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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE TRANSITION PERIOD FROM _____ TO _____

                         COMMISSION FILE NUMBER 0-28490

                          GUARDIAN INTERNATIONAL, INC.
           (Name of Small Business Issuer as specified in its charter)
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                 FLORIDA                                          58-1799634
        (State or other jurisdiction of                (I.R.S. Employer Identification No.)
        incorporation or organization)

          3880 N. 28 TERRACE                                    (954) 926-5200
      HOLLYWOOD, FLORIDA 33020                  (The Company's telephone number, including area code)
   (Address of principal executive offices)
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        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
                                                             $.001 PAR VALUE

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

         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. [ ]

         For the 2001 fiscal year, Guardian International, Inc. reported
revenues of $20,930,806.

       The aggregate market value of Guardian International, Inc. Class A Voting
Common Stock, par value $.001 per share, and Class B Non-Voting Common Stock,
par value $.001 per share, held by non-affiliates computed by reference to the
price at which the stock was sold as of March 20, 2002 was $3,707,560.

        As of March 20, 2002, Guardian International, Inc. had 8,096,441 shares
of Class A Voting Common Stock, par value $.001 per share, and 634,035 shares of
Class B Non-Voting Common Stock, par value $.001 per share, issued and
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
       Definitive Proxy Statement for the Company's 2002 Annual Meeting of
Shareholders (Incorporated in Part III to the extent provided in Items 9, 10, 11
and 12 hereof).

        Transitional Small Business Disclosure Format (check one): Yes [] No [X]



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                                              TABLE OF CONTENTS

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INTRODUCTORY NOTE                                                                                             1

PART I

Item 1.               Business                                                                                2

Item 2.               Property                                                                                7

Item 3.               Legal Proceedings                                                                       8

Item 4.               Submission of Matters to a Vote of Security Holders                                     8

PART II

Item 5.               Market for Common Equity and Related Stockholder Matters                                9

Item 6.               Management's Discussion and Analysis of Financial Condition and Results of              10
                      Operations

Item 7.               Financial Statements                                                                    16

Item 8.               Changes In and Disagreements With Accountants on Accounting and Financial               16
                      Disclosure

PART III                                                                                                      35

Item 13.              Exhibits and Reports on Form 8-K                                                        36

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<PAGE>

                                INTRODUCTORY NOTE


FORWARD-LOOKING STATEMENTS

           Certain statements contained in this Annual Report on Form 10-KSB
("Annual Report") are forward-looking statements, which generally express, or
involve discussions as to, expectations, beliefs, plans, objectives, assumptions
or future events or performance (often, but not always, including words or
phrases such as "believes," "expects," "anticipates," "hopes," or other words of
similar import).

           These forward-looking statements are based largely on expectations
and are subject to a number of risks and uncertainties. Such risks and
uncertainties include, among others, the following: (i) the ability of the
Company to add additional customer accounts to its account base through
acquisitions from third parties, through internal sales efforts and through
strategic alliances; (ii) the level of customer attrition; (iii) the
availability of capital to the Company relative to certain larger companies in
the security alarm industry which have significantly greater capital and
resources; (iv) increased false alarm fines and/or the possibility of reduced
public response to alarm signals; (v) changes in local, state and federal
regulations; (vi) availability of qualified personnel; (vii) competitive factors
in the industry, including additional competition from existing competitors or
future entrants to the industry; (viii) social and economic conditions; (ix)
natural disasters; and (x) other risk factors described in the Company's reports
filed with the Securities and Exchange Commission ("SEC") from time to time.
Many of these risks and uncertainties are beyond the Company's control. Actual
results could differ materially from the forward-looking statements made. In
light of these risks and uncertainties, there can be no assurance that the
results anticipated in the forward-looking information contained in this report
will, in fact, occur.

           Any forward-looking statement speaks only as of the date on which
such statement is made. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.



<PAGE>


                                     PART I



ITEM 1.  BUSINESS

           Guardian International, Inc. ("Guardian" or the "Company") is a
provider of monitoring (retail and wholesale), maintenance services, sales and
installation for high-grade electronic security and fire alarm systems to
commercial and residential customers primarily in the states of Florida and New
York.

         The Company's predecessor, Everest Security Systems Corporation
("Everest") was incorporated in Nevada in October 1986, and merged with Guardian
International, Inc., a Florida corporation, on August 28, 1996. Following the
merger, Guardian International, Inc. became the successor, and its officers and
directors assumed the responsibilities of Everest's former management. In July
1999, Guardian became incorporated in the state of Florida.

           Guardian was ranked among the top 25 security monitoring companies in
the United States by Security Distributing and Marketing Magazine ("SDM
Magazine") based on gross revenues for the year ended December 31, 2000.

           The Company's core business strategies include: (i) generating new
alarm monitoring and service contracts through its own sales and installation
efforts; and (ii) acquiring existing alarm monitoring contracts from independent
alarm dealers or through the acquisition of entire companies in the industry.
Beginning in 1999, the Company's internal sales efforts have been responsible
for most of the Company's monthly recurring revenues ("MRR") growth. Management
anticipates growth from its commercial business as the Company has seen an
increase in demand and need for security systems and services in our respective
markets. With projections from the Company's homebuilder clients, management
hopes to continue to generate additional revenue from the sale of new homes
providing residential structured wiring systems and monitoring services. With
respect to the its second core business strategy, Guardian has acquired more
than thirty alarm companies and/or portfolios of customer monitoring contracts
from independent alarm dealers since 1994. During 2001, the Company established
new business relationships with independent alarm dealers and purchased
additional account portfolios. Management believes that acquisition
opportunities exist and the Company intends to continue considering the
possibility of pursuing acquisitions of alarm companies and customer account
portfolios in major metropolitan areas throughout the United States outside of
Florida.

           The Company has furthered these business goals in many respects by
establishing a strategic relationships with Western Resources, Inc. ("Western")
and its subsidiaries. Specifically, since 1997 Western and its subsidiaries,
including Westar Investments, Inc. ("Westar"), have invested a total of $21.5
million cash to acquire the Company's equity securities. The Company believes
that this relationship has helped and will continue to help the Company's
competitive position by: (i) improving the Company's financial strength by
increasing the Company's equity; (ii) lowering its cost of capital; (iii)
improving its appeal to potential sellers of alarm accounts or alarm companies;
and (iv) improving and expanding acquisition and investment opportunities made
available to the Company.

Recent Developments
-------------------

o    In April 2001, Richard Ginsburg resigned as President and Chief Executive
     Officer of the Company after being named Chief Executive Officer and a
     member of the Board of Directors of Protection One, Inc. ("Protection
     One"), an 85% owned subsidiary of Westar Industries, Inc. Westar
     Industries, Inc. is a wholly-owned subsidiary of Western. Richard Ginsburg
     has remained on the Company's Board of Directors. Harold Ginsburg, Chairman
     of the Company, has assumed the positions of President and Chief Executive
     Officer of the Company. In connection with the resignation of Richard
     Ginsburg, Westar agreed to exchange $8 million principal amount of Series C
     7% Redeemable Preferred Stock of the Company for $8 million principal
     amount of a newly issued Series E 7% Preferred Stock. In addition,
     Protection One agreed to grant Guardian the right to purchase 250,000
     shares of its common stock based on the average closing price for the
     twenty days immediately preceding the date of grant. The right vests
     ratably over three years and has a ten year term.

                                       2
<PAGE>

o    Effective July 31, 2001, Darius G. Nevin resigned as Vice President and
     Chief Financial Officer of the Company after being appointed Executive Vice
     President and Chief Financial Officer of Protection One. Mr. Nevin remains
     on Guardian's Board of Directors. Ken Wiesenfeld, Vice President of
     Finance, has assumed responsibility for the Company's corporate finance and
     financial reporting functions.

o    The terrorist attacks of September 11, 2001 did not have a material impact
     on the Company's financial position, results of operations or cash flow for
     the fiscal year 2001. The Company anticipates that these threats have
     heightened the public's awareness of the need for increased security in all
     respects. The potential impact of future terrorist attacks on general
     economic conditions and on the Company's businesses, in particular, is
     uncertain. In the event that similar attacks in the future significantly
     disrupt the Company's monitoring services, the Company could be exposed to
     liabilities that exceed the coverage provided by its existing insurance
     policies, which could have a material adverse effect on the Company.

o    Guardian and Westar are parties to a stockholders agreement relating to
     Westar's ownership of shares of Guardian's Series C, Series D and Series E
     Preferred Stock. On December 31, 2001, Westar transferred 10,548 shares of
     Series D and 678 shares of Series E Preferred Stock to Western. In
     addition, Guardian executed an agreement allowing Western to grant
     incentive compensation to Western's executive officers and directors in the
     form of restricted share units linked to such shares of Guardian's Series D
     and Series E Preferred Stock. The holders of these restricted share units
     are entitled to receive cash or payment in kind dividends on the Series D
     and Series E Preferred Stock linked to their restricted share units. The
     restricted share units provide for the transfer of the Series D and Series
     E Preferred Stock to the holder upon vesting (subject to the holder
     agreeing to become a party to the above referred to stockholders
     agreement), which vesting will occur if certain share price appreciation
     goals are met with respect to Western's common stock. The restricted share
     units were granted to eleven executive officers of Western, including David
     C. Wittig, Chairman of the Board, President and Chief Executive Officer of
     Western, and Douglas T. Lake, Executive Vice President of Western and also
     a director of Guardian. In the aggregate, the Series D Preferred Stock
     underlying all of the restricted share units granted to Western executive
     officers are convertible into approximately 28% of Guardian's Class A
     Voting Common Stock ("Class A Common Stock") on a fully diluted basis. The
     Series D Preferred Stock underlying the restricted share units granted to
     Mr. Wittig and Mr. Lake are convertible into approximately 15% and 9%
     respectively, of Guardian's Class A Common Stock on a fully diluted basis.


MONITORING SERVICES

           The Company provides retail and wholesale monitoring services to its
customers. Retail monitoring services are provided to those customers who the
Company has established through direct internal sales and installation efforts
as well as acquisitions. Wholesale monitoring services are provided to customers
of third party alarm companies and offers these companies additional services,
such as off-site data entry and account maintenance, automated account history,
testing, marketing and technical support.

           The Company operates two central monitoring stations, one of which is
located in Hollywood, Florida and the other of which is located in New York
City, New York. Each central monitoring station is listed by Underwriters
Laboratories, Inc. ("UL"). The Hollywood central monitoring station is also
listed by a second independent testing agency, Factory Mutual. From these
monitoring stations, the Company monitors commercial facilities and residences
for burglary, fire alarm, environmental and other events through its
technologically-advanced security monitoring systems. If an alarm condition is
detected, a signal is transmitted over telephone and/or radio transmission to
the Company's central monitoring station. Where the conditions require
verification and/or dispatch action, the Company's human operators react in
accordance with standard procedures.

                                       3
<PAGE>

           The Company also monitors opening and closing schedules for the
Company's commercial customers. Commercial customers have the option of
receiving periodic reports reflecting the date, time, action and employee name
with respect to each opening or closing activity during the relevant period. The
reports can be sent to any location around the world via mail, facsimile or
email. The Company services its Northeast commercial customers through its
wholly-owned subsidiary, Mutual Central Alarm Services, Inc. ("Mutual") and
Statland Burglar Alarm Devices, Inc. ("Statland"), Mutual's wholly-owned
subsidiary, both of which were acquired by the Company in 1998. Mutual provides
services to high-end retail businesses, financial institutions and Fortune 500
companies. Statland provides services to retail businesses, financial
institutions and residential customers.

           Retail monitoring services generated revenue of approximately $12.7
million in 2001 and $12.2 million in 2000, which represents a 4% increase. As of
the date of this Annual Report, the Company had approximately 27,000 retail
customers. No individual retail customer represents more than 5% of the
Company's total revenues.

           Wholesale monitoring services generated revenues of approximately
$598,000 in 2001 and $638,000 in 2000, which represents a 6% decrease. As of the
date of this Annual Report, the Company has approximately 28,000 wholesale
customers. No such wholesale account represents more than 5% of the Company's
total revenues.

SALE AND INSTALLATION OF ELECTRONIC SECURITY SYSTEMS

           The Company typically installs electronic security and fire alarm
systems for its commercial and residential customers. These systems can range in
complexity from simple alarm panels interfaced with one or two sensors to highly
integrated access control and closed circuit television ("CCTV") systems.

           Most of the alarm-related products sold by the Company are
manufactured or distributed by subsidiaries of Pittway Corporation and by
Detection Systems, Inc. and its subsidiaries. The Company sells a variety of
brands of access control and CCTV, depending upon the specific application
needed by the customer.

           For fiscal year 2001, revenue derived from the sale and installation
of security and fire alarm systems increased by 49% and totaled approximately
$5.6 million compared to $3.8 million in 2000.

SERVICE AND MAINTENANCE OF ELECTRONIC SECURITY AND FIRE ALARM SYSTEMS

           A strong service and maintenance capability is an important element
in maintaining good customer relations and low attrition. The Company provides
responsive service to its customers whose electronic security and fire alarm
systems require repair or upgrading. Depending on the nature of the problem and
the customer, such services are typically provided within 24 to 48 hours.

           Service and maintenance of security and fire alarm systems generates
revenue primarily through billable field service calls or contractual payments
under service and maintenance agreements. For fiscal year 2001, revenue derived
from service and maintenance increased by 6% and totaled approximately $1.7
million compared to $1.6 million in 2000.

EQUIPMENT AND TECHNOLOGY

           Advances in digital communications technology permit the monitoring
of customer accounts over a wide geographic area from a central station
monitoring station. In addition, the concurrent development of
microprocessor-based control panels has reduced the cost of equipment available
to the customers in the commercial and residential markets. Digital technology
has also enabled equipment manufacturers to build more features into security
systems, such as remote user interface, lighting and heat controls and users
programming features. The improvements in technology have substantially
increased the economies of scale and reduced costs for alarm monitoring
companies like Guardian.

                                       4
<PAGE>

           The Company believes that it utilizes automation equipment that is
the same as or comparable to those systems utilized by the largest national
security alarm companies. Each of the Company's alarm monitoring centers is
equipped with equipment that enables the Company to receive, analyze, and
process information from security and fire alarm, temperature-sensing, video,
and access control systems located at customer sites. The Company can, in most
cases, also perform remote diagnostics for many customers from the control
center. The automation equipment also enables the Company to process accounting
information, service and maintenance information, and scheduled compliance
requirements required by the Company's customers. The Company's central
monitoring systems currently have the capacity to monitor up to approximately
250,000 customers with moderate upgrades to the storage and processor capacity
of its existing hardware system. Moreover, the operating facility would require
minimal physical changes to accommodate such a volume of accounts.

           The Company invests annually in monitoring hardware upgrades to keep
up with technological advances. These enhancements enable the Company to link
its New York City, Staten Island, Tampa, and Miami offices into the main system.
Furthermore, the Company has a number of web sites
(www.GuardianInternational.com, www.4Guardian.com, www.4Mutual.com,
www.Statland.com, www.PrepareandProtect.net, www.GoAccessControl.com,
www.95cam.com) that are used for both informational purposes and marketing, as
well as sites where customers can make routine requests for small items, request
service, and order additional security equipment. These enhancements enable a
large part of the Company to share one customer database and to improve its
efficiency in the areas of monitoring, service routing, and internal
communication.

           The Company currently utilizes MAS software for its automation,
service and billing system. MAS technology gives the Company the ability to
automate numerous aspects of information that were previously processed
manually. In addition, such technological advancements as the provision of
alphanumeric alarm indications give the Company the ability to process data
efficiently with little or no human interaction.

MARKETING

           Beginning in 1999, the Company's internal sales efforts have been
responsible for most of the Company's MRR growth. The Company has various
marketing programs in place intended to generate new monitoring customers and
upgrade existing customers with additional services. The Company has established
a significant relationship with its supplier of alarm system equipment, First
Alert Professional (TM). This relationship has lead to a variety of joint
marketing programs, which have enhanced the Company's direct sales efforts.

           The Company has also expanded its line of services and products. For
instance, in 2000, the Company introduced www.GoAccessControl.com, an
Internet-based service for managing access control systems. The Company has
continued to maintain an expansive web presence for marketing information about
the Company and its capabilities and is using services based on the Internet to
differentiate itself from its competition.

           In 2001, the Company's marketing activities consisted primarily of
acting on referrals with the in-house subscriber base and a limited amount of
advertising and direct mail solicitations. The Company's employees are members
of industry and community organizations to enhance the Company's reputation with
influential business and community leaders.

COMPETITION

            The security alarm industry is characterized by a high degree of
fragmentation and currently is comprised of a small number of relatively large
competitors and a large number of small providers of alarm systems and services.
A survey published by SDM Magazine in May 2001 reported that in 2000, based upon
information provided by its respondents, the 100 largest companies in the alarm
industry accounted for approximately 23% of industry revenues.

                                       5
<PAGE>

           Competitive conditions vary within each segment of the security
industry. The largest segment of the industry is composed of security system
dealers. Most of these companies have fewer than twenty employees, average
150-850 customer accounts, are usually under-capitalized, are owner-managed, and
do not have their own central monitoring stations.

           The Company believes that thousands of smaller alarm service
companies, because of their size, have higher overhead expenses as a percentage
of revenues than the Company and lack access to capital on terms as attractive
as those available to the Company. Moreover, due to a decline in security system
installation prices over the last three years, security alarm companies
participating in market growth typically make a substantial investment in each
new customer. In order to be competitive, security alarm companies often sell
equipment at or below cost in the expectation of generating future recurring
monitoring revenues. Consequently, access to capital has become an increasingly
important factor in a security alarm company's success.

           The commercial and residential security market penetration is still
thought to be relatively low with tremendous opportunity for growth. The Company
believes that several factors have spawned an increase for security for both
commercial and residential markets where the Company operates, including the
recent development of September 11, 2001 and the increased demand from the
public concerning safety and crime.

           Many insurance companies may require that businesses install an alarm
system as a condition to obtain and/or renew insurance coverage. In addition,
new commercial buildings must have an inspected and certified fire alarm system
to obtain a certificate of occupancy. Homeowners can benefit from insurance
company discounts with the installation of an alarm system. Discounts may be
even larger when the alarm system is monitored by a certified alarm monitoring
center.

           The barriers to entry in this monitoring segment are high due to the
large investment required to equip and to conform facilities for UL
certification. This segment is divided into national and regional firms. The
Company believes that large regional companies, such as Guardian, have a
competitive advantage relative to large national companies because they have the
access to capital and the technology required to compete with the national
companies while enjoying the marketing advantages created from providing "local"
monitoring and service. However, a number of these larger companies may have
significantly greater capital and resources than the Company, which may limit
the Company's ability to effectively compete with such companies.

GOVERNMENT REGULATION

           The Company's operations are subject to federal, state, county and
municipal laws, regulations and licensing requirements. The Company's employees
include holders of four low-voltage electrical contractors' licenses issued by
the State of Florida. In addition, the Company believes it holds all the
licenses required to operate in the counties and municipalities in Florida in
which it is presently providing services. In New York, the Company is qualified
to provide low-voltage electrical services, uniformed response services,
security alarm monitoring and fire alarm monitoring for customers.

           Because the Company operates a central monitoring station and
installs burglar and fire alarms, the State of Florida requires that the
Company's employees who are directly involved in the monitoring of customers and
the provisioning of field repair services complete a certification program and
that the Company maintain a license to conduct its monitoring business. The
Company believes that it holds the necessary licenses to conduct its business
and that it is in compliance with all licensing and regulatory requirements in
each jurisdiction in which it operates.

           The Company relies on the use of telephone lines and radio
frequencies to transmit signals and relay alarm calls. The cost and type of
equipment that may be employed for telephone lines is regulated by the federal
and state governments. The use and operation of radio frequencies is regulated
by the Federal Communications Commission and the state public utilities
commissions.

                                       6
<PAGE>

TRADEMARKS

           During 1998, the Company filed an application with the United States
Patent and Trademark Office ("USPTO") to register the mark "Security by Guardian
International" with "G" design. There are no outstanding substantive or
procedural issues. The application has been approved for publication and will be
published for opposition shortly. If there is no third party objection, a
registration will issue in 2002. The Company has also registered the "Guardian
International Security" with a "G" design and a "G" logo mark in the State of
Florida. The Company has been using these two marks in connection with security
services in Florida since January 1993 without third party opposition. The
Company holds a service mark registration with the USPTO for the mark "Mutual
Central Alarm Services, Inc." and design for use in connection with security
services.

           In 1999, the Company filed a trademark application for the mark
"Security by Guardsman International" and "G" design which was allowed. There is
a requirement to show use of this mark in connection with security services
before a registration can issue. In 2000, the Company filed trademark
applications with the USPTO for the marks "Prepare and Protect" and "Gibraltar
Security Alarm Systems" for use with security services. The mark "Prepare and
Protect" has registered. The mark "Gibraltar Security Alarm Systems" has no
outstanding refusals and should be published for third party opposition in 2002.
If there is no third party objection, a registration will issue.

           The Company is currently monitoring its trademarks: Guardian
International, Gibraltar Security Alarm Services, Alarm Control, Inc., Mutual
Central Alarm Services, Inc. and Gator Telecom, Inc., in order to evaluate the
availability and feasibility of continuing to operate under these separate
trademarks or to consolidate them into one name. Currently, there are no pending
or threatened litigation or claims relating to the Company's trademarks. Also,
to the best of the Company's knowledge, there are no unasserted possible claims
or assessments that may call for financial disclosure. No assurances can be
given that third parties will not attempt to assert superior trademark rights in
similar marks or that the Company will be able to successfully enforce and
protect its rights in its trademarks against third party infringers.

EMPLOYEES

           At December 31, 2001, the Company employed 246 full-time employees.
Any future increase in the number of employees will depend upon growth of the
Company's business.

RESEARCH AND DEVELOPMENT AND ENVIRONMENTAL ISSUES

       The Company does not conduct any research and development activity.

       The Company has the need to dispose of many batteries, which constitute
environmentally sensitive waste. The used batteries are stored in the Company's
warehouses until such time as they are transported to a recycling center for
disposal.

ITEM 2.  PROPERTY

           The Company leases its corporate headquarters from Guardian
Investments, a Florida partnership owned by Harold and Sheilah Ginsburg, both of
whom are directors, officers and principal shareholders of the Company. The
Company's corporate headquarters occupies a 12,000 square foot building, which
houses a central monitoring station, offices and warehouse facilities, located
in Hollywood, Florida. The lease expires on December 31, 2002, but the Company
has a renewal option for an additional five years under the same terms and
conditions. The annual rent is approximately $125,000, with annual increases not
to exceed three percent (3%). For 2001, the rent increased at the allowed 3%
rate. The terms of the lease are no less favorable to the Company than those
which could be obtained from an unaffiliated third party.

                                       7
<PAGE>

           The Company leases space in New York, New York from an independent
third party. The lease expires in December 2004, with a renewal option for an
additional five years under the same terms and conditions. The 3,500 square feet
of leased space houses a central monitoring station, offices and warehouse
facilities. The annual rent is approximately $95,000.

           The Company also leases office space in Miami and Tampa, Florida and
in Staten Island, New York. The leases expire on various dates through July 2003
and most are renewable at the option of the Company. The annual rent for these
three facilities is approximately $128,000.

ITEM 3.   LEGAL PROCEEDINGS

           The Company experiences routine litigation in the normal conduct of
its business. The Company believes that any such pending litigation will not
have, individually or in the aggregate, a material adverse effect on its
business, financial condition or results of operations.

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

           No matters were submitted to a vote of Guardian's security holders
during the quarter ended December 31, 2001.


                                       8
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                                     PART II


ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

           Guardian's Class A Common Stock has been publicly traded under the
symbol "GIIS.OB" since November 1996 through the Over-the-Counter ("OTC")
Bulletin Board.

           The following table set for the high and low bid information of the
Class A Common Stock for the periods indicated below, as reported by the
National Quotation Bureau during such periods.

                                                  High             Low
                                                  ----             ---
           2000
           1st Quarter                           $1.19             $0.48
           2nd Quarter                           $1.00             $0.66
           3rd Quarter                           $1.00             $0.66
           4th Quarter                           $1.31             $0.52

           2001
           1st Quarter                           $1.25             $0.73
           2nd Quarter                           $1.10             $0.69
           3rd Quarter                           $1.00             $0.75
           4th Quarter                           $0.95             $0.56

           The Company is authorized to issue 30,000,000 shares of preferred
stock, of which 28,448 shares are issued and outstanding as of March 20, 2002.
The Company is presently authorized to issue 100,000,000 shares of Class A
Common Stock, of which 8,096,441 shares are issued and outstanding as of March
20, 2002. There are approximately 113 holders of record (not including shares
held in street name) of Class A Common Stock. On March 20, 2002, the closing
price for the Company's Class A Common Stock was $0.85. The Company is
authorized to issue 1,000,000 shares of Class B Non-Voting Common Stock ("Class
B Common Stock"), of which 634,035 shares are issued and outstanding as of March
20, 2002.

           In connection with the merger of Everest with Guardian, Heller
Financial, Inc. ("Heller"), the Company's senior lender (which was acquired by
GE Capital, a wholly-owned subsidiary of General Electric, on October 25, 2001),
received 484,035 shares of Class B Common Stock in exchange for certain capital
appreciation rights with respect to the common stock of pre-merger Guardian held
by Heller. In addition, pursuant to the terms of an agreement entered into among
the pre-merger Guardian shareholders and Heller, the Company was required to
issue 150,000 shares of Class B Common Stock to Heller. In order to fulfill this
commitment, the Company's Articles of Incorporation were amended to authorize
additional shares of Class B Common Stock which were issued to Heller in
November 1997. Heller is the sole holder of record of the Class B Common Stock.

DIVIDENDS

           The Company has not declared any cash dividends on its common stock
since its inception and does not anticipate paying such dividends in the
foreseeable future. The Company plans to retain any future earnings for use in
the Company's business. In addition to the self-imposed restriction on the
payment of dividends resulting from the Company's own policies, the payment of
dividends is currently subjected to certain restrictions pursuant to the terms
of the existing credit facility with Heller and is likely to remain subject to
such restriction for the foreseeable future (see "Management's Discussion and
Analysis - Liquidity and Capital Resources").

                                       9
<PAGE>

           Quarterly dividends are payable at a rate of 1.75% on the Series C
and Series E Preferred Stock in cash or, if prohibited by the Company's credit
facility, in shares of Class A Common Stock. To date, the Company has paid the
Series C and Series E Preferred Stock quarterly dividends in cash. The Series D
Preferred Stock pays dividends at a rate of 6% on an annual basis in either cash
or additional shares of the Series D Preferred Stock. To date, the Company has
elected to pay the Series D Preferred dividends in additional shares of the
Series D Preferred Stock.

           For the quarter ended December 31, 2001, the Company (i) accrued and
paid $146,948 of dividends on the Series C Preferred Stock; (ii) accrued
$170,534 of dividends on the Series D Preferred Stock which was paid in kind
with the issuance of approximately 171 shares of additional Series D Preferred
Stock on January 1, 2002; and (iii) accrued and paid $140,000 of dividends on
the Series E Preferred Stock.

           For the year ended December 31, 2001, the Company (i) accrued
$767,792 and paid $907,792 of dividends on the Series C Preferred Stock; (ii)
accrued $682,140 of dividends on the Series D Preferred Stock which was paid in
kind with the issuance of approximately 682 shares of additional Series D
Preferred Stock on January 1, 2002; and (iii) accrued $380,000 and paid $240,000
of dividends on the Series E Preferred Stock.

           To ensure compliance with Section 607.06401 of the Florida Statutes,
the Company retained an independent appraisal firm to determine the sufficiency
of assets to pay accrued dividends due on January 1, 2002. Based on the
appraisal firm's assessment of the Company's assets in excess of all liabilities
and preferential distribution rights at November 30, 2001, the Company
subsequently paid the accrued dividends.

TRANSFER AGENT

           The Company's transfer agent is Continental Stock Transfer & Trust
Company, 17 Battery Place, New York, New York 10004.


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

           The information contained below includes statements of the Company's
or management's beliefs, expectations, hopes, goals and plans that are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. For a description of such risks and uncertainties,
see the information set forth in the Introductory Note to this Annual Report
under the caption "Forward-Looking Statements," which information is
incorporated herein by reference.

OVERVIEW AND DISCUSSION OF CRITICAL ACCOUNTING POLICIES

           Guardian is a provider of monitoring (retail and wholesale),
maintenance services, sales and installation for high-grade electronic security
and fire alarm systems to commercial and residential customers primarily in the
states of Florida and New York.

           The Company's core strategies include: (i) generating monitoring and
service contracts through its own sales and installation efforts; and (ii)
acquiring existing alarm monitoring and maintenance contracts from independent
alarm dealers or through the acquisition of entire companies in the industry.

           In order to finance these core strategies, the Company has chosen to
issue yield-bearing instruments (such as senior debt or preferred stock), which
results in related interest and dividend expense. The Company believes that
these strategies, which emphasize creating long-term value over short-term net
income, will result in the Company's recording of net losses until such time as:
(i) the Company's cash flow from its increased customer base allows it to reduce
significantly its indebtedness and related interest costs; and (ii) the
Company's amortization expense related to acquired alarm contracts, through the
passage of time and recognition of account cancellations, is reduced. The
Company has never had net income and has a history of consistent and sometimes
significant net losses.

                                       10
<PAGE>

           The majority of the Company's revenue is derived from recurring
payments for the monitoring and service of security and fire alarm systems,
pursuant to contracts with initial terms typically ranging from one to five
years. For fiscal year 2001, monitoring revenues represented approximately 63%
of total revenues. Historically, monitoring revenues have generated higher gross
profit margins than revenues derived from service and maintenance activities
(approximately 8% of total revenues). Both monitoring and service revenues are
recognized as the service is provided.

           Revenues derived from the sale and installation of security and fire
alarm systems represented approximately 27% of total revenues for fiscal year
2001. Installation revenues produce lower gross profit margins than those
generated by monitoring revenues, but they are an integral component of the
Company's ability to retain and establish new monitoring customers. As discussed
in Note 1 to the Company's financial statements, in 2000, as a result of the
issuance of SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB No. 101"), the Company was then required to change
its accounting policy for revenue and expense recognition of security and fire
alarm systems installations. On installations for which the Company retains
title to the electronic security systems or provides monitoring services
subsequent to the installation, the installation revenue is deferred and
amortized over the longer of the term of the service agreement or the estimated
eight-year life of the customer relationship. All other installation revenues
are recognized in the period in which the installation is completed. All direct
installation costs, which include materials, direct labor and commissions,
related to installations that result in deferred revenue, are capitalized on an
agreement-by-agreement basis to the extent such costs do not exceed the total of
deferred installation revenue and expected margin from monitoring services
during the initial service contract term. The excess is expensed in the period
the installation is completed. Capitalized installation costs to the extent of
deferred installation revenues are amortized over the longer of the term of the
service agreement or the estimated eight-year life of the customer relationship.
Capitalized costs in excess of deferred revenues are amortized over the initial
term of the service agreement. Capitalized materials and direct labor costs are
expensed as depreciation; capitalized commissions are expensed as installation
and service operating expense. When a customer to whom we are providing
monitored services cancels the service, any deferred revenue balance and the
associated capitalized cost balance are recognized in the period in which the
cancellation occurs.

           Acquired contracts, which are identified as customer accounts, net on
the consolidated balance sheet, are reflected at cost. The cost of acquired
accounts is based on the estimated fair value at the date of acquisition. The
cost of acquired customer accounts is capitalized and amortized on a
straight-line basis over an estimated useful life of ten years. For those
accounts which cancel during the amortization period, an estimate of the
remaining carrying value of the accounts is expensed in the period in which the
accounts cancel. It is the Company's policy to perform periodic evaluations of
acquired customer account attrition and, if necessary, to adjust the remaining
useful lives. The Company periodically estimates future cash flows from customer
accounts to determine whether any impairment has occurred. If the estimated
future cash flows are less than their unamortized cost, an impairment charge is
recorded for the amount that the unamortized cost of customer accounts exceeds
their estimated fair value. Based on the current balance in customer accounts,
net, and our historic rate of amortization expense, the value of the asset will
be fully amortized within the next four years.

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

                                       11
<PAGE>

KEY OPERATING MEASURES

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

           EBITDA. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") does not represent cash flow from operations as defined
accounting principles generally accepted in the United States, should not be
construed as an alternative to operating income and is indicative neither of
operating performance nor of cash flows available to fund the cash needs of the
Company. Items excluded from EBITDA are significant components in understanding
and assessing the financial performance of the Company. The Company believes
presentation of EBITDA enhances an understanding of financial condition, results
of operations and cash flows because EBITDA is used by the Company to satisfy
its debt service obligations and its capital expenditure and other operational
needs, as well as to provide funds for growth. In addition, EBITDA is used by
senior lenders and the investment community to determine the current borrowing
capacity and to estimate the long-term value of companies with recurring cash
flows from operations. The Company's computation of EBITDA may not be comparable
to other similarly titled measures of other companies. The following table
provides a calculation of EBITDA for the years ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>

                                                                          2001                  2000
                                                                          ----                  ----
<S>                                                                    <C>                   <C>
  Net loss before cumulative effect of a change in
     accounting principle                                              $(4,023,956)          $(3,957,140)
  Plus:
     Amortization of customer contracts                                  4,653,749             4,702,478
     Depreciation and amortization                                       2,694,864             2,021,782
     Interest and other expense, net                                     1,046,107             1,288,944
                                                                        ----------            ----------

        EBITDA                                                          $4,370,764            $4,056,064
                                                                        ==========            ==========
</TABLE>


           Monthly Recurring Revenue ("MRR"). MRR is revenue that the Company is
entitled to receive under monitoring and service contracts in effect at the end
of the period. Because the Company has grown rapidly, often by acquiring
security alarm companies and portfolios of customer accounts which are included
in revenues only from the date of acquisition, the Company's revenues are not
proportional to the level of its investment of capital reported to the end of
the period upon which a return must be earned. Management believes MRR enhances
an investor's understanding of the Company's financial condition, results of
operations and cash flows because it provides a measure of the Company's revenue
that can be used to derive estimated annual revenues acquired in acquisitions
for a full year of operations. As a result, MRR can be compared to the level of
investment in the statement of financial condition at the end of the period. By
comparing MRR to cash, debt and equity balances at the end of a period, an
investor can assess the Company's investment track record. Further, management
believes an investor's consideration of MRR relative to the Company's customer
base helps identify trends in MRR per customer. MRR does not measure
profitability or performance, and does not include any allowance for future
losses of customers or allowance for doubtful accounts. The Company does not
have sufficient information as to the losses of acquired customers accounts to
predict with absolute certainty the amount of acquired MRR that will be realized
in future periods or the impact of the loss of acquired accounts on our overall
rate of customer loss. Our computation of MRR may not be comparable to other
similarly titled measures of other companies and MRR should not be viewed by
investors as an alternative to actual monthly revenue as determined in
accordance with accounting principles generally accepted in the United States.
MRR at December 31, 2001 and 2000 was approximately $1,158,000 and $1,100,000,
respectively.

           MRR Attrition. The Company experiences customer cancellations, which
are commonly referred to as attrition, for monitoring and related services as a
result of customer relocation, unfavorable economic conditions and other

                                       12
<PAGE>

reasons. This attrition is offset to a certain extent by revenues from the sale
of additional services to existing customers, periodic price increases, the
reconnection of premises previously occupied by customers, the conversion of
accounts previously monitored by other alarm companies and guarantees provided
by the sellers of such accounts. The Company defines attrition numerically for a
particular period as a quotient, the numerator of which is equal to the
difference between gross MRR lost as the result of canceled customer accounts
and MRR lost that was replaced pursuant to guarantees from sellers of accounts
purchased by the Company, and the denominator of which is the expected month-end
MRR calculated at the end of such period. Net MRR attrition of the Company's
customers during the years ended December 31, 2001 and 2000 was less than 10% on
an annualized basis.

ADOPTION OF ACCOUNTING PRINCIPLE

           As explained above, during the fourth quarter of 2000, the Company
adopted the provisions of SAB No. 101, effective January 1, 2000. The adoption
of SAB No. 101 resulted in a charge that is reflected as a cumulative effect of
a change in accounting principle of $3.1 million in the 2000 consolidated
statement of operations contained herewith.

CONSOLIDATED STATEMENT OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000

           The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>

                                                                                            Year Ended
                                                                                            ----------
                                                                                           December 31,
                                                                                           ------------

                                                                                          2001        2000
                                                                                          ----        ----
<S>                                                                                        <C>         <C>
          Revenues:
              Monitoring                                                                   63.3%       69.8%
              Installation and service                                                     35.1        29.4
              Other                                                                         1.6         0.8
                                                                                        -------      ------
              Total revenues                                                              100.0       100.0

          Operating expenses
              Monitoring                                                                    9.8        10.9
              Installation and service                                                     28.9        24.1
              Selling, general and administrative                                          40.4        42.9
                                                                                         ------      ------
                                                                                           79.1        77.9

          Income before interest and other expense, net,
               amortization and depreciation                                               20.9        22.1
                                                                                         ------      ------

          Interest and other expense, net                                                   5.0         7.0
          Amortization of customer contracts                                               22.2        25.6
          Depreciation and amortization                                                    12.9        11.0
                                                                                         ------      ------
                                                                                           40.1        43.6
          Net loss before cumulative effect of a change
               in accounting principle                                                    (19.2)%     (21.5)%
                                                                                         ======       =====
</TABLE>

RESULTS OF OPERATIONS

           Revenue. Total revenues were approximately $20.9 million for 2001 and
approximately $18.3 million for 2000, which represents an increase of 14%.
Monitoring revenues increased by 4% to approximately $13.3 million during 2001,
from approximately $12.8 million during 2000. The increase in monitoring
revenues compared to the prior year's period is attributable to monitoring
agreements that are continuously purchased from other security dealers as well
as monitoring agreements that are signed in conjunction with the Company's
installation activities. Installation and service revenues were approximately

                                       13
<PAGE>

$7.3 million during 2001, compared to approximately $5.4 million during 2000,
which represents an increase of 36%. The majority of the increase in our
installation and service revenues is a result of increased sales activity in the
New York area, and significant increases in sales activity in the Company's
Florida business servicing builders of new homes. In addition, the recognition
of deferred installation revenue was higher in 2001 than in 2000 as our base of
deferred installation revenue continues to increase. The Company expects that
the recognition of deferred installation revenue will continue to increase in
the future as installation services which meet the deferral criteria are
rendered to new customers. Installation and service revenues as a percentage of
total revenues increased to 35.1% in 2001 from 29.4% in the prior year due
primarily to the Company's successful internal sales efforts. This increase in
installation and service as a percentage of total sales resulted in a
corresponding decrease in monitoring revenues as a percentage of total revenues
to 63.3% in 2001 from 69.8% in 2000.

                  Monitoring, Installation and Service. Monitoring, installation
and service expenses for the year ended December 31, 2001 increased 26% to
approximately $8.1 million, compared to approximately $6.4 million during the
corresponding period in the prior year. Monitoring expenses increased 2% to
approximately $2.1 million compared to approximately $2.0 million during the
corresponding period in the prior year. As a percentage of monitoring revenues
during the year ended December 31, 2001, monitoring expenses decreased from 16%
to 15%, compared to the corresponding period in the prior year. Installation and
service costs during the year ended December 31, 2001 increased by 37% to
approximately $6.1 million, compared to approximately $4.4 million during the
corresponding period in the prior year. The majority of the increase in
installation and service costs was a result of an increase in materials, labor
and related expenses required to support the increase in installation and
service revenue.

         Gross profit, defined as total revenues less monitoring and
installation and service costs, increased by 8% to approximately $12.8 million
during the year ended December 31, 2001, compared to approximately $11.9 million
during the corresponding period in the prior year. Gross profit from monitoring
revenues increased by 4% to approximately $11.2 million during the year ended
December 31, 2001, compared to approximately $10.8 million during the
corresponding period in the prior year. The increase in gross profit from
monitoring activities is attributable to the increase of monitored accounts from
internal installation activities and the purchase of monitored accounts for
which the incremental costs to monitor are minimal. Gross profit from monitoring
activities as a percentage of monitoring revenue increased to 85% from 84%
during the year ended December 31, 2001, compared to the prior period. Gross
profit from installation and service activities increased to approximately $1.3
million during the year ended December 31, 2001, from approximately $1.0 million
during the corresponding period in the prior year, primarily due to a 36%
increase in installation revenues. Gross profit on installation and service
activities as a percentage of installation and service revenues was 18% for both
2001 and 2000.

                  Selling, General and Administrative ("SG&A"). SG&A increased
by 7% to approximately $8.5 million during the year ended December 31, 2001,
compared to approximately $7.9 million during the corresponding period in the
prior year. The increase in SG&A costs in 2001 from 2000 is related primarily to
additional personnel required to support our increased sales activities as well
as additional personnel allocated to care for our existing customers. The
success of the Company is dependent on its ability to attract and retain highly
qualified management, sales and service personnel. As the Company continues to
expand its operations, it expects to be faced with increasing personnel
requirements, and may be unable to generate sufficient revenues to offset the
increasing costs associated with fulfilling these requirements.

         Amortization of Customer Contracts. Amortization of customer contracts
was approximately $4.7 million during the year ended December 31, 2001, which
was unchanged from the prior year. Such costs are amortized over ten years,
unless accounts are cancelled and not replaced by the alarm company from which
the account was purchased, or otherwise, in which case an estimate of the
remaining unamortized balance is written off as a charge to amortization
expense.

                  Depreciation and Amortization. Depreciation and amortization
increased by 33% to approximately $2.7 million during the year ended December
31, 2001, compared to approximately $2.0 million during the corresponding period

                                       14
<PAGE>

in the prior year. The increase in depreciation and amortization is primarily
due to growth in capitalized customer premise systems from installations. Such
costs include depreciation of property and equipment (the gross balance of which
increased to approximately $15.6 million at December 31, 2001 from approximately
$11.9 million at December 31, 2000) and the amortization of certain other
intangible assets. The Company expects that depreciation and amortization of
customer premise systems will continue to increase in the future as installation
services which meet the capitalization criteria are rendered to new customers.

         Interest and Other Expense, Net. Interest and other expense, net
decreased 19% to approximately $1.0 million during the year ended December 31,
2001, compared to approximately $1.3 million during the corresponding period in
the prior year. Approximately $130,000 of income was recorded due to the
accretion of the warrant obtained from Protection One. Interest expense was
lower from period to period due to significantly lower average interest rates
offset by increased borrowings under the its credit facility with Heller. The
average interest rate in 2000 was 10.1% compared to 7.5% in 2001. Total
borrowings under this credit facility increased to approximately $12.7 million
at December 31, 2001 from approximately $11.4 million at December 31, 2000.

           Net Loss. The Company has never had net income and has a history of
consistent and sometimes significant net losses. Net loss applicable to common
stock for the year ended December 31, 2001 was approximately $3.3 million, or
$(0.37) per share, basic and diluted, compared to a net loss before cumulative
effect of a change in accounting principle of approximately $5.7 million, or
$(0.65) per share, during the prior year. The current period net loss includes
an approximate $2.6 million gain on exchange of Preferred stock. Preferred stock
dividends of approximately $1.8 million were recorded in both the years ended
December 31, 2001 and 2000. The cumulative effect of a change in accounting
principle associated with the adoption of SAB No. 101 resulted in a charge of
approximately $3.1 million or $0.35 per share was also recorded for the year
ended December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

           Capital Resources. As of December 31, 2001, the Company believes it
will maintain the ability to generate sufficient cash to fund future operations
of the business over the next twelve months. Generally, cash flow will be
generated from a combination of: (i) recurring revenue from its security
monitoring customer base, and (ii) the Company's existing $20.0 million credit
facility ("Renewed Credit Facility") with Heller (which was acquired by GE
Capital, a wholly-owned subsidiary of General Electric, on October 25, 2001)
(see Note 8 to Notes to Consolidated Financial Statements), subject to
compliance with certain debt covenants. At December 31, 2001, there was $7.3
million of availability under the credit facility.

            In June 2001, the Renewed Credit Facility was amended: (i) to extend
the expiration date to April 3, 2003 from June 30, 2002, for which the Company
paid a renewal fee of $125,000; and (ii) to improve the Company's borrowing base
calculation through the term of the Renewed Credit Facility. The Renewed Credit
Facility includes customary covenants, including, but not limited to,
restrictions related to the incurring of other debt, the encumbrance or sale of
the Company's assets, the payment of dividends or making of other distributions
to the Company's shareholders and other financial performance covenants. The
Company believes it was in compliance with all such covenants as of December 31,
2001.

           The Renewed Credit Facility will be used primarily for acquisition
and creation of customer accounts. The Company's continued plan of growth
through acquisitions of customer accounts is contingent upon its ability to

                                       15
<PAGE>

borrow under the Renewed Credit Facility. The Renewed Credit Facility is
scheduled to expire in April 2003, and the Company may be required to secure
alternative financing to fund its operations and future acquisitions upon such
termination. In the event that such financing alternatives cannot be secured,
the Company's operations will suffer a material adverse effect.

           Liquidity. Net cash provided by operating activities during the year
ended December 31, 2001 was approximately $5.2 million. The Company incurred a
net loss of approximately $4.0 million during such period. Included in such
loss, however, were depreciation and amortization expense, amortization of
customer accounts, and amortization of deferred financing costs totaling
approximately $7.5 million, and provisions for doubtful accounts and inventory
of approximately $0.6 million. Other operating cash outflows include
approximately $0.6 million related to increases in accounts receivable,
inventory, prepaid expenses, deposits and other assets. Other operating cash
inflows of approximately $1.8 million related to net increases in accounts
payable and accrued expenses and unearned revenue.

           Net cash used in investing activities was approximately $5.0 million
during the year ended December 31, 2001 and was primarily comprised of the
purchase of property and equipment of approximately $0.5 million, the purchase
of customer accounts of approximately $0.8 million, the purchase of customer
premise systems of approximately $3.5 million, and other of approximately $0.4
million, offset by the sale of customer accounts of approximately $0.3 million.

           Net cash used in financing activities was approximately $0.2 million,
during the year ended December 31, 2001, primarily consisting of borrowings of
approximately $3.9 million reduced by repayments to Heller and other repayments
of long-term debt of approximately $2.7 million, payment of cash dividends on
Preferred stock of approximately $1.1 million. As of December 31, 2001, the
Company's cash balance was approximately $713,000.

           Total shareholders' deficit was approximately $0.8 million at
December 31, 2001, changing by a net amount of approximately $3.4 million during
the year ended December 31, 2001 from a deficit of $4.2 million as of December
31, 2000. The net increase resulted primarily from the exchange of 8,000 shares
of redeemable Series C Preferred Stock, which is classified outside the
shareholders' deficit section of the consolidated balance sheet, for 8,000
shares of Series E Preferred Stock, which is classified in the shareholders'
deficit section of the consolidated balance sheet. This exchange resulted in an
increase in equity of approximately $7.9 million. Additionally, preferred
dividends associated with the Series D Preferred Stock of approximately $1.3
million were reclassified from accounts payable and accrued expenses to
additional paid-in capital on the consolidated balance sheet, as the Company
intends to pay such dividends in additional Series D Preferred Stock. These
increases were offset by the payment and accrual of dividends on the Company's
C, D and E Preferred Stock of approximately $1.8 million and the net loss of
approximately $4.0 million.

ITEM 7.   FINANCIAL STATEMENTS

           Consolidated financial statements as of December 31, 2001 and for
each of the two years then ended are contained herewithin.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

           None.





                   [Balance of page intentionally left blank]


                                       16
<PAGE>
<TABLE>
<CAPTION>

GUARDIAN INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
                                                                                                    Page
                                                                                                    ----

<S>                                                                                                   <C>
          Report of Independent Certified Public Accountants                                          18

          Consolidated Balance Sheet                                                                  19
               December 31, 2001

          Consolidated Statements of Operations                                                       20
               For the Years Ended December 31, 2001 and 2000

          Consolidated Statements of Changes in Shareholders' Deficit                                 21
               For the Years Ended December 31, 2001 and 2000

          Consolidated Statements of Cash Flows                                                       22
               For the Years Ended December 31, 2001 and 2000

          Notes to Consolidated Financial Statements                                                  24
</TABLE>


                                       17
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Board of Directors and Shareholders of
    Guardian International, Inc.:

We have audited the accompanying consolidated balance sheet of Guardian
International, Inc. (a Florida corporation) and subsidiaries (the "Company") as
of December 31, 2001 and the related consolidated statements of operations,
changes in shareholders' equity (deficit) and cash flows for the years ended
December 31, 2001 and 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2001, and the results of their operations and their cash flows for the years
ended December 31, 2001 and 2000 in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1, in 2000 the Company adopted the provisions of SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."




ARTHUR ANDERSEN LLP


Fort Lauderdale, Florida,
   March 4, 2002.


                                       18
<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2001
<TABLE>
<CAPTION>

ASSETS
<S>                                                                                   <C>
Current assets:
      Cash and cash equivalents                                                       $    713,204
      Accounts receivable, net of allowance for doubtful accounts of $250,186            1,986,094
      Current portion of notes receivable                                                   96,619
      Inventories                                                                          931,501
      Prepaid expense and other                                                            219,758
                                                                                      ------------
             Total current assets                                                        3,947,176

Property and equipment, net                                                              9,769,146
Customer accounts, net                                                                  18,485,550
Goodwill and other intangible assets, net                                                1,531,883
Notes receivable, less current portion                                                      57,467
Deposits and other assets                                                                1,375,791
                                                                                      ------------
             Total assets                                                             $ 35,167,013
                                                                                      ============

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
      Accounts payable and accrued expenses                                           $  3,902,562
      Current portion of unearned revenue                                                2,380,013
      Current portion of long-term obligations                                             178,065
                                                                                      ------------
             Total current liabilities                                                   6,460,640
Unearned revenue, less current portion                                                   8,073,978
Long-term obligations, less current portion                                             13,065,091
                                                                                      ------------
             Total liabilities                                                          27,599,709
                                                                                      ------------

Commitments and contingencies (Note 9)

Redeemable cumulative preferred stock, $.001 par value
      Series C preferred stock, 8,397 shares issued and outstanding, $8.4 million
      liquidation preference                                                             8,397,000
                                                                                      ------------

Shareholders' deficit:
      Preferred stock, $.001 par value, 30 million shares authorized Series D
             preferred stock, 11,369 shares issued and outstanding, $11.4
             million liquidation preference                                                     11
             Series E preferred stock, 8,000 shares issued and outstanding, $8.0
             million liquidation preference                                                      8
      Class A voting common stock, $.001 par value, 100,000,000 shares
             authorized, 8,096,441 issued and outstanding                                    8,097
      Class B non-voting common stock, $.001 par value, 1,000,000 shares
             authorized, 634,035 shares issued and outstanding                                 634
      Additional paid-in capital                                                        26,748,771
      Accumulated deficit                                                              (27,587,217)
                                                                                      ------------
             Total shareholders' deficit                                                  (829,696)
                                                                                      ------------
             Total liabilities and shareholders' deficit                              $ 35,167,013
                                                                                      ============
</TABLE>

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


                                       19
<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>

                                                       2001              2000
                                                   ------------      ------------
<S>                                                <C>               <C>
Revenues:
     Monitoring                                    $ 13,256,302      $ 12,794,056
     Installation and service                         7,345,835         5,385,984
     Other revenues                                     328,669           158,685
                                                   ------------      ------------
        Total revenues                               20,930,806        18,338,725
                                                   ------------      ------------

Operating expenses:
     Monitoring                                       2,046,237         2,001,950
     Installation and service                         6,055,315         4,412,053
     Selling, general and administrative              8,458,490         7,868,658
     Amortization of customer accounts                4,653,749         4,702,478
     Depreciation and amortization                    2,694,864         2,021,782
                                                   ------------      ------------
        Total operating expenses                     23,908,655        21,006,921
                                                   ------------      ------------

        Operating loss                               (2,977,849)       (2,668,196)

Interest and other expense, net                       1,046,107         1,288,944
                                                   ------------      ------------

Net loss before cumulative effect of a
        change in accounting principle               (4,023,956)       (3,957,140)

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

        Net loss                                     (4,023,956)       (7,007,983)

Preferred stock dividends                            (1,829,932)       (1,791,316)
Gain on exchange of preferred stock (Note 11)         2,594,070              --
                                                   ------------      ------------

        Net loss applicable to
           common stock                            $ (3,259,818)     $ (8,799,299)
                                                   ============      ============

Basic and diluted loss per common share:

        Net loss before cumulative effect
           of a change in accounting principle     $      (0.37)     $      (0.65)

        Cumulative effect of a change in
           accounting principle (Note 1)                   --               (0.35)
                                                   ------------      ------------

        Net loss                                   $      (0.37)     $      (1.00)
                                                   ============      ============

Weighted average common shares outstanding            8,730,476         8,839,853
                                                   ============      ============
</TABLE>

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


                                       20
<PAGE>




                          GUARDIAN INTERNATIONAL, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>

                                              Preferred Stock             Preferred Stock                 Common Stock
                                                 Series D                     Series E                       Class A
                                           Shares         Amount        Shares         Amount         Shares          Amount
                                      --------------------------------------------------------------------------------------------

<S>                                         <C>      <C>                           <C>               <C>          <C>
Balance December 31, 1999                   10,120   $         10           --     $       --        8,384,441    $      8,385

    Series C preferred dividends              --             --             --             --             --              --
    Series D preferred dividends              --             --             --             --             --              --
    Additional Series D preferred
       shares issued as dividends              605              1           --             --             --              --
    Purchase of treasury shares               --             --             --             --             --              --
    Retirement of treasury shares             --             --             --             --         (288,000)           (288)
    Equity issuance costs                     --             --             --             --             --              --

    Net loss                                  --             --             --             --             --              --
                                      ------------   ------------   ------------   ------------   ------------    ------------
Balance at December 31, 2000                10,725             11           --             --        8,096,441           8,097

    Series C preferred dividends              --             --             --             --             --              --
    Series D preferred dividends              --             --             --             --             --              --
    Series E preferred dividends              --             --             --             --             --              --
    Additional Series D preferred
       shares issued as dividends              644           --             --             --             --              --
    Exchange of Series C preferred
       stock for Series E preferred           --
       stock                                  --             --            8,000              8           --              --
    Net loss                                  --             --             --             --             --              --
                                      ------------   ------------   ------------   ------------   ------------    ------------
Balance at  December 31, 2001               11,369   $         11          8,000   $          8      8,096,441    $      8,097
                                      ============   ============   ============   ============   ============    ============

[restubbed table]

<CAPTION>

                                             Common Stock            Additional
                                                Class B                Paid-in      Accumulated        Treasury
                                         Shares         Amount         Capital        Deficit            Stock          Total
                                      -------------------------------------------------------------------------------------------

<S>                                        <C>       <C>            <C>             <C>             <C>             <C>
Balance December 31, 1999                  634,035   $        634   $ 19,516,784    $(15,350,824)   $       --      $  4,174,989

    Series C preferred dividends              --             --             --        (1,147,792)           --        (1,147,792)
    Series D preferred dividends              --             --             --          (643,524)           --          (643,524)
    Additional Series D preferred
       shares issued as dividends             --             --          605,433            --              --           605,434
    Purchase of treasury shares               --             --             --              --          (206,076)       (206,076)
    Retirement of treasury shares             --             --          (28,512)       (177,276)        206,076            --
    Equity issuance costs                     --             --           (6,590)           --              --            (6,590)

    Net loss                                  --             --             --        (7,007,983)           --        (7,007,983)
                                      ------------   ------------   ------------    ------------    ------------    ------------
Balance at December 31, 2000               634,035            634     20,087,115     (24,327,399)           --        (4,231,542)

    Series C preferred dividends              --             --             --          (760,840)           --          (760,840)
    Series D preferred dividends              --             --             --          (682,140)           --          (682,140)
    Series E preferred dividends              --             --             --          (386,952)           --          (386,952)
    Additional Series D preferred
       shares issued as dividends             --             --        1,325,664            --              --         1,325,664
    Exchange of Series C preferred
       stock for Series E preferred
       stock                                  --             --        5,335,992       2,594,070            --         7,930,070
    Net loss                                  --             --             --        (4,023,956)           --        (4,023,956)
                                      ------------   ------------   ------------    ------------    ------------    ------------
Balance at  December 31, 2001              634,035   $        634   $ 26,748,771    $(27,587,217)           --      $   (829,696)
                                      ============   ============   ============    ============    ============    ============
</TABLE>


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



                                       21
<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>

                                                                                               2001             2000
                                                                                            -----------      -----------
<S>                                                                                         <C>              <C>
Cash flows from operating activities:
     Net loss                                                                               $(4,023,956)     $(7,007,983)
     Adjustments to reconcile net loss to net cash
     provided by operating activities:
            Cumulative effect of a change in accounting principle                                  --          3,050,843
            Gain on sale of customer accounts                                                  (108,407)            --
            Depreciation and amortization                                                     2,694,864        2,021,782
            Amortization of customer accounts                                                 4,653,749        4,702,478
            Amortization of deferred financing costs                                            155,833          108,911
            Provision for doubtful accounts                                                     562,440          683,046
            Provision for inventory losses                                                       51,089           15,000
        Changes in assets and liabilities:
            Accounts receivable                                                                (325,486)         (20,865)
            Inventories                                                                          (7,860)        (531,345)
            Prepaid expenses and other                                                         (143,631)         161,570
            Deposits and other assets                                                          (130,689)          (6,796)
            Accounts payable and accrued expenses                                                96,814          662,157
            Unearned revenue                                                                  1,703,789        1,593,391
                                                                                            -----------      -----------
                 Net cash provided by operating activities                                    5,178,549        5,432,189
                                                                                            -----------      -----------

Cash flows from investing activities:
     Purchase of property and equipment                                                        (533,620)        (603,963)
     Purchase of customer accounts                                                             (837,427)        (397,139)
     Sale of customer accounts                                                                  283,972             --
     Purchase of customer premise systems                                                    (3,526,388)      (3,231,001)
     Other                                                                                     (398,005)        (242,392)
                                                                                            -----------      -----------
                 Net cash used in investing activities                                       (5,011,468)      (4,474,495)
                                                                                            -----------      -----------

Cash flows from financing activities:
     Debt financing costs                                                                      (138,880)            --
     Payments on debt obligations                                                            (2,748,522)      (3,133,537)
     Borrowings under line of credit                                                          3,928,672        3,680,842
     Equity issuance costs                                                                      (69,930)          (6,590)
     Acquisition of treasury shares                                                                --           (206,076)
     Payment of cash dividends                                                               (1,147,792)      (1,147,792)
                                                                                            -----------      -----------
                 Net cash used in financing activities                                         (176,452)        (813,153)
                                                                                            -----------      -----------

                 Net increase (decrease) in cash and cash equivalents                            (9,371)         144,541

Cash and cash equivalents, beginning of year                                                    722,575          578,034
                                                                                            -----------      -----------
Cash and cash equivalents, end of year                                                      $   713,204      $   722,575
                                                                                            ===========      ===========
</TABLE>


                                   (Continued)


                                       22
<PAGE>


                           GUARDIAN INTERNATIONAL, INC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (CONTINUED)
<TABLE>
<CAPTION>

<S>                                                                                         <C>              <C>
Supplemental disclosure:

     Interest paid                                                                          $ 1,083,806      $ 1,353,792
                                                                                            ===========      ===========
     Income taxes paid                                                                      $      --        $     1,449
                                                                                            ===========      ===========

Non-cash investing and financing activities:
     Retirement of Series C preferred stock                                                 $ 8,000,000      $      --
                                                                                            ===========      ===========
     Issuance of Series E preferred stock                                                   $ 5,336,000      $      --
                                                                                            ===========      ===========
     Preferred stock dividends                                                              $ 1,325,664      $   605,433
                                                                                            ===========      ===========
     Contract holdbacks for purchased accounts                                              $   191,862      $    70,299
                                                                                            ===========      ===========
     Contract holdbacks applied against purchased accounts written off                      $    74,934      $    46,698
                                                                                            ===========      ===========
     Contract holdback for sold accounts                                                    $    17,748      $      --
                                                                                            ===========      ===========
</TABLE>



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


                                       23
<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

1.       DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Description of Business
         -----------------------
         Guardian International, Inc. ("Guardian") is a provider of monitoring
         (retail and wholesale), maintenance services, sales and installation
         for high-grade electronic security and fire alarm systems to commercial
         and residential customers primarily in the states of Florida and New
         York.

         Basis of Consolidation
         ----------------------
         The consolidated financial statements include the accounts of Guardian,
         a Florida corporation, and its wholly-owned subsidiaries (collectively,
         the "Company"). All significant intercompany accounts and transactions
         have been eliminated in consolidation.

         Liquidity
         ---------
         As of December 31, 2001, the Company has an accumulated deficit of
         approximately $27.6 million and negative working capital of
         approximately $2.5 million. Net losses for 2001 and 2000 were
         approximately $4.0 million and $7.0 million, respectively. However, the
         Company generates annual cash flows, as evidenced by its cash flows
         from operating activities of approximately $5.2 million and $5.4
         million for 2001 and 2000, respectively.

         As of December 31, 2001, the Company believes it will maintain the
         ability to generate sufficient cash to fund future operations of the
         business. Generally, cash flows will be generated from a combination
         of: (i) recurring revenue from its security monitoring customer base,
         and (ii) the Company's existing $20.0 million credit facility, subject
         to compliance with the provisions of the debt covenants. At December
         31, 2001, there was approximately $7.3 million of availability under
         the credit facility.

         Revenue Recognition
         -------------------
         Installation Revenue. During the fourth quarter of 2000, as a result of
         new Securities and Exchange Commission (the "SEC") issuance of SEC
         Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
         Statements" ("SAB 101"), the Company was required to change its
         accounting policy for revenue and expense recognition for security and
         fire alarm system installations. Accordingly, the accompanying 2000
         consolidated financial statements reflect this change, and the
         cumulative effect of a change of accounting principle resulted in a
         charge of approximately $3.1 million as of January 1, 2000.

         Under SAB 101, on installations for which the Company retains title to
         the electronic security systems or provides monitoring services
         subsequent to the installation, the installation revenue is deferred
         and amortized over the longer of the term of the service agreement or
         the estimated eight year life of the customer relationship. All other
         installation revenues are recognized in the period in which the
         installation is completed.

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

         Cash and Cash Equivalents
         -------------------------
         All highly liquid investments purchased with an original remaining
         maturity of three months or less at the date acquired are considered
         cash equivalents.

                                       24
<PAGE>

         Customer Accounts, Net
         ----------------------
         Customer accounts acquired from alarm dealers are reflected at cost.
         The cost of acquired accounts is based on the estimated fair value at
         the date of acquisition. The cost of acquired customer accounts is
         capitalized and amortized on a straight-line basis over an estimated
         useful life of ten years. For those accounts which cancel during the
         amortization period, an estimate of the remaining carrying value of the
         accounts is expensed in the period in which the accounts cancel. It is
         the Company's policy to perform periodic evaluations of acquired
         customer account attrition and, if necessary, to adjust the remaining
         useful lives. The Company periodically estimates future cash flows from
         customer accounts to determine whether any impairment has occurred. If
         the estimated future cash flows are less than their unamortized cost,
         an impairment charge is recorded for the amount that the unamortized
         cost of customer accounts exceeds their estimated fair value.

         Cost Accounting
         ---------------
         All direct installation costs, which include materials, direct labor
         and commissions, related to installations that result in deferred
         revenue, are capitalized on an agreement-by-agreement basis to the
         extent such costs do not exceed the total of deferred installation
         revenue and expected margin from monitoring services during the initial
         service contract term. To the extent such costs exceed the total of
         deferred installation revenue and expected margin from monitoring
         services during the initial service contract term, the excess is
         expensed in the period in which the installation is completed.
         Capitalized installation costs, to the extent of deferred installation
         revenues, are amortized over the longer of the term of the service
         agreement or the estimated eight year life of the customer
         relationship. Capitalized installation costs in excess of deferred
         installation revenues, but which are less than the expected margin from
         monitoring services during the initial service contract term, are
         amortized over the initial term of the service agreement. Amortization
         of capitalized materials and direct labor costs are reflected as
         depreciation; amortization of capitalized commissions, which are
         included in other assets totaling approximately $1.2 million at
         December 31, 2001, are reflected as installation and service operating
         expense. When an account cancels, the deferred revenue balance and the
         capitalized cost balance are recognized.

         Goodwill and Other Intangible Assets, Net
         -----------------------------------------
         Goodwill is the excess of purchase price over the fair value of net
         assets acquired in a purchase business combination. The Company
         amortizes goodwill over its estimated useful life of ten years.
         Intangible assets are recorded at cost and amortized over their
         estimated useful lives. The carrying value of intangible assets is
         periodically reviewed and impairments are recognized when expected
         future cash flows derived from such intangibles are less than their
         carrying value. Included in other intangible assets are deferred
         financing costs which are amortized over the respective terms of
         associated long-term debt obligations using the interest method.

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
         and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses financial
         accounting and reporting for intangible assets acquired individually or
         with a group of other assets (but not those acquired in a business
         combination) at acquisition. SFAS 142 also addresses financial
         accounting and reporting for goodwill and other intangible assets
         subsequent to their acquisition. With the adoption of SFAS 142,
         goodwill is no longer subject to amortization. Rather, goodwill will be
         subject to at least an annual assessment for impairment by applying a
         fair-value based test. The impairment loss is the amount, if any, by
         which the estimated fair value of goodwill and other intangible assets
         is less than its carrying value. SFAS 142 is effective for fiscal years
         beginning after December 15, 2001. Any impairment loss for goodwill and
         other intangible assets arising from the initial application of SFAS
         142 is to be reported as resulting from a cumulative effect of a change
         in accounting principle. The Company will adopt SFAS 142 on January 1,
         2002 and does not believe that any impairment charge will be recorded
         and will discontinue amortization of goodwill. Such amortization
         totaled approximately $187,000 in 2001 and $197,000 in 2000.


                                       25
<PAGE>



         Inventories
         -----------
         Inventories are stated at the lower of cost or market and are comprised
         of alarm systems and parts. Cost is determined using the first-in,
         first-out method.

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

         Property and Equipment, net
         ---------------------------
         Property and equipment are stated at cost. Depreciation of property and
         equipment is provided on the straight-line method. The estimated useful
         lives for property and equipment range from three to seven years and
         the estimated useful life for leasehold improvements is approximately
         ten years.

         Fair Value of Financial Instruments
         -----------------------------------
         Carrying amounts of certain of the Company's financial instruments
         including cash and cash equivalents, accounts receivable, notes
         receivable, accounts payable and accrued liabilities approximate fair
         value because of their short term maturities.

         The fair value of the Company's credit facility approximates fair value
         because the interest rates are based on floating rates identified by
         reference to market rates. The fair value of the Company's other
         long-term debt approximates carrying value. The estimated fair values
         may not be representative of actual values of the financial instruments
         that could have been realized at year-end or may be realized in the
         future.

         Income Taxes
         ------------
         The Company has established deferred tax assets and liabilities for
         temporary differences between financial statement and income tax
         reporting bases of assets and liabilities, using enacted tax rates in
         effect in the years in which the differences are expected to reverse.
         Net deferred tax assets have been fully reserved by a valuation
         allowance as it is not "more likely than not" that the net deferred tax
         assets will be realized in the future.

         Comprehensive Loss
         ------------------
         SFAS No. 130, "Reporting Comprehensive Income" provides reporting and
         disclosure requirements for comprehensive income and its components
         within the financial statements. The Company had no comprehensive
         income components for the years ended December 31, 2001 and 2000;
         therefore, comprehensive loss is the same as net loss for both years.

         Other Recent Accounting Pronouncements
         --------------------------------------
         SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities," as amended by SFAS No. 138, "Accounting for Certain
         Derivative Instruments and Certain Hedging Instruments" (collectively
         "SFAS 133"), establishes accounting and reporting standards for
         derivative instruments, including certain derivative instruments
         embedded in other contracts, (collectively referred to as derivatives)
         and for hedging activities. It requires that an entity recognize all
         derivatives as either assets or liabilities in the statement of
         financial position and measure those instruments at fair value. SFAS
         133 was required to be adopted effective January 1, 2001. Management
         has not traditionally utilized derivative instruments in managing its
         business and did not utilize them in 2001. The adoption of SFAS 133 on
         January 1, 2001 had no effect on the accompanying consolidated
         financial statements.

         In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
         ("SFAS 141"). SFAS 141 addresses financial accounting and reporting for
         business combinations and supercedes


                                       26
<PAGE>

         Accounting Principles Board Opinion No. 16, "Business Combinations" and
         Statement of Financial Accounting Standards No. 38 "Accounting for
         Preacquisition Contingencies of Purchased Enterprises." All business
         combinations in the scope of SFAS 141 are to be accounted for under the
         purchase method. SFAS 141 is effective for business combinations
         occurring after June 30, 2001. There was no impact of the adoption of
         SFAS 141 in 2001.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
         Impairment or Disposal of Long-Lived Assets," ("SFAS 144") that is
         applicable to financial statements issued for fiscal years beginning
         after December 15, 2001. The FASB's new rules on asset impairment
         supercede SFAS No. 121, "Accounting for the Impairment of Long-Lived
         Assets and for Long-Lived Assets to Be Disposed Of," and portions of
         APB Opinion No. 30, "Reporting the Results of Operations." SFAS 144
         provides a single accounting model for long-lived assets to be disposed
         of and significantly changes the criteria that would have to be met to
         classify an asset as held-for-sale. Classification as held-for-sale is
         an important distinction since such assets are not depreciated and are
         stated at the lower of fair value or carrying amount. SFAS 144 also
         requires expected future operating losses from discontinued operations
         to be displayed in the period(s) in which the losses are incurred,
         rather than as of the measurement date as presently required. The
         adoption of SFAS 144 on January 1, 2002 is not expected to have a
         material impact on the Company's consolidated financial statements.

         Loss Per Common Share
         ---------------------
         The Company calculates loss per share in accordance with SFAS No. 128,
         "Earnings Per Share". Basic loss per common share is computed by
         dividing net loss applicable to common stock by the weighted average
         number of shares of common stock outstanding during the year. Diluted
         loss per share, which assumes that the convertible Preferred Stock is
         converted (exchange ratio 333.3333:1) into Class A Voting Common Stock,
         par value $.001 per share ("Class A Common Stock") and the stock
         options to purchase shares of Class A Common Stock (see Note 12) are
         exercised, is the same as basic loss per share because the effect would
         be anti-dilutive for both 2001 and 2000. The weighted average shares
         outstanding used in the computation of net loss attributable to common
         shares for the years ended December 31, 2001 and 2000, are as follows:

                                                 2001           2000
                                              ---------       ---------
         Class A Common Stock                 8,096,441       8,205,818
         Class B Common Stock                   634,035         634,035
                                              ---------       ---------
                                              8,730,476       8,839,853
                                              =========       =========
         Advertising Costs
         -----------------
         Advertising costs are expensed as incurred. Total advertising expense
         was approximately $98,000 and $90,000 for the years ended December 31,
         2001 and 2000, respectively.

         Segment Reporting
         -----------------
         For the years ended December 31, 2001 and 2000, the Company operated
         under a single reportable segment providing alarm monitoring services
         and selling and installing alarm systems to residential and commercial
         customers in the United States. Accordingly, no further segment
         reporting beyond the consolidated financial statements is presented.

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

         Reclassifications
         -----------------
         Certain 2000 amounts have been reclassified to conform to the 2001
         presentation.


                                       27
<PAGE>


2.       NOTES RECEIVABLE

         Notes receivable consist of the following at December 31, 2001:

         Installment sales                                   $ 139,086
         Notes with customers and dealers                       15,000
                                                             ---------
                                                               154,086
         Current portion                                       (96,619)
                                                             ---------
         Notes receivable, less current portion              $  57,467
                                                             =========

3.       INVENTORIES

         Inventories consist of the following at December 31, 2001:

         Electronic security systems and parts                $780,774
         Work in process                                       150,727
                                                              --------
                                                              $931,501
                                                              ========
4.       CUSTOMER ACCOUNTS, NET

         The following is an analysis of the changes in acquired customer
         accounts for the year ended December 31, 2001:

         Balance, beginning of year                       $ 22,381,795
           Purchase of customer accounts from dealers        1,061,259
           Sale of customer accounts                          (228,821)
           Charges against contract holdbacks                  (74,934)
           Amortization of customer accounts                (4,653,749)
                                                          ------------
         Balance, end of year                             $ 18,485,550
                                                          ============

         The accumulated amortization of customer accounts was approximately
         $12.0 million at December 31, 2001. In conjunction with certain
         purchases of customer contracts and accounts, the Company withholds a
         portion of the price as a credit to offset qualifying attrition of the
         acquired customer accounts and for purchase price settlements of assets
         acquired and liabilities assumed. The Company had a total balance
         withheld of approximately $199,000 at December 31, 2001, as contract
         holdbacks in connection with the acquisition of customer accounts which
         are included in "Accounts payable and accrued expenses" in the
         accompanying consolidated balance sheet.

5.       PROPERTY AND EQUIPMENT, NET

         Property and equipment, net, consists of the following at December 31,
         2001:

           Property and equipment, at cost:
           Station equipment                              $ 12,561,313
           Transportation vehicles                           1,052,799
           Furniture and office equipment                    1,452,085
           Leasehold improvements                              536,317
                                                          ------------
                                                            15,602,514
         Accumulated depreciation and amortization          (5,833,368)
                                                          ------------
                                                          $  9,769,146
                                                          ============

         Included in property and equipment at December 31, 2001 was
         approximately $428,000 of assets held under capital leases. The
         accumulated depreciation on such assets at December 31, 2001 was


                                       28
<PAGE>



         approximately $163,000.

         Depreciation and amortization related to property and equipment
         (including amortization of assets held under capital leases) was
         approximately $2.5 million and $1.8 million for the years ended
         December 31, 2001 and 2000, respectively.

6.       GOODWILL AND OTHER INTANGIBLE ASSETS, NET

         Goodwill and other intangible assets, net, consist of the following at
         December 31, 2001:

                                             Amortization
                                            period in years
                                            ---------------

         Goodwill                               10           $2,043,210
         Deferred financing costs               2 - 3         1,131,409
         Other                                  5 - 10          366,233
                                                             ----------
                                                              3,540,852
         Accumulated amortization                            (2,008,969)
                                                             ----------
                                                             $1,531,883
                                                             ==========

         The amortization of goodwill and other intangible assets was
         approximately $187,000 and $197,000 for the years ended December 31,
         2001 and 2000, respectively. Amortization of deferred financing costs,
         included in interest expense, was approximately $156,000 and $109,000
         for the years ended December 31, 2001 and 2000, respectively.


7.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of the following at
         December 31, 2001:

         Trade accounts payable                             $  908,579
         Contract holdbacks                                    198,862
         Preferred dividends payable                           286,944
         Customer deposits                                     962,450
         Other                                               1,545,727
                                                            ----------
                                                            $3,902,562
                                                            ==========

8.       LONG-TERM OBLIGATIONS

         Long-term obligations consist of the following at December 31, 2001:

         Credit facility with financial institution       $ 12,672,515
         Capital lease obligations                             265,465
         Equipment notes payable and other                     305,176
                                                          ------------
                                                            13,243,156
         Less current portion                                 (178,065)
                                                          ------------
         Long-term obligations, less current portion      $ 13,065,091
                                                          ============

         Estimated maturities of long-term debt are as follows:

         2002                                              $   178,065
         2003                                               12,889,646
         2004                                                  135,605
         2005                                                   39,840
                                                           -----------
                                                           $13,243,156
                                                           ===========

         Credit Facility. In November 1994, the Company entered into a $7.0
         million credit facility


                                       29
<PAGE>


         ("Credit Facility") with Heller Financial, Inc. ("Heller"), the
         Company's senior lender (which was acquired by GE Capital, a
         wholly-owned subsidiary of General Electric, on October 25, 2001). In
         May 1997, the Company refinanced the Credit Facility. In February 1998,
         the Company amended the Credit Facility ("Renewed Credit Facility")
         with Heller whereby the maximum credit line available to the Company
         was increased from $7.0 million to $15.0 million. Under the terms of
         the Renewed Credit Facility, borrowings will bear interest at floating
         rates, either at Prime plus 1 3/4% or, at the Company's election, LIBOR
         plus 3 1/2% and are collateralized by substantially all of the
         Company's assets. At December 31, 2001, the debt bore interest at a
         weighted average interest rate of 5.8%. In connection with the
         Company's acquisition of Mutual Central Alarm Services, Inc. ("Mutual")
         in 1998, the Renewed Credit Facility was further amended to increase
         the maximum available credit line to $20.0 million. Availability under
         the Renewed Credit Facility is subject to certain Borrowing Base
         limitations, as this term is defined in the Renewed Credit Facility. In
         June 2001, the Renewed Credit Facility was amended: (i) to extend the
         expiration date from June 30, 2002 to April 3, 2003, for which the
         Company paid a renewal fee of $125,000; and (ii) to improve the
         Company's borrowing base calculation through the term of the Renewed
         Credit Facility. The Renewed Credit Facility includes customary
         covenants, including, but not limited to, restrictions related to the
         incurring of other debt, the encumbrance or sale of the Company's
         assets, the payment of dividends or making of other distributions to
         the Company's shareholders and other financial performance covenants.
         The Company believes it was in compliance with all such covenants as of
         December 31, 2001. At December 31, 2001, there was approximately $7.3
         million of availability under the Renewed Credit Facility.

         Capital Lease Obligations. The Company has entered into various lease
         agreements for central station equipment and vehicles. These leases
         have been capitalized in accordance with accounting principles
         generally accepted in the United States using interest rates which vary
         from 3.57% to 10.51%. See Note 9.

         Equipment Notes. Equipment notes payable and other relate to purchases
         of vehicles and equipment and the purchase of an account portfolio.
         Interest rates vary from 0.9% to 13.5%. The notes are repayable in
         monthly installment of principal and interest through 2005.

9.       COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

         Legal Proceedings
         -----------------
         The Company experiences routine litigation in the normal conduct of its
         business. The Company believes that any such pending litigation will
         not have, individually or in the aggregate, a material adverse effect
         on its business, financial condition or results of operations.

         Leased Facilities
         -----------------
         The Company leases its corporate headquarters from Guardian
         Investments, a Florida partnership owned by Harold and Sheilah
         Ginsburg, both of whom are directors, officers and principal
         shareholders of the Company. The Company's corporate headquarters
         occupies a 12,000 square foot building which houses its central
         monitoring facility located in Hollywood, Florida. The lease expires on
         December 31, 2002, but has a renewal option for an additional five
         years under the same terms and conditions. The annual rent in 2001 was
         approximately $125,000, with annual increases not to exceed three
         percent (3%). Management believes that the terms of the lease are no
         less favorable to the Company than those which could be obtained from
         an unaffiliated third party, in an arms length transaction.

         The Company leases space in New York, New York from an independent
         third party. The lease expires in December 2004, with a renewal option
         for an additional five years under the same terms and conditions. The
         3,500 square feet of leased space houses a central monitoring station,
         offices and warehouse facilities. The annual rent is approximately
         $95,000.


                                       30
<PAGE>


         The Company also leases office space in Miami and Tampa, Florida and in
         Staten Island, New York. The leases expire on various dates through
         July 2003 and most are renewable at the option of the Company. The
         annual rent for these three facilities is approximately $128,000.

         Future minimum payments under operating leases and capital leases are
         as follows:

<TABLE>
<CAPTION>
                                                                          Operating       Capital
                                                                          ---------     ---------
<S>      <C>                                                              <C>           <C>
         2002                                                             $ 308,302     $ 100,333
         2003                                                               163,848        79,691
         2004                                                               102,600        79,591
         2005                                                                  --          30,712
                                                                          ---------     ---------
                                                                          $ 574,750       290,327
                                                                          =========
         Less interest                                                                    (24,862)
                                                                                        ---------
         Capital lease obligations reflected
           as current (approximately $87,000) and non-current
           (approximately $178,000) portions of long-term obligations                   $ 265,465
                                                                                        =========
</TABLE>

         Other Related Party Transactions
         --------------------------------
         In November 2001, Mutual purchased a portfolio of customer accounts
         (for an aggregate purchase price of approximately $143,000) from
         Protection One, Inc. The Company also sold a portfolio of customer
         accounts (for an aggregate sales price of approximately $390,000) to
         Protection One, Inc. ("Protection One") in December 2001. A gain on
         sale of customer accounts of approximately $108,000 was recorded and is
         included in other revenues in the consolidated statement of operations.
         Western Resources, Inc. ("Western") is a majority shareholder of the
         common stock of Protection One, Inc. and is also a significant
         shareholder of the Company's Preferred Stock. An independent third
         party was retained by the Company to review these transactions and
         fairness opinions were issued with respect to each transaction
         indicating that the terms were fair.

         See Note 11 for certain other related party transactions.

10.      INCOME TAXES

         At December 31, 2001, the Company has net operating loss carryforwards
         for federal income tax purposes of approximately $4.5 million, which
         begin to expire in 2010. The components of deferred tax assets and
         liabilities at December 31, 2001 are as follows:

         Deferred tax (liabilities) assets:
             Allowance for doubtful accounts                      $    97,573
             Difference in amortization of customer contracts        (610,977)
             Net operating loss carryforwards                       1,735,840
             Installation revenue                                   3,388,265
             Inventory reserve                                         19,695
                                                                  -----------
                                                                    4,630,396
             Less valuation allowance                              (4,630,396)
                                                                  -----------
         Net deferred tax (liabilities) assets                    $      --
                                                                  ===========

         The Company's 2001 and 2000 losses have not been benefited for
         financial reporting purposes because it is not "more likely than not"
         that the Company will be able to generate sufficient future taxable
         income to offset such losses.

11.      SHAREHOLDERS' DEFICIT

         In October and November 1997, the Company issued 2,500,000 shares of
         Class A Common Stock for $1.50 per share ($3,750,000 in the aggregate).

                                       31
<PAGE>

         The Company has three series of its Preferred Stock outstanding,
         including: Series C 7% Redeemable Preferred Stock, par value $.001
         ("Series C Preferred Stock"); Series D 6% Convertible Cumulative
         Preferred Stock, par value $.001 per share ("Series D Preferred
         Stock"); and Series E 7%, Preferred Stock, par value $.001 ("Series E
         Preferred Stock").

         The Series C Preferred Stock is non-voting and is redeemable by the
         holder on the sixth anniversary of the date of issuance at a
         liquidation value of $1,000 per share. Dividends are payable quarterly
         in cash and have been made each quarter since the issuance of the
         Series C Preferred Stock. The holders of Series C Preferred Stock have
         the right to optional redemption upon a Change of Control, as this term
         is defined in Article III of the Company's Articles of Amendment. At
         any time after issuance, the Company can elect to redeem the Series C
         Preferred Stock for a premium. Due to the redeemable nature of the
         Series C Preferred Stock, it is reflected outside the shareholders'
         deficit section in the mezzanine section of the Company's consolidated
         balance sheet.

         In April 2001, the Company exchanged $8 million principal amount of
         Series C Preferred Stock of the Company held by Westar Investments,
         Inc. ("Westar"), a subsidiary of Western, for $8 million principal
         amount of a newly issued Series E Preferred Stock, which is redeemable
         after October 21, 2001 at the Company's option, and is classified as
         equity in the Company's consolidated balance sheet. This transaction
         has undergone a third party appraisal, and as a result of this
         appraisal, the Company recorded a gain of approximately $2.6 million
         which is reflected in shareholders' deficit and is allocated to common
         shareholders in the loss per share calculation.

         The Series D Preferred Stock is currently convertible at a rate of
         333.3333 shares of Class A Common Stock for each share of Series D
         Preferred Stock. Dividends are payable annually either in cash or in
         additional shares of Series D Preferred Stock. To date, the Company has
         elected to issue additional Series D Preferred Stock to satisfy the
         dividend. As it is the Company's intent to continue to pay the dividend
         on Series D Preferred Stock in additional preferred shares, dividends
         for subsequent periods will be recorded into additional paid-in capital
         in the accompanying consolidated balance sheet until such time that it
         decides to pay such dividends in cash. As of December 31, 2001, 682
         shares of Series D Preferred Stock are accounted for as additional
         paid-in capital and were issued in the first quarter of 2002. The
         holders of Series D Preferred Stock have no voting rights until such
         shares are converted into Class A Common Stock, except at any time the
         Series D Preferred Stock is outstanding, upon the occurrence of an
         Event of Default (as defined in Article III of the Company's Articles
         of Amendment). During November 2000, the Company amended the terms of
         its Series D Preferred Stock to eliminate the redemption feature that
         occurred upon a Change of Control, as defined. The Series D Preferred
         Stock allows for redemption by the holder of the Series D Preferred
         Stock in the event that certain significant shareholders dispose of
         their holdings. However, those significant shareholders must seek the
         approval of the Company prior to disposing of their shares. These
         changes were effected to more clearly reflect the intentions of the
         parties at the time of the issuance of the Series D Preferred Stock.
         The Company can currently elect to redeem the Series D Preferred Stock
         for a premium.

         The Company and Westar are parties to a stockholders agreement
         ("Stockholders Agreement") relating to Westar's ownership of shares of
         the Company's Series C, Series D and Series E Preferred Stock. The
         Stockholders Agreement, among other things, (i) places certain
         restrictions on the transfer of the shares held by the stockholders;
         (ii) grants the Company a first offer right to purchase shares prior to
         the transfer of such shares by a stockholder; and (iii) imposes certain
         limitations on the voting rights of the stockholders.

         In connection with Richard Ginsburg's resignation from the Company in
         April 2001 to become Protection One's President and Chief Executive
         Officer, Protection One granted Guardian a warrant to purchase 250,000
         shares of Protection One's common stock at an exercise price of $1.31
         per share. The warrant vests one-third annually over three years and
         has a ten-year term. This warrant and the related gain are being
         recorded ratably over the vesting period as non-operating other income
         based on the variable valuation of the warrant using the Black Scholes

                                       32
<PAGE>


         model at each quarter-end. As a result of this transaction, other
         income of approximately $130,000 was recorded in the year ended
         December 31, 2001.

         In accordance with the Stock Repurchase Program authorized by the Board
         of Directors in October 1998, the Company purchased 288,000 shares of
         its Class A Common Stock during the year ended December 31, 2000. In
         accordance with Florida securities law, the shares were concurrently
         retired. The treasury shares acquired in connection with the October
         1998 investment by Protection One have also been retired. The excess of
         the cost of the treasury shares over issuance price of the retired
         shares resulted in a charge to accumulated deficit. During the year
         ended December 31, 2001, there were no purchases of Class A Common
         Stock in accordance with the Stock Repurchase Program.

12.      STOCK OPTIONS

         The Company has established the 1999 Stock Option Plan (the "Plan"),
         pursuant to which both incentive stock options and non-qualified stock
         options may be granted to employees, officers, directors, and
         consultants of the Company or its subsidiaries. In addition, between
         November 1995 and May 1999 the Company awarded 878,622 stock options
         outside of the Plan with exercise prices ranging from $0.81 to $3.25,
         and expiring between 2000 and 2008.

         The Plan is administered by a committee of the Board of Directors of
         the Company. Under the Plan, the Company may award options to purchase
         a total of 500,000 shares of Class A Common Stock. Stock options may be
         granted at exercise prices not less than the fair market value at the
         date of grant, and incentive stock options granted to persons owning
         more than 10% of the outstanding voting power must be granted at not
         less than 110% of the fair market value at the date of grant. Incentive
         stock options issued by the Company may not be exercised within less
         than one year from the date of the grant.

         During 2001, three directors and an employee received stock options to
         purchase Class A Common Stock under the Plan at an exercise price of
         $0.72 per share (the fair value on the date of the grant). These stock
         options vest equally over four years and expire four years from the
         date they were granted. At December 31, 2001, options to purchase
         920,402 shares of the Company's Class A Common Stock remain
         outstanding.

         During the twelve months ended December 31, 2000, no stock options were
         granted by the Company. On December 31, 2000, options to purchase
         174,720 shares of Class A Common Stock expired unexercised.

         The following is a summary of stock option activity for the years ended
         December 31, 2001 and 2000:

                                                                   Weighted
                                                     Option    Average Exercise
                                                     Shares          Price
                                                     ------          -----
         Outstanding at December 31, 1999          1,045,122       $  1.44
                Granted                                 --             --
                Cancelled                               --             --
                Expired                             (174,720)         2.00
                                                  ----------
         Outstanding at December 31, 2000            870,402          1.33
                Granted                               50,000          0.72
                Cancelled                               --             --
                Expired                                 --             --
                                                  ----------
         Outstanding at December 31, 2001            920,402          1.26
                                                  ==========

         Exercisable at December 31, 2001            693,341       $  1.46
                                                  ==========

                                       33
<PAGE>

         The following table summarizes stock options outstanding and
         exercisable at December 31, 2001:
<TABLE>
<CAPTION>
                                                                Weighted Average      Weighted
                                     Number of     Number of        Remaining         Average
                         Exercise     Options      Options     Contractual Life in    Exercise
         Description      Price     Outstanding   Exercisable         Years            Price
         -----------      -----     -----------   -----------         -----            -----
<S>      <C>              <C>         <C>          <C>                  <C>            <C>
         1997 options     $2.50       100,000      100,000              1              $2.50
         1997 options     $0.84       200,000      200,000              6              $0.84
         1998 options     $0.84       175,000      120,000              6              $0.84
         1998 options     $1.73        53,902       42,341              7              $1.73
         1998 options     $3.25       100,000      100,000              6              $3.25
         1999 options     $0.81        75,000       45,000              7              $0.81
         1999 options     $0.69       166,500       86,000              8              $0.69
         2001 options     $0.72        50,000         --                3              $0.72
                                      -------      -------
         Totals                       920,402      693,341
                                      =======      =======
</TABLE>

         The Company has adopted SFAS No. 123, "Accounting for Stock-Based
         Compensation", which requires the Company, for options issued to
         employees, to either recognize expense for stock based awards based on
         the fair value on the date of grant or provide footnote disclosure
         regarding the impact of such charges. The Company continues to account
         for employee stock options pursuant to APB No. 25. Accordingly, the
         Company does not record compensation expense unless the market price
         exceeds the exercise price on the date of the grant, which has not
         occurred.

         If the Company had elected to recognize compensation expense based on
         the fair value of the options granted, the pro forma net loss
         applicable to common shares and net loss per common share for the year
         ended December 31, 2000 and 2001 would have been as follows:
<TABLE>
<CAPTION>

                                                                2001              2000
                                                                ----              ----
<S>                                                       <C>                <C>
         Net loss applicable to common shares:
         As reported                                      $  (3,259,818)     $  (8,799,299)
         Pro forma for SFAS No. 123                       $  (3,496,479)     $  (9,145,855)

         Basic and diluted net loss per common share:
         As reported                                      $       (0.37)     $       (1.00)
         Pro forma for SFAS No. 123                       $       (0.40)     $       (1.03)
</TABLE>

         The weighted average fair value of options granted, estimated on the
         date of grant, was $0.52 for the year ended December 31, 2001. The fair
         value of options granted during 2001 was estimated on the date of grant
         using the following weighted average assumptions:

         Dividend yield                                           0.00%
         Expected stock price volatility                           103%
         Risk free interest rate                                  5.42%
         Expected option life                                   4 years

         No stock options were granted during the year ended December 31, 2000.

13.      401(K) SAVINGS PLAN

         The Company established a voluntary 401(k) Savings Plan (the "Plan")
         for its employees effective July 1, 1998. Employees who are over the
         age of 21 and have completed six months of service with the Company are
         eligible to participate in the Plan.

         The Company matches 10% of the first 6% of each employee's
         contribution. Participants have a choice of several investing options
         for their contributions and have sole direction over the investment of
         their contributions. The Company's contributions to the Plan for the
         years ended December 31, 2001 and 2000 were approximately $25,000 and
         $19,000, respectively.


                                       34
<PAGE>


                                    PART III

The information required in Item 9 (Directors, Executive Officers, Promoters and
Control Persons; compliance with Section 16(a) of the Exchange Act), Item. 10
(Executive Compensation), Item 11. (Security Ownership of Certain Beneficial
Owners and Management) and Item 12. (Certain Relationships and Related
Transactions) is incorporated by reference to the Company's definitive proxy
statement for the 2002 Annual Meeting of Shareholders to be filed with the SEC
by April 30, 2002.


                                       35
<PAGE>

<TABLE>
<CAPTION>
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

<S>     <C>
(a) Exhibits
 3.1     Articles of  Incorporation  dated July 7, 1999  incorporated  by reference to Exhibit 3(i) of
         the Company's Form 10-QSB filed August 13, 1999.
 3.2     Amended and Restated By-Laws of the Company dated March 2, 2000  incorporated by reference to
         Exhibit 3(ii) of the Company's Form 10-KSB filed March 30, 2000.
 3.3     Articles of Amendment to Articles of Incorporation of Guardian  International,  Inc. as filed
         with the Florida  Secretary  of State on March 9, 2000  incorporated  by reference to Exhibit
         3(iii) of the Company's Form 10-KSB filed March 30, 2000.
 3.4     Articles of Amendment to Articles of Incorporation of Guardian  International,  Inc. as filed
         with the Secretary of State on March 30, 2001  incorporated  by reference to Exhibit 3(iv) of
         the Company's Form 10-KSB filed April 2, 2001.
 3.5     Articles of Amendment to Articles of Incorporation of Guardian  International,  Inc. as filed
         with the  Secretary of State on March 30, 2001  incorporated  by  reference to the  Company's
         Form 8-K filed May 1, 2001.
 4.1     Specimen Stock  Certificate  incorporated  by reference to Exhibit 4(a) of the Company's Form
         10-QSB filed August 13, 1999.
10.1     Amended and Restated Loan and Security  Agreement  with Heller  Financial,  Inc.  dated as of
         February 23, 1998  incorporated  by reference to Exhibit 10(j) of the  Company's  Form 10-KSB
         filed March 31, 1998.
10.2     Stock Purchase  Agreement dated as of February 23, 1998  incorporated by reference to Exhibit
         10(a) of the Company's Form 8-K filed March 10, 1998.
10.3     Registration  Rights  Agreement  dated as of February 23, 1998  incorporated  by reference to
         Exhibit 10(b) of the Company's Form 8-K filed March 10, 1998.
10.4     Escrow and Pledge  Agreement  dated as of February  23, 1998  incorporated  by  reference  to
         Exhibit 10(c) of the Company's Form 8-K filed March 10, 1998.
10.5     Employment Agreement with Joel A. Cohen dated as of February 1, 1998 incorporated by reference
         to Exhibit 10(d) of the Company's Form 8-K filed March 10, 1998.
10.6     Employment Agreement with Raymond L. Adams dated as of February 1, 1998 incorporated by
         reference to Exhibit 10(e) of the Company's Form 8-K filed March 10, 1998.
10.7     Asset Purchase  Agreement  effective as of March 9, 1998 incorporated by reference to Exhibit
         10(a) to the Company's Form 8-K filed  March 24, 1998.
10.8     Warranty  Bill of Sale dated as of March 5, 1998  incorporated  by reference to Exhibit 10(b)
         to the Company's Form 8-K filed March 24, 1998.
10.9     Assignment and Assumption  Agreement  dated as of March 5, 1998  incorporated by reference to
         Exhibit 10(c) to the Company's Form 8-K filed March 24, 1998.
10.10    Guaranty  Agreement  dated as of March 9, 1998  incorporated by reference to Exhibit 10(d) to
         the Company's Form 8-K filed March 24, 1998.
10.11    Escrow  Agreement  date March 9, 1998  incorporated  by  reference  to  Exhibit  10(e) to the
         Company's Form 8-K filed March 24, 1998.
10.12    Employment Agreement with Dan Lawrence dated March 9, 1998 incorporated by reference to
         Exhibit 10(f) to the Company's Form 8-K filed March 24, 1998.
10.13    Amendment to  Registration  Rights  Agreement  dated as of February 23, 1998  incorporated by
         reference to Exhibit 10(gg) to the Company's Form 10-KSB filed March 31, 1998.
10.14    Stock  Subscription  Agreement  dated as of February  23, 1998  incorporated  by reference to
         Exhibit 10(hh) to the Company's Form 10-KSB filed March 31, 1998.
10.15    Stock  Purchase  Agreement  dated as of April 27, 1998  incorporated  by reference to Exhibit
         10(a) to the Company's Form 10-QSB filed August 14, 1998.
10.16    Employment  Agreement with David Weston  between  Precision and the Company dated as of April
         27, 1998  incorporated  by  reference  to Exhibit  10(b) to the
</TABLE>


                                       36
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>
         Company's  Form 10-QSB filed August 14, 1998.
10.17    Indemnification  Agreement  between sellers of Precision and the Company dated April 27, 1998
         incorporated  by reference  to Exhibit  10(c) to the  Company's  Form 10-QSB filed August 14,
         1998.
10.18    Confidentiality,  Noncompetition  and  Nonsolicitation  Agreement with Alan Dubow dated April
         27, 1998  incorporated  by  reference  to Exhibit  10(d) to the  Company's  Form 10-QSB filed
         August 14, 1998.
10.19    Confidentiality,  Noncompetition and Nonsolicitation Agreement with Richard Clark dated April
         27, 1998  incorporated  by  reference  to Exhibit  10(e) to the  Company's  Form 10-QSB filed
         August 14, 1998.
10.20    Confidentiality,  Noncompetition and Nonsolicitation  Agreement with Jeff Chivers dated April
         27, 1998  incorporated  by  reference  to Exhibit  10(f) to the  Company's  Form 10-QSB filed
         August 14, 1998.
10.21    Stock Purchase  Agreement  dated as of August 13, 1998  incorporated  by reference to Exhibit
         10(a) to the Company's Form 10-QSB filed November 16, 1998.
10.22    Escrow  Agreement  dated as of August 13, 1998  incorporated by reference to Exhibit 10(b) to
         the Company's Form 10-QSB filed November 16, 1998.
10.23    Employment  Agreement  between  Vincent  Monardo  and  the  Company  dated  August  13,  1998
         incorporated  by reference to Exhibit 10(c) to the Company's  Form 10-QSB filed  November 16,
         1998.
10.24    Employment Agreement between Kevin Killea and the Company dated August 13, 1998 incorporated
         by reference to Exhibit 10(d) to the Company's Form 10-QSB filed November 16, 1998.
10.25    Employment  Agreement  between  Michael  Assenza  and the  Company  dated  August  13,  1998,
         incorporated  by reference to Exhibit 10(e) to the Company's  Form 10-QSB filed  November 16,
         1998.
10.26    Employment Agreement between Paul Ferrara and the Company dated August 13, 1998 incorporated
         by reference to Exhibit 10(f) to the Company's Form 10-QSB filed November 16, 1998.
10.27    1999 Stock Option Plan incorporated by reference to Exhibit A to the Company's  Schedule 14-A
         filed May 27, 1999.
10.28    Severance  Agreement  between  Darius  G.  Nevin  and the  Company  dated  January  19,  2000
         incorporated  by reference  to Exhibit  10(bb) of the  Company's  Form 10-KSB filed March 30,
         2000.
10.29    Severance  Agreement  between  Richard  Ginsburg  and the  Company  dated  January  19,  2000
         incorporated  by reference  to Exhibit  10(cc) of the  Company's  Form 10-KSB filed March 30,
         2000.
10.30    Non-Qualified  Stock Option  Agreement  between  Douglas T. Lake and the  Company,  effective
         April 28, 1998  incorporated  by reference  to Exhibit  10(dd) of the  Company's  Form 10-KSB
         filed March 30, 2000.
10.31    Non-Qualified  Stock Option Agreement between David Heidecorn and the Company,  effective May
         12, 1999  incorporated  by reference  to Exhibit  10(ee) of the  Company's  Form 10-KSB filed
         March 30, 2000.
10.32    Non-Qualified  Stock Option Agreement  between William  Remington and the Company,  effective
         September 13, 1999  incorporated  by reference to Exhibit 10(ff) of the Company's Form 10-KSB
         filed March 30, 2000.
10.33    Stock Option Agreement  between Richard Ginsburg and the Company,  effective October 15, 1997
         incorporated  by reference  to Exhibit  10(gg) of the  Company's  Form 10-KSB filed March 30,
         2000.
10.34    Stock Option Agreement  between Darius G. Nevin and the Company,  effective  October 15, 1997
         incorporated  by reference  to Exhibit  10(hh) of the  Company's  Form 10-KSB filed March 30,
         2000.
10.35    Stock  Option  Agreement  between  Joel Cohen and the  Company,  effective  February 23, 1998
         incorporated  by reference  to Exhibit  10(ii) of the  Company's  Form 10-KSB filed March 30,
         2000.
10.36    Stock Option  Agreement  between Raymond Adams and the Company,  effective
</TABLE>


                                       37
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>
         February 23, 1998 incorporated  by reference  to Exhibit  10(jj) of the  Company's  Form 10-KSB
         filed March 30, 2000.
10.37    First  Amendment to Second  Amended and  Restated  Loan and  Security  Agreement  from Heller
         Financial,  Inc. dated as of June 30, 2000 incorporated by reference to Exhibit 10(kk) of the
         Company's Form 10-QSB filed August 14, 2000
10.38a   Form of  Amendment  No. 1 to Severance  Agreement  between  Richard  Ginsburg and the Company
         incorporated by reference to Exhibit 10(kk) of the Company's Form 10-KSB filed April 2, 2001.
10.39a   Form of Agreement among Richard Ginsburg, Sheilah Ginsburg, Harold Ginsburg and the Company
         incorporated by reference to Exhibit 10(ll) of the Company's Form 10-KSB filed April 2, 2001.
10.40    Share Exchange Agreement between Westar Investments,  Inc. and Guardian  International,  Inc.
         dated as of April 27, 2001 incorporated by reference to the
         Company's Form 8-K filed May 1, 2001.
10.41    Agreement  between  Guardian  International,  Inc. and Richard Ginsburg dated as of April 27,
         2001 incorporated by reference to the Company's Form 8-K filed May 1, 2001.
10.42    Fourth  Amendment to Second  Amended and Restated  Loan and  Security  Agreement  from Heller
         Financial, Inc. dated as of June 29, 2001.
10.43    Agreement between Guardian International,  Inc. and Darius G. Nevin dated as of July 31, 2001
         incorporated by reference to the Company's Form 8-K filed August 13, 2001
10.44    Form of Acknowledgement executed by the Company, Richard Ginsburg,  Harold Ginsburg,  Sheilah
         Ginsburg, Rhonda Ginsburg, Westar Investments,  Inc. and Western Resources, Inc. incorporated
         by reference to the Company's Form 8-K filed January 15, 2002.

21.1 *   List of subsidiaries as of December 31, 2001

24       Powers of attorney (included in signature page)

99.1 *   Letter dated March 22, 2002 to the Securities and Exchange Commission regarding representations by
         Arthur Andersen LLP
</TABLE>

*  Incorporated Herewith.

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the fourth quarter of
2001.

                                       38
<PAGE>

                                   SIGNATURES
                                   ----------

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

DATE:  MARCH 22, 2002                       GUARDIAN INTERNATIONAL, INC.

                                            By:   /s/ HAROLD GINSBURG
                                                  ------------------------
                                                      Harold Ginsburg
                                                      President and Chief
                                                      Executive Officer

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harold Ginsburg and Ken Wiesenfeld and each of
them, his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution for each individual and in their name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-KSB, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they might or could do in person, hereby ratifying and confirming all that each
of said attorneys-in-fact or their substitute or substitutes, any lawfully do or
cause to be done by virtue thereof.

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

                 SIGNATURE                              TITLE                               DATE

<S>                                          <C>                                          <C>
/s/ HAROLD GINSBURG                           Chairman of the Board,
--------------------------------------        President and Chief Executive Officer
Harold Ginsburg                               (Principal Executive Officer)                March 22, 2002

/s/ KENNETH WIESENFELD                        Vice President of Finance
--------------------------------------        (Principal Financial Officer and Principal
Kenneth Wiesenfeld                            Accounting Officer)                          March 22, 2002

/s/ RHONDA GINSBURG                           Executive Vice President and Chief
--------------------------------------        Operating Officer, Florida Operations        March 22, 2002
Rhonda Ginsburg

/s/ JOEL COHEN
--------------------------------------
Joel Cohen                                    Director                                     March 22, 2002

/s/ RICHARD GINSBURG
--------------------------------------
Richard Ginsburg                              Director                                     March 22, 2002

/s/ SHEILAH GINSBURG
--------------------------------------
Sheilah Ginsburg                              Director, Secretary and Treasurer            March 22, 2002

/s/ DAVID HEIDECORN
--------------------------------------
David Heidecorn                               Director                                     March 22, 2002

/s/ DOUGLAS T. LAKE
--------------------------------------
Douglas T. Lake                               Director                                     March 22, 2002

/s/ DARIUS G. NEVIN
--------------------------------------
Darius G. Nevin                               Director                                     March 22, 2002

/s/ WILLIAM REMINGTON
--------------------------------------
William Remington                             Director                                     March 22, 2002
</TABLE>

                                       39

<PAGE>


                                  EXHIBIT INDEX


No.      Exhibit
---      --------

21.1     List of subsidiaries as of December 31, 2001

99.1     Letter dated March 22, 2002 to the Securities and Exchange Commission
         regarding representations by Arthur Andersen LLP