by a first and valid lien on the
    entire fee simple interest and rights appurtenant  thereto in certain real
    estate located at 22570 Markey Court,  Dulles,  Virginia,  containing 2.02
    acres of land together with improvements to include a two-level
    office/industrial building  constructed of masonry and steel containing
    33,715 square feet of leasable area, together with all other  improvements
    now thereon or hereafter erected  thereon,  which Security is more fully
    described in the appraisal dated January 30,1998, by Thomas E. Reed, SRA,
    hereinafter  the  "Appraisal."  Final legal  description of the encumbered
    property shall be satisfactory to Lender.

B.  PERSONAL  PROPERTY AND  FIXTURES:  Lender shall  require a first lien on all
    personal  property or fixtures  which are owned by the Borrower and are used
    in the  operation  and  enjoyment of the  Security,  which items of personal
    property  and  fixtures  may now or hereafter be installed or infixed in the
    Security.

C.  LEASES:

    1. The Lender will be given a general  assignment of all rents,  issues, and
       profits issuing from the property.

    2. The Lender is to be given  specific  assignment of the occupancy  leases,
       which are to be approved by Lender and so acknowledged in writing.
       Approval shall be conditioned upon:

       a.  The leases becoming operative;
       b.  Satisfactory  ratification  of the leases by the tenants;
       c.  Assignment of all leases to Lender;

                                  Page 4 of 12
<PAGE>


       d. Unconditional subordination of all leasing commissions to the Lender's
          position;
       e. All leases being arm's length leases;
       f. All leases containing landlord/tenant  obligations as are reflected in
          the Appraisal.
       g. Each lease being inferior or superior, at Lender's option, to the lien
          of the Loan. Non-disturbance,  subordination and attornment agreements
          shall be required of all tenants as applicable.

         Tenant                 Square Feet   Annual Rent    Expiration

    D. A. Bryant, P.C.             4,774       $ 62,157        1/31/04
    North American Enterprises       160          2,259        1/01/04
    Freedom Alliance               2,954         37,457        1/31/04
    Software AG (Upper Level)      1,189         16,646        1/31/03
    Software AG (Lower Level)      9,746         58,476        1/31/03

D.  LIABILITY FOR THE DEBT: The Loan will be made with full liability for the
    debt.  Furthermore,  the Borrower/Indemnitor shall indemnify and hold Lender
    harmless from any and all liability or costs arising from the application or
    violation of any or all federal, state, or local legislation, rules, or
    regulations relating to environmental protection, including, but not limited
    to, Comprehensive Environmental  Response, Compensation, and  Liability  Act
    of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization
    Act of 1986, and as well shall indemnify  and hold Lender  harmless from any
    liability or costs arising from  regulations or violation of regulations  of
    the Americans  with Disabilities Act.

    Moreover,  in  the  event  of  Loan  default  so  declared  by  Lender,  the
    Borrower/Indemnitor  shall indemnify and hold Lender harmless from all costs
    or liability arising from:

    1. The commission, without limitation, of fraud or misrepresentation made in
       connection  with the  application  for or the  closing of the Loan or the
       modification of the Loan.

    2. Misappropriation  or misapplication of funds associated with or generated
       by the  property  or  failure to apply the funds in  accordance  with the
       provision  of the Loan  documents,  including,  but not limited to, lease
       security  deposits  and  prepaid  rents,   casualty  insurance  proceeds,
       condemnation  awards,  judgments,  settlements,  or bankruptcy claims for
       unpaid  rent and gross  revenues  from the  property  not  applied to the
       payment of expenses of owning and operating the property,  including real
       estate taxes, debt service,  and other expenditures  required by the Loan
       documents.

    3. Loss in  connection  with the  property  to the  extent  not  covered  by
       insurance policies required by the Loan documents.

    4. Waste in connection with the property.


                                  Page 5 of 12
<PAGE>


    5. Removal from the  property of any  personal  property in violation of the
       Loan documents.

    6. Forfeiture of the property or any part thereof or interest  therein under
       any applicable law.

    7. Payment  by  holder  of any  recording,  transfer,  gains,  or any  other
       transaction  specific taxes, fees, or charges assessed in connection with
       making,  modifying,  or  foreclosing  the  Loan,  bankruptcy  proceedings
       affecting the Loan, or the delivery of a deed in lieu of  foreclosure  or
       equivalent and holder's  attorneys'  fees incurred in connection with the
       enforcement  of holder's  rights,  remedies,  or recourse  under the Loan
       documents after default.

    8. Terminations,  cancellations,  or adverse  material  modifications of any
       lease for the  property or space  within the  property  without the prior
       written consent of holder as provided pursuant to the Deed of Trust.

    9. Transfers  of the  property or interest  therein or creation of any liens
       against the property in violation of the provisions of the Deed of Trust.


SECTION  111.  FUNDING  CONDITIONS:  Loan closing  shall be scheduled  after the
following  conditions  have  been met or the  requirements  therefor  waived  by
Lender, at its sole option, in writing. Unless Borrower expressly undertakes, at
Borrower's  sole cost and expense,  the  performances  herein required AND until
Borrower fully complies, to Lender's  satisfaction,  with all conditions hereof,
Lender  shall  have  no  obligation  to  fund.  Time  is of the  essence  in the
satisfaction of the requirements hereof.

A.  CERTIFICATION  OF  COMPLIANCE  WITH LAWS AND  REGULATIONS:  The Lender  will
    require  certificates  from the  appropriate  authorities  reciting that the
    improvements  comply with all building  laws and codes and that the property
    conforms  to zoning  requirements.  In  connection  with  this  requirement.
    certificates  of occupancy for each tenant or copies thereof will suffice as
    to compliance with building laws and codes. The required  engineer's  survey
    can contain the zoning certification.

B.  ARCHITECTURAL/ENGINEER'S REPORTS: Receipt by Lender of a satisfactory:

    1. ASTM Industry Level, Phase I Environmental Site Assessment,  to include a
       Historic Review,  Regulatory  Review,  Site  Inspection,  and a Report of
       Findings.

    2. ADA Compliance Survey.

    3. Architect/Engineer's   report   prepared   by  a  licensed   and  insured
       architect/engineer stating that after appropriate inspection he/she finds
       the  condition of the  improvements,  including  the roof and  structural
       members,  to be sound; that the mechanical and electrical  systems are in
       good working order; and all improvements  have been properly  maintained.
       Any and all deferred maintenance shall be recorded in the report.

                                  Page 6 of 12
<PAGE>


C.  SURVEY: Receipt by Lender of an engineer's survey, certified by a registered
    surveyor,  showing  no  statement  of facts  objectionable  to  Lender,  and
    certifying  that the surveyor is covered by errors and omissions  insurance.
    Such survey shall contain the following information:

    1. The legal description must appear on the face of the survey.  All courses
       and distances  referred to in the legal  description  of the property and
       all appurtenant  easements  benefiting the property as shown on the title
       report or title policy must be shown.

    2. Location of all rights of way, any water courses, drains, sewers, utility
       easements,  driveways,  or roads  crossing  the  property  and all  other
       Schedule B Title Policy  exceptions,  all by liber and folio number. If a
       Schedule B Title exception is not locatable, a marginal statement to that
       effect should be shown.

    3. Names  of  streets  with the  statement  as to  whether  same  have  been
       dedicated and accepted for public maintenance, and, if so, by what state,
       political subdivision,  or agency. Widths of streets and places of access
       from the property should also be shown.

    4. Location  of nearest  public  sewer,  storm  sewer,  and water;  and,  in
       addition, location of nearest gas and electricity.

    5. All buildings and other  improvements  on the property must be shown with
       the  dimensions  in  relation  to  lot  and  building   lines.   If  deed
       restrictions,  recorded plats, or zoning ordinances require a building or
       other  improvements  to be set back  specified  distances  from street or
       property line, the survey must show measured distances from said building
       or other improvements to said line.

    6. Show  acreage,  together  with total  square  footage,  of on-site  paved
       parking  area  and  drives  and  the  total  number  of  parking  spaces,
       specifying those designated for handicapped use.

    7. If  survey  comprises  several  parcels,  show  interior  lines and facts
       sufficient  to  insure  contiguity.  All  parcels  should be shown on one
       sheet.

    8. Show whether  property  lies in an area having  flood or mudslide  hazard
       under Flood Disaster Protection Act of 1973.

    9. All surveys must show the political  subdivision and such other notations
       as will accurately  describe the property surveyed.  The Certificate must
       be dated as of the date the  survey was made and signed and sealed by the
       surveyor.  The Certificate  shall state as follows:  "I hereby certify to
       Lender that:  the survey was actually  made on the ground and is correct;
       that all rights of way, building restriction lines, easements,  and other
       matters of record  have,  to the  extent  capable  of being  shown,  been
       delineated  hereon;  that the lines were  established  by a transit  tape
       survey;  and that,  except as shown hereon (i) there are no encroachments
       of a building or other improvements

                                  Page 7 of 12
<PAGE>


       either way across property lines, and (ii) all setbacks are in conformity
       with current zoning laws and regulations."

D.  DOCUMENTATION.  Delivery  and  assignment  to  Lender of  executed  Note and
    Security  Documents,  to  include:  First  Mortgage/Deed  of  Trust  on  the
    security, Security Agreement and Financing Statements,  Assignment of Rents,
    Indemnification  Agreements and other Loan documents required herein, all to
    be in form and content satisfactory to Lender in its sole discretion.

    At Borrower's expense,  Lender shall retain local counsel who will draft the
    necessary  Security  Documents  and close the Loan on behalf of Lender,  and
    represent Lender at closing of the Loan.

    The  Lender  shall  require  the  opinion  of  Borrower's  counsel as to the
    validity and sufficiency of each and every document  evidencing the Loan and
    the Security  therefor or incident  thereto.  Such  opinion  shall be at the
    expense of Borrower.

E.  MORTGAGEE TITLE INSURANCE:  Issuance and delivery to Lender of a mortgagee's
    policy of title insurance (ALTA Standard Loan Policy - 1992) by a title
    insurance company acceptable to Lender, in an amount equal to the Loan,
    showing good title to the land and  improvements  and related easements, if
    any, in the Borrower, and the Mortgage/Deed of Trust to be a first lien
    thereon with only such exceptions in the coverage as are expressly  approved
    by Lender.  The policy shall include an  endorsement eliminating  the  usury
    coverage exception.  In the  event the Loan is advanced at more than one
    closing, the title policy will be extended each time to cover the additional
    advances to be made.

F.  PERSONAL PROPERTY:  Delivery to Lender evidence of full payment for personal
    property in which Lender has a security interest.

G.  INSURANCE: The Borrower shall have furnished the following insurance
    coverage:

    1. Fire  insurance  with  extended  coverage  and  vandalism  and  malicious
       mischief endorsements, with standard form of mortgagee clause in favor of
       the Lender in form and amount satisfactory to Lender, Coverage must be on
       a replacement  cost basis, and if co-insurance is a part of the coverage,
       the amount of the  policy  must  satisfy  the  co-insurance  requirements
       regardless  of the amount of the Loan.  In the event of an insured  loss,
       the Lender may, at its option,  apply said loss  proceeds to reduction of
       the Loan,  or release  said funds to restore the  Security.  If said loss
       proceeds are used for  restoration,  Lender  shall hold said  proceeds in
       escrow  until the  required  restoration  has been  completed to Lender's
       satisfaction,  and then to be released when and if the Loan and/or leases
       are not in default. The above policy or policies must contain a waiver of
       subrogation of the debt under a standard mortgagee clause.

    2. Liability  insurance in amounts  satisfactory to Lender,  but in no event
       less than required by the terms of the lease, if any.

    3. Rental  insurance  providing for payment of rent for a period of not less
       than six months after the

                                  Page 8 of 12
<PAGE>


       date of damage or destruction of the premises, if same are leased.

    4. Such other insurance as shall be required by provisions of the leases, if
       any.

    All  insurance  policies  shall  provide  for not less than ten days'  prior
    written notice to Lender of any cancellation or amendment of such insurance.
    All insurance  shall be in form and with companies  satisfactory  to Lender.
    Original policies shall be submitted to Lender for examination not less than
    thirty days prior to closing.

H.  REAL ESTATE TAX ASSESSMENT:  The Borrower shall have furnished a copy of the
    most recent real estate tax assessment  notice for the real estate  securing
    this Loan.

I.  COMMERCIAL  LOAN:  Borrower  warrants  to  Lender  that  the Loan is for the
    purpose of business or commercial investment,  and Borrower further warrants
    that  all  Loan  proceeds  aforesaid  shall  be  used  for  said  commercial
    investment purpose.

J.  AUTHORITY  OF  BORROWER:  Receipt by Lender of such  certificates  and other
    documents as Lender may require to show Borrower's  corporate authority with
    respect to the transaction  contemplated by this Commitment,  including: (1)
    Articles of Incorporation and Amendments thereto and By-Laws; (2) Resolution
    of the Board of  Directors;  (3) an original  Certificate  of Good  Standing
    issued by the Secretary of State in which the Corporation is domiciled.


SECTION IV.  CONDITIONS OF THE COMMITMENT: The validity of this Commitment is
subject to the following conditions.  It is understood and agreed that time is
of the essence as to compliance with all conditions hereof.

A.  ACCEPTANCE:

    1. This Commitment must be accepted by the  Borrower/Indemnitor and returned
       to  Lender,  along  with  any  fees  required  by  Section  IV-C,  by the
       Commitment Acceptance Deadline.

    2. Your acceptance of this Commitment  shall  constitute your  unconditional
       agreement to pay all fees, expenses, and charges with respect to the Loan
       or its making or transfer to Lender,  or in any way connected  therewith,
       including, without limiting the generality thereto, the fees and expenses
       of local  counsel  (should local  counsel be  employed),  counsel,  title
       insurance,   survey  costs,  environmental   assessments,   ADA  surveys,
       appraisal fees,  recording and filing fees,  mortgage taxes,  documentary
       stamp taxes,  transfer  taxes,  and any other taxes,  fees,  and expenses
       payable in connection with this transaction. Lender shall not be required
       to pay any premium or other charge or any  brokerage fee or commission or
       similar  compensation  in  connection  with  this  transaction;   and  by
       Borrower's  acceptance  of this  Commitment,  Borrower  agrees to defend,
       indemnify,  and hold Lender harmless  against and from any and all claims
       for any fees, charges, commissions, taxes, and compensation in connection
       with the Loan or its making or transfer

                                  Page 9 of 12
<PAGE>


       to Lender, or in any way connected therewith.  This provision shall apply
       whether or not the Loan is ever closed.

B.  EXPIRATION: The date of this Commitment is February 23, 1998. The Expiration
    Date of this Commitment is April 20, 1998. This Commitment requires that the
    Loan herein  committed be closed and put to record  prior to the  expiration
    date.  Unless a written  extension  agreement  is executed by the Lender and
    Borrower,  Lender's  obligations  herein  shall no longer  exist  after this
    Commitment Expiration Date.

C.  FEES:

    1. Lender  Fee:  Lender  acknowledges  receipt of  $19,000,  which fee is in
       consideration of Lender having  processed the  application,  underwritten
       the Loan,  obtained Finance  Committee  approval,  issued this Commitment
       letter, and reserving and locking the rate on the funds hereby committed.
       This fee is fully earned by Lender.

       Upon funding of the Loan  anticipated by the Commitment,  pursuant to the
       terms  of  this  Commitment,   the  Lender  will  refund  $9,500  of  the
       application/commitment fee to you.

       The  parties  of this  transaction  agree  that the monies so paid do not
       provide an option to the Borrower of not completing the Loan transaction.
       It is  understood  and  agreed  that  such  monies  are not  intended  to
       represent monetary damages to the Lender caused by failure on the part of
       the  Borrower  to  complete  the Loan  transaction.  Lender  specifically
       reserves any and all rights it may have, in law or in equity,  including,
       but not limited to, specific performance.

    2. Attorneys' Fees: By accepting our Commitment  letter, the borrower agrees
       to pay the legal fee of the  Lender's  counsel  in  connection  with this
       transaction,  whether  or not the  transaction  closes.  The legal fee of
       Lender's  counsel is estimated to be $6,000,  plus  expenses  incurred in
       connection with the transaction,  including,  without limitation,  search
       fees, recording and filing fees, courier services, telecopier,  telephone
       and  photocopying  charges,  and  postage.  This  fee is  based  upon the
       experience of Venable,  Baetjer and Howard with respect to the time spent
       representing a lending  institution in transactions of this type. The fee
       is  subject to change if the time spent on  problems  encountered  exceed
       those customarily  encountered in transactions of this type. A deposit of
       the estimated legal fee was received with the application letter.

D.  ASSIGNMENT:   Neither  this  Commitment  nor  the  Loan  proceeds  shall  be
    transferable or assignable  without prior written consent of the Lender, and
    without  such  consent  there shall be no right to designate a payee of such
    Loan  proceeds.  Any attempted  transfer or assignment  without such consent
    shall be void.

E.  VOIDANCE OF THE  COMMITMENT:  Lender  retains the option to  terminate  this
    Commitment at any time,  and its  obligation  herein shall  terminate in the
    event any one of the following shall occur:


                                  Page 10 of 12
<PAGE>


    1. The Borrower,  Indemnitor(s),  or any lessee consents to a liquidation or
       composition  agreement or  arrangement,  or in the event any  bankruptcy,
       reorganization,  or insolvency  proceedings  are instituted by or against
       any such person or entity.

    2. A misrepresentation  of the facts upon which this Commitment is based has
       occurred,  to include, but not limited to, the income and expenses of the
       real property,  the physical  characteristics  of the  improvements,  the
       financial condition of the Borrower, and the occupancy leases.

    3. The  Security,  or  portion  thereof,  shall  have been  damaged  and not
       repaired  to  Lender's  satisfaction,  taken  in  condemnation,  or other
       similar proceedings, or in the event any such proceedings be pending.

    4. Any  default has  occurred or be  continuing  in the  performance  of any
       obligation in the instruments evidencing or securing any loan relating to
       the proposed Security.

    5. The property is in an area that has been  identified  by the Secretary of
       Housing  and  Urban  Development  as  having  special  flood or  mudslide
       hazards.

    6. The  Phase I  Environmental  Site  Assessment  indicates  that  the  site
       contains or is threatened by any hazardous materials.

F.  VALIDATION  OF THE  COMMITMENT:  This  Commitment  shall not become valid or
    effective unless signed by Lender,  Borrower, and Indenmitor and returned to
    Lender along with any fee  required by IV-C hereof  prior to the  Commitment
    Acceptance Deadline.

G.  MODIFICATION:  This Commitment cannot be changed, discharged, or terminated,
    but only by an  instrument  in  writing  signed  by the party  against  whom
    enforcement of any change, discharge, or termination is sought.

SECTION V. MISCELLANEOUS:

A.  This Commitment letter constitutes the sole, final, and entire agreement and
    understanding of the parties hereto, and they shall not be bound by any
    terms, conditions, statements, or representations,  oral or written, not
    contained herein.  This Commitment supersedes all prior and contemporaneous
    agreements, understandings, negotiations, and discussions, whether written
    or oral.  Nothing in this Commitment is intended or shall be  construed to
    confer upon or give any  person, other than the parties hereto and their
    successors and assigns, any rights or remedies under or by reason of this
    Commitment.  This Commitment may be executed in any number of counterparts,
    each of which shall be deemed an original, all of which taken together shall
    be deemed to be a single agreement.

B.  This  Commitment  shall be governed by and construed in accordance  with the
    laws of the State of Maryland.

                                 Page 11 of 12
<PAGE>


C.  No exercise or waiver,  in whole or in part, of any right or remedy provided
    for in this  Commitment  shall  operate  as a waiver of any  other  right or
    remedy,  except as otherwise  herein  provided.  No delay on the part of any
    party in the  exercise  of any right or  remedy  shall  operate  as a waiver
    thereof.

D.  Whenever any  determination is to be made or action is to be taken on a date
    specified  in this  Commitment,  if such date  shall  fall upon a  Saturday,
    Sunday, or a state or federal legal holiday, the date for such determination
    or  action  shall  be  extended  to  the  first  business  day   immediately
    thereafter.

E.  Unless the context otherwise requires, whenever used in this Commitment, the
    singular  shall  include the plural,  the plural shall include the singular,
    and the  masculine  gender shall  include the neuter or feminine  gender and
    vice versa.

F.  All covenants of the parties hereto requiring  performance after the closing
    date hereunder  shall not merge into the Loan  documents,  but shall survive
    the execution and delivery thereof.

G.  Time shall be of the essence in the performance of this Commitment.

                                Very truly yours,

                                       THE BALTIMORE LIFE INSURANCE COMPANY/
                                                       LIFE OF MARYLAND, INC.



                              By: William D. Ward, Vice President - Investments


             ACCEPTED

             BORROWER-
             GUARDIAN TECHNOlOGIES INTERNATIONAL, INC.


              BY:_____________________________              Dated:

             INDENMITOR:
             GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.


             By:______________________________              Dated:


                                  Page 12 of 12

<PAGE>


                                 EXHIBIT INDEX



             Exhibit
             Number   Description
             -------  ---------------------------------------------

             3.1      Certificate of Incorporation of the Company.*

             3.2      Bylaws of the Company.*

             4.1      Form of Common Stock Certificate.*

             4.2      Form of Warrant.*

            10.1      Employment Agreement between the Company and
                      Oliver L. North.**

            10.2      Employment Agreement between the Company and of
                      Joseph F. Fernandez.**

            10.3      Revolving Line of Credit Agreement dated December 7, 1995
                      among the Company, Creditanstalt Corporate Finance, Inc.,
                      and Oliver L. North, as Guarantor.**

            10.4      Promissory Note dated December 7, 1995 from the Company to
                      Creditanstalt Corporate Finance, Inc.**

            10.5      Guaranty dated December 7, 1995 from Oliver L. North to
                      Creditanstalt Corporate Finance, Inc.**

            10.6      Amendment dated November 26, 1996 relating to Revolving
                      Loan of Credit Agreement among the Company,
                      Creditanstalt Corporate Finance, Inc. and
                      Oliver L. North, as Guarantor.**

            10.7      Margin  Agreement  dated June 24, 1996 between the Company
                      and  Pershing,  Division of  Donaldson,  Lufkin & Jenrette
                      Securities Corporation.**

            10.8      Promissory Note dated February 7, 1997 from the Company
                      to Dashco, Inc.**

            10.9      Deed of Trust between the Company and Marc A. Busman and
                      Rosalyn R. Busman, Trustees**

            10.10     Deed of Lease dated  January 23, 1997 between the Company,
                      as Landlord, and Freedom Alliance, as Tenant.**

            10.11     Letter re: Line of Credit facility between the Company
                      and Adler Financial Group.**

            10.12     Letter re: Loan Commitment between the Company and
                      The Baltimore Life Insurance Company/Life of Maryland,Inc.

            11        Statement re: Computation of Per Share Earnings.

            23        Consent of Thompson, Greenspon & Co., P.C.

            27        Financial Data Schedule



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

*    Filed as an Exhibit to the Company's Registration Statement on Form SB-2
     dated March 22, 1996 (Reg. No. 333-2712-NY) and incorporated herein by
     reference.

**   Filed as an Exhibit to the Company's  1996 Form 10-KSB dated April 15, 1997
     and incorporated herein by reference.


<PAGE>





                                                                      Exhibit 11



                STATEMENT RE:  COMPUTATION OF PER SHARE EARNINGS





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

Primary Earnings Per Share

Net Income                                                ($861,110)  ($953,684)

Shares:
Weighted Average Common
Shares Outstanding                                        1,114,201     994,565

Effect of Shares Issuable Upon Exercise
of Warrants                                                       0           0

Effect of Shares Issuable Upon Exercise
of Options                                                        0           0

Adjusted Common Shares and Equivalents                    1,114,201     994,565

Earnings Per Share - Primary                                 ($0.77)     ($0.96)


Fully Diluted Earnings per Share:

Net Income                                                ($861,110)  ($953,684)

Shares:
Weighted Average Common
Shares Outstanding                                        1,114,201     994,565

Effect of Shares Issuable Upon
Exercise of Warrants                                              0           0

Effect of Shares Issuable Upon Exercise
of Options                                                        0           0

Adjusted Common Shares and Equivalents                    1,114,201     994,565

Earnings Per Share - Fully Diluted                           ($0.77)     ($0.96)





<PAGE>





                                                                      EXHIBIT 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
Guardian Technologies International, Inc.
Sterling, Virginia

We  hereby  consent  to the use in the  Annual  Report  Form 10 KSB of  Guardian
Technologies International, Inc., of our report, dated March 3, 1998.


                                     THOMPSON, GREENSPON & CO., P.C.

Fairfax, Virginia
March 27, 1998