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, 1997

              |_| 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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               Nevada                                            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. [ ]

         The issuer's revenues for the 1997 fiscal year were $5,624,790.

         The aggregate market value of voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was sold
as of March 26, 1998 was $10,580,073.48.

         As of March 26, 1998, there are 11,073,441 shares of Class A Voting
Common Stock, par value $.001 per share, and 634,035 shares of Class B Nonvoting
Common Stock, par value $.001 per share, of the issuer outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


         Transitional Small Business Disclosure Format (check one): Yes___ No  X

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                                TABLE OF CONTENTS

                                                                                                           Page No.

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Introductory Note....................................................................................        3

                                                       PART I

Item   1.         Description of Business............................................................        4
Item   2.         Description of Property............................................................       16
Item   3.         Legal Proceedings..................................................................       17
Item   4.         Submission of Matters to a Vote of Security Holders................................       17


                                                       PART II

Item   5.         Market for Common Equity and Related
                    Stockholder Matters..............................................................       17
Item   6          Management's Discussion and Analysis or Plan of Operation..........................       22
Item   7.         Financial Statements...............................................................       30
Item   8.         Changes In and Disagreements With Accountants on Accounting
                    and Financial Disclosure.........................................................       47


                                                      PART III

Item   9.         Directors and Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16(a) of the Exchange Act.........................       47
Item 10.          Executive Compensation.............................................................       49
Item 11.          Security Ownership of Certain Beneficial Owners and
                    Management.......................................................................       50
Item 12.          Certain Relationships and Related Transactions.....................................       50
Item 13.          Exhibits and Reports on Form 8-K...................................................       51
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Introductory Note

FORWARD-LOOKING STATEMENTS. In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"), Guardian
International, Inc. (the "Company") is hereby providing cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements (as such
term is defined in the Reform Act) made by or on behalf of the Company herein or
orally, whether in presentations, in response to questions or otherwise. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, identified through the use of words or phrases such as the Company or
management "believes," "expects," "anticipates," "hopes," words or phrases such
as "will result," "are expected to," "will continue," "is anticipated,"
"estimated," "projection" and "outlook," and words of similar import) are not
historical facts and may be forward-looking. Such forward-looking statements
involve estimates, assumptions and uncertainties and, accordingly, actual
results could differ materially from the those expressed in the forward-looking
statements. Such 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, internally generated new accounts and
strategic alliances which lend to the Company's appeal as an acquirer; (ii) the
level of subscriber 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 other resources; and (iv) increased false
alarm fines and/or the possibility of reduced public response to alarm signals
and (v) other risk factors and uncertainties described in the Company's reports
filed with the Securities and Exchange Commission (the "SEC") from time to time.

         The Company cautions that the factors described above could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which the statement is
made and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of the factors. Further, management cannot 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.

"MRR". As used in this Annual Report on Form 10-KSB ("Annual Report"), "MRR"
means monthly recurring revenue that the Company is entitled to receive under
contracts in effect at the end of the period covered by this Annual Report,
unless a different period is specified. Monthly recurring revenue is an index
commonly used in the security alarm industry as a measure of the size of a
company. It is not, however, used as a measure of profitability or performance
and does not include any allowance for future attrition or allowance for
doubtful accounts.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

THE COMPANY'S SERVICES

         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.

         The Company was incorporated under the laws of the State of Nevada on
October 30, 1986 as Burningham Enterprises, Inc. On August 28, 1996, Guardian
International, Inc., then a privately held Florida corporation, merged with and
into the Company (then named Everest Security Systems Corporation). Following
the merger, the Company changed its name to Guardian International, Inc. For
more information regarding the Company's history and its merger with the
privately held Guardian International, Inc., see the information set forth in
this Item 1 under the caption "History".

         The Company is presently a leading supplier of security monitoring and
high grade monitored security systems in Florida and New York City (see Item 1 -
"Recent Developments"). Based on the Company's gross revenues and number of
subscribers for the fiscal year ended December 31, 1997 ("Fiscal Year 1997"),
and assuming no significant changes in the data published in SDM MAGAZINE'S
(formerly SECURITY DISTRIBUTING & MARKETING MAGAZINE) May 1997 issue's annual
listing of the top security firms in the United States, the Company expects that
it will be ranked among the top 100 security companies in the United States in
SDM MAGAZINE'S 1998 annual listing. In addition, according to the 1998 Fact Book
Issue of SECURITY SALES (Vol. 19, No.12, supplement), only 5.3% of all security
companies in the United States generate gross revenues in excess of $2,500,000.
These statistics place the company as a significant leader among U.S. security
firms. As reflected in the Company's financial statements set forth in Item 7
below, the Company's gross revenues for fiscal year ended December 31, 1997
("Fiscal Year 1997") were $5,624,790.

         The Company's principal activities include the following: (i)
monitoring services provided pursuant to alarm contracts owned by the Company;
(ii) monitoring services provided pursuant to alarm contracts owned by other
alarm companies (wholesale monitoring); (iii) the sales and installation of
electronic security systems including alarm, CCTV and access control systems;
(iv) maintenance of electronic security systems; and (v) acquisition of alarm
contracts in connection with the acquisition of other alarm companies or
otherwise.

         The Company's revenues consist primarily of monthly recurring payments
under written contracts for the monitoring of security systems. For Fiscal Year
1997, monitoring revenues represented approximately 67% of total revenues. The
balance of the Company's revenues are derived from (i) the sale of electronic
security systems (approximately 23% of total revenues), (ii) the provision of
maintenance services (approximately 9% of total revenues) and (iii)
miscellaneous sources (approximately 1% of total revenues).

         Neither the Company nor the pre-merged Guardian International, Inc.
(see "History" below) has ever had any net income and both the Company and the
pre-merged Guardian International, Inc. have a history of

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consistent and sometimes significant net losses. See Item 6 - Management's
Discussion and Analysis or Plan of Operation "Results of Operations" for further
discussion.

RETAIL MONITORING SERVICES

         The Company monitors digital signals arising from burglaries, fires and
other events through security systems installed at subscribers' premises. Most
of these signals are received and processed at the Company's well-equipped
central monitoring station located in Hollywood, Florida. The Company's central
monitoring station is listed by Underwriters Laboratories, Inc. ("UL") both as
(i) a burglar alarm system central station and (ii) a protective signaling
services central station. In addition, the company also received certification
from Factory Mutual ("FM"), an industry regulatory agency, in August 1996. The
Company's central station is constructed to withstand hurricane-force winds and
can maintain operations indefinitely without electrical power using its propane
generators.

         The Company's central monitoring station has many security devices,
including closed circuit television ("CCTV"), motion detecting units, high
intensity lighting and access control. All of the equipment the Company uses to
monitor its customers' systems and to protect its central monitoring station is
generally the latest enhancement and the majority of the equipment is less than
four years old. In June 1997, the Company installed new Data General computer
hardware which significantly increased the processing power, disk storage and
growth capabilities of its billing/service and monitoring systems.

         The central monitoring station is redundant and, therefore, if there is
ever a failure in a piece of equipment, an exact duplicate is available to back
it up within minutes. The central station monitoring facility is largely
paperless, resulting in lower costs and greater efficiency than would be
obtained otherwise. The Company's phone system is digital (as opposed to
analog); all conversations are recorded and compressed digitally. Every alarm
function is handled through automation including the dialing of customer and
police telephone numbers, thereby reducing the possibility of human error.

         The Company's central monitoring station is comprised of a number of
electronic devices. These devices include: alarm receiving equipment, telephone
dialers, radio signal receiving equipment, a digital telephone recorder, a
digital telephone system and a voice mail / auto phone attendant. All of these
devices are maintained internally by the Company's technical personnel. The
balance of the Company's equipment includes dual redundant Data General
Aviion(TM) servers, associated CRTs (terminals) and the software which runs the
automated functions of the Company's security, service and accounting functions.
The software is maintained by Monitoring Automation Systems (Irvine, CA) and the
Data General Corporation computers and terminals are maintained by Data General
Corporation (Boston, MA) pursuant to annual maintenance contracts. The
maintenance services of Monitoring Automation Systems and Data General cost the
Company approximately $5,800 per month in the aggregate.

         The monitoring services provided by the Company include monitoring
homes and commercial facilities for burglary, fire and environmental problems.
If an alarm, fire or environmental condition is detected, a signal is
transmitted over telephone and/or radio transmission to the Company's central
monitoring station. When the conditions require verification and/or dispatch
action, the Company's human operators react in accordance with standard
procedures.

         The central monitoring system also monitors opening and closing
schedules for the Company's commercial customers. Commercial customers have the
option of receiving weekly reports reflecting the date,

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time, action and employee name with respect to each opening or closing activity
during the relevant week. The reports can be sent to any location around the
world via facsimile or e-mail.

         Retail monitoring generated revenues of approximately $3.2 million and
$2.2 million in fiscal years 1997 and 1996, respectively. As of the date of this
Annual Report, the Company had approximately 16,300 retail customers, which
includes the accounts acquired from both Mutual and Gator (see "Recent
Developments", below). No retail customer represents more than 5% of the
Company's total revenues.

WHOLESALE MONITORING PROGRAM

         Under the Company's wholesale monitoring program (the "Wholesale
Monitoring Program") subscribers are monitored on a "wholesale" basis for
certain third party security alarm companies, some of which are competitors of
the Company. This practice is commonly referred to in the industry as "third
party monitoring" or "wholesale" monitoring. The Company also offers such third
party companies additional services, such as off-site data entry and account
maintenance, automated account history and testing via touch tone telephone,
marketing and technical support.

         Under the Wholesale Monitoring Program, the Company bills the third
party company a monthly amount for all services rendered. The third party
company is responsible for billing its customers. Typical fees for wholesale
monitoring are approximately 20% of the amount billed directly by the Company to
its retail customers. While wholesale monitoring results in significantly lower
margins than are obtained with respect to the Company's retail subscribers, the
wholesale customer base creates an opportunity for the Company to expand its
customer base by purchasing customer accounts from third party companies. In
fact, the Company has on occasion purchased customer accounts that were being
monitored under the Wholesale Monitoring Program.

         The Wholesale Monitoring Program generated revenues of $573,000 and
$504,000 in fiscal years 1997 and 1996, respectively. As of the date of this
Annual Report, the Company had approximately 12,000 wholesale customers. No such
wholesale account represents more than 5% of the Company's total revenues.

INSTALLATION AND SALE OF ELECTRONIC SECURITY SYSTEMS

         The Company typically installs electronic security systems for its
residential and commercial customers. These systems can range in complexity from
simple alarm panels interfaced with one or two sensors up to highly integrated
card access and CCTV systems. Residential systems are usually sold for a
one-time non-refundable fee. Commercial systems are usually leased to the
customer for a period of time coinciding with the monitoring contract.

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

         Revenues derived from the installation and sale of security systems
totaled approximately $1,287,000 and $863,000 in fiscal years 1997 and 1996,
respectively. Increased revenues are a result of increased efforts to generate
accounts, through additional sales and marketing staffing, and the additional
Specialty Device Installers, Inc. ("SDI") revenues (see "History - General"
below).

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MAINTENANCE OF ELECTRONIC SECURITY SYSTEMS

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

         Revenues derived from the maintenance of security systems totaled
approximately $489,000 and $69,000 in fiscal years 1997 and 1996, respectively.
Increased revenues correlate to the increase in the Company's account base (see
"Customer Account Activity during Fiscal Year 1997).


HISTORY

         GENERAL

         The Company was incorporated under the laws of the State of Nevada on
October 30, 1986 as Burningham Enterprises, Inc.("Burningham"). Burningham
launched a "blank check/blind pool" initial public offering (the "IPO"),
registering its shares with the Securities and Exchange Commission ("SEC") on a
Registration Statement on Form S-18 which was declared effective in March 1987.
The Company raised $100,000 pursuant to the IPO.

         The Company had no operations and did not acquire any business between
October 1986 and February 1988, at which time the Company changed its name from
Burningham Enterprises to Everest Funding Corporation ("Everest Funding") and
completed a reverse subsidiary merger with Everest Mortgage Corporation ("EMC").
Following that merger, EMC became a wholly-owned subsidiary of the Company. EMC
was in the mortgage origination business, but ceased operations in late 1993.
EMC was subsequently dissolved on July 5, 1995.

         The Company was again inactive between the end of 1993 and June 1995,
at which time the Company underwent a change of control. New directors were
elected to the Company's Board of Directors (the "Board") and in July 1995, the
Board and a majority of shareholders approved a one for twenty reverse split,
effective July 24, 1995. On November 27, 1995, the Company changed its name from
Everest Funding to Everest Security Systems Corporation ("Everest Security") and
entered into the home alarm installation and service business.

         On October 9, 1995, the Company entered into a stock purchase agreement
("Stock Purchase Agreement") with SDI, a company incorporated under the laws of
the State of Florida in August 1991. Under the terms of the Stock Purchase
Agreement, the Company purchased all of the shares of SDI in exchange for
100,000 shares of common stock. The Stock Purchase Agreement also required the
Company to enter into an employment contract with Frank Bauer for a term of five
years commencing on October 1, 1995 in the role of President of SDI, a
wholly-owned subsidiary. SDI was subsequently downsized due to poor financial
performance and a lack of significant margins from the subcontract installation
business. Mr. Bauer is presently serving as an employee of the Company, but is
not an officer of the Company nor a member of the Board, nor the President of
any significant operating subsidiary. During the first quarter of Fiscal Year
1997, the Company significantly downsized SDI as a result of SDI's poor
operating performance and discontinued its operations entirely by the end of
Fiscal Year 1997.

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         On January 15, 1996, the Company formed Federal Alarm Systems, Inc.
("FASI"), a wholly owned subsidiary organized under the laws of the State of
Florida. FASI was established to provide monitoring services for the owners of
burglar alarm systems installed by SDI and to monitor and service purchased
burglar alarm contracts. Subsequent to the establishment of FASI, the Company's
management decided to perform these services FASI has been dissolved.

         MERGER WITH GUARDIAN INTERNATIONAL, INC.

         On August 15, 1996, the Company executed an Agreement and Plan of
Merger ("Merger Agreement") with Guardian International, Inc. ("Guardian"), a
Florida corporation. On August 28, 1996, Guardian merged with and into Everest
(the "Merger"). Pursuant to the terms of the Merger Agreement, in reliance upon
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933,as amended, the Company issued 3,226,902 shares of Common Stock to the
shareholders of Guardian in exchange for all of the outstanding shares of common
stock of Guardian. These shares represented approximately fifty percent (50%) of
the Company's then issued and outstanding Common Stock. Also, pursuant to the
terms of the Merger Agreement, the Company paid approximately $1.8 million to
Harold Ginsburg, one of the shareholders of Guardian, in repayment of certain
loans to Guardian and as a return of capital.

Following the Merger, the Company changed its name to Guardian International,
Inc. The Company's directors preceding the Merger resigned following the Merger
and the directors of Guardian filled the vacancies on the Board. For a listing
of the Company's directors, see Item 9 - Directors, Executive Officers,
Promoters and Control Persons contained herein. For a discussion of the
accounting treatment of this transaction, see Note 2 of Notes to Consolidated
Financial Statements included in Item 7 - Financial Statements contained herein.

RECENT DEVELOPMENTS

         INVESTMENT BY WESTAR CAPITAL, INC.

         On October 15, 1997, the Company and Westar Capital, Inc. ("Westar") ,
a wholly-owned subsidiary of Western Resources, Inc., executed definitive
agreements to acquire approximately 37 percent of the equity of the Company. The
proceeds of investment totaled approximately $7.5 million. The investment
consisted of Westar purchasing 2,500,000 newly issued shares of Class A Voting
Common Stock, par value $.001 ("Class A Stock"), and 1,875,000 shares of newly
issued Series A 9 3/4% Convertible Cumulative Preferred Stock, par value $.001
(the "Series A Preferred Stock"). The Series A Preferred Stock is convertible to
Class A Stock on a share for share basis. As part of the transaction, the
Company will expand its Board to eight members, with two members appointed by
Westar Capital.

         ACQUISITION OF MUTUAL CENTRAL ALARM SERVICES, INC.

         In February 1998, the Company completed the acquisition of 100% of the
equity securities of Mutual Central Alarm Services, Inc. ("Mutual"), the
nation's 70th largest monitored alarm company (according to SDM MAGAZINE) and
one of the largest independent alarm companies in the metropolitan New York
area. Founded nine years ago, Mutual has grown through a strategy of
concentration on high-grade UL listed commercial security, fire, CCTV and access
control systems. Mutual provides services to a prestigious roster of high-end
retail businesses, financial institutions and Fortune 500 companies. The
acquisition will contribute MRR of

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approximately $320,000, annual revenues of about $5 million and earnings before
interest, taxes, depreciation and amortization ("EBITDA") of approximately $1.5
million.

         The total purchase price was approximately $10 million in cash and
1,981,700 shares (the "Mutual Shares") of Guardian unregistered Class A Stock.
The Company granted certain rights to the selling shareholders to have the
Mutual Shares registered by the Company under the Securities Act of 1933, as
amended (the "Securities Act") 750,000 shares of the Mutual Shares are being
held in escrow for a one year period for indemnification purposes. The effective
date of the acquisition was February 1, 1998 (the "Effective Date"). The
transaction will be accounted for under the purchase method of accounting.

         Pursuant to the terms of the Stock Purchase Agreement effective as of
February 1, 1998, by and among the Company, Mutual and the selling stockholders
of Mutual (the "Stock Purchase Agreement"), the Company and Mutual entered into
employment agreements with Joel A. Cohen and with Raymond L. Adams. Mr. Cohen
was retained under a five year agreement as President of Mutual and was
appointed to serve as a Vice President of the Company. Mr. Cohen was also
granted options to purchase 100,000 shares of Class A Common Stock. Twenty
percent of the options vest and are exercisable on each of the first five
anniversaries of the effective date of his employment agreement. Mr. Adams was
retained under a three-year agreement as a Vice President of Mutual. Mr. Adams
was also granted options to purchase 100,000 shares of Class A Common Stock,
thirty three and one-third percent of which vest and are exercisable on each of
the first three anniversaries of the effective date of his employment agreement.

         The Company funded the cash portion of the acquisition with borrowings
under its existing credit facility, as amended, with Heller Financial, Inc.
("Heller") (see Item 6 - Management's Discussion and Analysis of Plan of
Operation "Credit Facility") and proceeds from a $4.0 million preferred stock
investment from Westar, a Kansas corporation and a wholly-owned subsidiary of
Protection One, Inc., a Delaware corporation. Protection One, Inc. is a
majority-owned subsidiary of Western Resources, Inc. Westar purchased 1,600,000
shares of Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
$.001 (the "Series B Preferred Stock"), of Guardian at $2.50 per share. The
Company granted to Westar certain rights to have the Common Stock issuable upon
conversion of the Series B Preferred Stock registered by the Company under the
Securities Act.

         Guardian will continue to operate Mutual under its trade name as a
wholly-owned subsidiary and will continue to operate Mutual's New York based
central monitoring and dispatch center.

         ACQUISITION OF GATOR TELECOM, INC.

         On March 9, 1998, the Company acquired all the assets of Gator Telecom,
Inc., a Florida corporation ("Gator"), for $1.4 million in cash and 94,937
shares of restricted Class A Stock. The Company funded the cash portion of the
acquisition by using its Renewed Credit Facility with Heller.

         Gator provides security installation, monitoring, structured wiring and
home automation to over 125 active residential builders in the Tampa Bay area.
Gator was founded in 1981.

         The Company will continue to operate Gator from its 5,000 square foot
service facility in Tampa. Dan Lawrence, the founder of Gator, has been named
the Company's Central Florida Regional Manager and will also oversee service for
the Company's pre-existing 1,500 Tampa customers that are presently serviced by
dealers.

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         The acquisition, which included a significant number of corporate
assets such as accounts receivable, inventory, vehicles and other fixed assets,
will also add approximately 1,800 monitored subscribers to the Company's current
MRR base and increase MRR under contract by more than $37,000.


MARKET OVERVIEW AND TRENDS

         The Company's target market consists of owners of single family
residences, residential development communities where the Company has or may
obtain bulk service contracts and commercial establishments.

         The security alarm industry is characterized by a high degree of
fragmentation and currently is comprised mostly of a large number of small
providers of alarm systems and services. A survey published by SDM Magazine in
May 1997 reported that in 1996, based upon information provided by its
respondents, the 100 largest companies in the alarm industry accounted for
approximately 25% of industry revenues. The Company believes that many smaller
alarm service companies, because of their small 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 two years, security
alarm companies participating in market growth are required today to make a
substantial investment in each new subscriber; for example, in order to be
competitive, security alarm companies must sell equipment at below cost or
transfer equipment gratuitously 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 residential security alarm market is also characterized by rapid
growth, but a relatively low level of market penetration and is therefore still
in a relatively immature stage. The pricing has only recently made it accessible
to a broader homeowners' market. The Company believes that several factors have
spawned an increased demand for residential security alarm systems in the
markets where the Company operates, including increased crime rates, increased
public concern about crime and the prevalence of insurance company discounts to
homeowners who purchase alarm systems, which discounts are typically larger when
alarm systems are monitored by a central station. In addition, insurance
companies may require that businesses install an alarm system as a condition to
obtaining or renewing insurance coverage. Also, the Company enjoys the benefits
of operating in two separate sectors of the industry, high grade commercial and
traditional residential. By operating in both sectors, economic strength in one
can subsidize any weaknesses that may occur in the other, a reputation earned in
one sector can carry over into the reputation for the other and cash flow from
commercial projects can help fund investments in the residential market.

         Advances in digital communications technology have prompted some
consolidation in the security alarm industry. Prior to the development of
digital communications technology, alarm monitoring required a dedicated
telephone line, which made long-distance monitoring uneconomic. Consequently, in
order to achieve a national or regional presence, alarm monitoring companies
were required to maintain a large number of geographically dispersed local
monitoring stations. The development of digital communications technology
eliminated the need for dedicated telephone lines, reducing the cost of
monitoring services to the subscriber and permitting the monitoring of
subscriber accounts over a wide geographic area from a central monitoring
station. The elimination of local monitoring stations has decreased the cost of
providing alarm monitoring services and has substantially increased the
economies of scale for larger alarm service companies. In addition, the
concurrent development of microprocessor-based control panels has substantially
reduced the cost of the equipment available to subscribers in the residential
and commercial markets. Digital technology has also enabled

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equipment manufacturers to build more features into security systems (e.g.,
remote user interface, lighting and heating controls, user programming
features).

         Large, consumer-oriented companies in industries facing deregulation,
including long distance and local telephone companies and electric and gas
utilities (e.g. Entergy Corporation, Western Resources, Inc. and Ameritech
Corporation), have demonstrated an increased interest in the security alarm
industry over the last several years. The Company believes telecommunication and
utility companies are interested in offering their customers additional
services, including security services, as a means of enhancing customer loyalty
and reducing future risk of losing customers in a fully competitive environment.
The entrance by such large companies into the security alarm business poses the
threat that such companies will engage in price wars with other companies in the
security alarm industry. Such price wars, if they were to occur, could have a
materially adverse effect on the Company's financial condition. As discussed
above in "Recent Developments", Westar Security, Inc. to which Westar assigned
its interest in the Company, has invested $11.5 million in the Company. Upstar
Security, Inc. is a wholly-owned subsidiary of Protection One, Inc., a
majority-owned subsidiary of Western Resources, Inc. The Company believes that
its strategic alliance with affiliates of Western Resources, Inc. will 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;
(iv) improving and expanding acquisition and investment opportunities
made available to the Company and (v) improving the quality of financial and
strategic advice available to the Company through Board representation and
otherwise.

BUSINESS STRATEGY

         The Company's strategy for growth has consisted primarily of the
implementation of an aggressive and strategic acquisition plan, while
maintaining a strong balance sheet. Between 1994 and 1997, prior to its merger
into the Company, Guardian acquired a combination of 20 alarm companies and/or
portfolios of customer monitoring contracts from existing alarm companies. The
financing for these acquisitions was derived from a $7,000,000 credit facility
with Heller, which has been replaced by the Company's Renewed Credit Facility
(see Item 6 Management's Discussion and Analysis or Plan of Operations "Credit
Facility") and with the proceeds from the investment by Westar (see "Recent
Developments").

         Management believes that numerous acquisition opportunities continue to
be available and the Company is pursuing, and intends to continue to pursue,
acquisitions of alarm companies or portfolios of subscriber accounts, some of
which may be significant to the Company's expected future growth. Through its
recent acquisition of Mutual, the Company has expanded its operations outside of
Florida and into New York. The Company plans to continue pursuing other
acquisitions outside Florida, not only in New York, but in major metropolitan
areas in North and South America. Acquisitions of account portfolios thus far
have been achieved primarily through the acquisition of alarm companies, the
"Independent Alarm Acquisition Program" and, until recently, the "Dealer
Program", as described below.

         Under the Independent Alarm Acquisition Program, the Company acquires
customer contracts from independent alarm companies in Florida. Under this
Program, the independent alarm company solicits sales of its own alarm systems
from potential residential or commercial customers, who are also offered the
option to enter into an agreement with the independent alarm company, in the
independent alarm company's own name, for the provision of alarm monitoring
and/or repair services, typically for a 60 month term, although the monitoring
period may be shorter. The independent alarm company then sells the customer
contract to the Company for an amount typically between 25 to 35 times the
amount of MRR to be generated by the contract,

                                                                              11
<PAGE>

or a proportionately smaller multiple of MRR if the contract is for less than 60
months. The costs of such acquisitions are accounted for at the fair value as of
the date of acquisition and amortized over 10 years.

         While the Company is not using aggressive efforts to continue the
Dealer Program, there are several authorized dealers in Florida. Most of the
Dealers are independent alarm companies performing under agreements to sell
under the Company name, although in most cases the Dealer is not obligated under
the agreement to sell exclusively for the Company. The Dealers are offered
numerous support services including but not limited to marketing, equipment
discounts, technical expertise and competitive purchase multiples. The Company's
goal is to aid the Dealers in achieving performance goals, which in turn benefit
the Company. Each Dealer solicits sales of the Dealer's own alarm systems from
residential or commercial customers, who also may be offered the option to enter
in an agreement for the provision of alarm monitoring and/or repair services,
typically for a 60 month term, although the monitoring period may be shorter.
The Dealer can offer the provision of monitoring services to the customer under
the name of the Company, under the Dealer's own name, or under any other
independent alarm company name. In such cases where the customer contract for
monitoring services is written under the name of the Company, the Company pays
the Dealer a placement fee. In other cases where the customer contract is
written under any provider's name other than the Company, the Dealer sells the
contract to the Company. The amount paid by the Company to the Dealer under
either scenario described is typically between 25 to 35 times the amount of MRR
to be generated by the contract, or a proportionately smaller multiple of MRR if
the contract is for less than 60 months. The amount paid to Dealers is
capitalized and amortized over 10 years.

         Under both the Independent Alarm Acquisition Program and the Dealer
Program, the independent alarm company or the Dealer, as the case may be
(collectively referred as the "Contract Seller"), may be required to guarantee
that a minimum number of payments (usually between 12 and 18 monthly payments)
will be received by the Company from the customer (the "Minimum Payment Period")
and that customers will pay any amounts owed within 90 days during such Minimum
Payment Period. If the guaranteed number of payments is not received by the
Company, or if a customer is late in paying any amounts due for a period
exceeding 90 days, the Contract Seller must replace the subscriber contract with
a new contract of equal original duration and MRR. In order to ensure that such
Contract Seller guarantees are met, the Company typically withholds an average
of 10% of the payment made to the Contract Seller at the inception of the
transaction (referred as a "holdback"). After the guarantee period lapses, the
Company will pay the Contract Seller the holdback monies due.

         Another source of growth of account portfolios is the Company's
internal sales department. The Company has various retail marketing programs in
place intended to generate additional subscribers. One such program is a
customer referral program pursuant to which new customers are generated by
referrals from the Company's existing and continually increasing customer
account base. These "referral accounts" enable the Company to increase its
revenue at a much lower cost than traditional marketing methods. In addition,
the Company recently became an authorized distributor of First Alert(TM)
security products, a product line available to a select group of alarm dealers.
Such dealers also receive significant marketing support from First Alert
Professional(TM) including sales literature, sales training and leads.

         Management is hopeful that significant additional revenue sources will
be generated from the Company's bulk service communities builder projects. The
Company currently has master association contracts ("Master Contracts") with
eight development companies. Each Master Contract calls for Company-installed
alarms to be monitored by the central station with one bill each month to the
relevant master homeowners association. Closings on homes located in these
developments began in the first quarter of 1996 and will continue for the next
three (3) years. Guardian's revenue under a Master Contract increases
incrementally with

                                                                              12

<PAGE>

each closing. Current MRR under the Master Contracts is approximately $13,000.
Management anticipates that upon completion of the development projects, the
Company will generate over twenty-five thousand dollars ($25,000) in additional
MRR under the Master Contracts; there can be no assurances, however, as to the
completion of these projects or the realization of the additional MRR.

         The financial strategy for effecting the business goals was enhanced in
1997 by developing a relationship with Western Resources, see "Recent
Developments", above. The Company believes that the relationship represents a
reliable source of equity capital for the future, affording management the
ability to focus on executing the business strategy. Some of the relationship's
many potential benefits are enumerated in "Market Overview and Trends", above.

CUSTOMER ACCOUNT ACTIVITY DURING FISCAL YEAR 1997

         The Company purchased 4,268 contracts (net of 434 contracts which were
returned to sellers due to collectability problems -- such returned contracts
are not counted towards attrition, as defined in "Overview" in Item 6 -
Management's Discussion and Analysis or Plan of Operation, below) during Fiscal
Year 1997.

         The following table reflects the Company's customer account activity
during Fiscal Year 1997:
<TABLE>
<CAPTION>

<S>                                                                                                         <C>
         Number of customer contracts owned as of January 1, 1997                                             7,940
         Contracts purchased during Fiscal Year 1997                                                          4,268
         Contracts generated through internal sales during Fiscal Year 1997                                     618
         Contracts lost through net attrition*                                                                 (971)
                                                                                                            -------
         Number of customer contracts owned as of December 31, 1997                                          11,855
                                                                                                            =======
</TABLE>

*        For the definition of net attrition and a discussion of the primary
         reasons for attrition of customer accounts, see information under the
         caption "Overview" in Item 6 - Management's Discussion and Analysis or
         Plan of Operation, below.

         The 4,268 contracts purchased by the Company during Fiscal Year 1997
generated average MRR of approximately $28 per contract. The range of MRR for
most contracts is between $12 per contract and $60 per contract, with the vast
majority being between $12 and $35. Approximately 68% of the contracts purchased
were residential contracts and approximately 32% were commercial contracts.
Through the Mutual and Gator acquisitions ("Recent Developments", above) the
Company acquired approximately 2,500 and 1,800 contracts, respectively. The
average MRR for the Mutual contracts is approximately $125 per contract; the
Gator contracts have an average MRR of approximately $18 per contract.

                                                                              13

<PAGE>

         The breakdown of the number of purchased contracts for Fiscal Year 1997
by MRR range is as follows:


                                               Number of Contracts Purchased
        Monthly Recurring                          During the Year Ended
          Revenue Range                              December 31, 1997

            $12 - $25                                      3,315

            $26 - $35                                        501

            $36 - $60                                        319


             Over $60                                        133
                                                           -----
                                                           4,268
                                                           =====

         The average attrition guarantee period, for which dealers must replace
nonperforming contracts, is between 12 and 18 months from the date of purchase.
The average purchase price holdback is 10%.

EQUIPMENT AND TECHNOLOGY

         In June 1997, the Company invested $150,000 to upgrade the hardware and
software of its security monitoring system. These improvements included new Data
General/Aviion machines based on Intel processors, positioning the Company for a
transition to a Windows NT computing environment. This investment increased
capacity and improved the productivity of operators and other administrative
staff using the automation and accounting systems. The Company expects to
upgrade its security monitoring system periodically as necessary to keep up with
technological advances.

         The Company currently operates under the MAS 5.50.11 version, for its
automation, service and billing system. The Company is one of the few companies
in the United States to incorporate integrated MAS fax technology. This 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 alpha-numeric alarm indications and the use of security
industry-specific software such as MASTrak and MASLink, give the Company's
off-site locations the ability to process data efficiently with little or no
human interaction.

         The Company's central monitoring system currently has the capacity to
monitor up to approximately 250,000 subscribers 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.

MARKETING

          A large portion of the Company's marketing activities have consisted
of referrals and a limited amount of advertising. As mentioned above, the
Company elected to become a First Alert Professional(TM) dealer to enhance its
direct sales efforts. The direct sales staff was more than doubled in 1997 and
additional increases are expected in fiscal year 1998. The Company intends to

                                                                              14
<PAGE>

expand its direct sales organization not only in South Florida and New York, but
in other major metropolitan markets of North and South America.

         The Company purchased customer accounts from 14 independent alarm
companies and 14 dealers during Fiscal Year 1997. Such dealers and independent
alarm companies are located throughout South Florida, Central Florida and the
Tampa/Sarasota, Florida areas.

COMPETITION

         Competitive conditions vary within each segment of the security
industry. The largest segment is composed of security system dealers. Most of
these companies have fewer than twenty employees, average one

hundred fifty to eight hundred fifty (150- 850) customer accounts, are usually
under capitalized, are owner-managed and do not have their own central
monitoring stations.

         According to a 1996 survey conducted by SDM Magazine (published in May
1997), the 100 largest companies in the security industry account for
approximately twenty-five percent (25%) of the industry's total revenue.
Therefore, the majority of the industry revenue is generated by smaller alarm
service companies.

         The segment of the industry composed of central monitoring services is
characterized by a small number of companies that provide both wholesale and
retail monitoring. The barriers to entry in this segment are high due to the
large investment required to equip and conform the facilities for UL approval.
This segment is divided into national and regional firms. The smaller regional
companies have difficulty competing with the larger national firms due to higher
overhead, the inability to purchase service and equipment on volume discounts
and, often, the lack of capital or financing to make acquisitions. However, the
Company believes that large regional companies have a competitive advantage
relative to large national companies because large national companies provide
sales and/or leases, installations and service of security systems and provide
central monitoring services, but typically provide only retail monitoring for
security systems installed by them. They generally do not enter the wholesale
market. In contrast, regional companies typically provide wholesale monitoring
services to other regional and local alarm companies that are unable to supply
the monitoring function for the security systems which they sell. (See
"Wholesale Monitoring Program," above, for a discussion of the Company's
Wholesale Monitoring Program.)

         There are a number of larger companies which may have significantly
greater capital and resources than the Company. See "Market Overview and
Trends," above, for a discussion of competition from large companies in other
industries. The following chart reflects the size of the nine largest alarm
companies. The information was obtained from the May 1997 issue of SDM MAGAZINE.
<TABLE>
<CAPTION>

                                              1996 Revenue
Company                                      (in millions)              Number of Accounts
<S>                                                   <C>                        <C>
ADT Security                                          $994                       1,430,000
Security Link from Ameritech                          $250                         367,000
Wells Fargo Alarm Services                            $241                         166,800
Honeywell                                             $223                         200,000
Brinks Home Security                                  $156                         446,500
Westar Security, Inc. (1)                             $142                         425,000
Republic Security Services, Inc. (2)                  $100                         280,000
Protection One, Inc.                                  $ 74                         196,500
Westec Security                                       $ 68                          70,000
Guardian International, Inc.                          $  4                           8,000
</TABLE>

(1) Westar Security, Inc. is a wholly-owned subsidiary of Protection One, Inc.,
a Delaware corporation, a majority-owned subsidiary of Western Resources, Inc.
and owns 41.0% of the Company's outstanding Common Stock as of March 26, 1998.
(2) The assets of Republic Security Services, Inc were purchased by Ameritech in
1997.

GOVERNMENT REGULATION

         The Company's operations are subject to federal, state, county and
municipal laws, regulations and licensing requirements. The Company's employees
include four qualifiers for the low-voltage electrical contractor license as
required 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.

         Because the Company operates a central monitoring station and installs
burglar and fire alarms, the State of Florida requires that the Company's
employees directly involved in the monitoring of customers and provision 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.

TRADEMARKS

         During fiscal year 1996, the Company filed applications with the United
States Patent and Trademark Office ("Office") to register the mark Guardian
International. In early 1998, the Company received notification from the Office
that its application had not been accepted. The Company is currently conducting
research on all of its tradenames, Guardian International, Inc., Gibraltar
Security Alarm Services, Alarm Control, Inc., Mutual Central Alarm Services, Inc
and Gator Telecom, Inc., to determine the feasibility of continuing to operate
under separate trade names or consolidate into one name. No assurance can be
given that the Company will be able to successfully enforce or protect its
rights to its tradenames in the event that any of them is subject to third-party
infringement.

                                                                              15

<PAGE>

EMPLOYEES

         At December 31, 1997, the Company employed 74 individuals, all of whom
were full-time employees. Any future increase in the number of employees will
depend upon growth of the Company's business.

         As of December 31, 1997, none of the Company's employees was
represented by a labor union or covered by a collective bargaining agreement.
The Company and management believe that the Company's relations with its
employees are satisfactory.

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
warehouse until such time they are transported to a recycling center for
disposal.


ITEM 2.           DESCRIPTION OF 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. (See
Item 12 - Certain Relationships and Related Transactions, below.) During 1997,
the Company occupied 6,000 square feet of the building which houses the
Company's central monitoring facility located at 3880 N. 28 Terrace, Hollywood,
Florida 33020. The telephone number is (954) 926-5200. The lease will expire on
December 31, 1999, but the Company has an option to renew for an additional five
years under the same terms and conditions. The annual rental at year end was
approximately $84,000, with annual increases not to exceed three percent (3%).
The terms of the lease are no less favorable to the Company than those which
could be obtained from unaffiliated third parties.

         With the acquisition of Mutual, the Company became the assignee on a
lease with Windbrook Realty. The assignment commenced February 1, 1998 and
extends through December 31, 1999. The leased property is a 3,500 square foot
building housing a central monitoring station, offices and warehouse facilities.
The annual rent is approximately $88,000.

         With the acquisition of Gator, the Company executed a three year lease,
commencing March 1, 1998, with Dan and Cindy Lawrence, former owners of Gator.
The leased property is a 5,000 square foot building housing a central monitoring
station, offices and warehouse facilities. The annual rental is approximately
$50,000.

OWNERSHIP OF REAL ESTATE

         The Company does not own any real estate at this time.

                                                                              16

<PAGE>

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 respective
business or financial condition.

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

         No matters were submitted to a vote of security holders, through proxy
or otherwise, during Fiscal Year 1997. As set forth in the Company's Definitive
Information Statement on Schedule 14C filed with the SEC on October 23, 1997
(the "Definitive Schedule 14C"), Richard, Harold, Sheilah and Rhonda Ginsburg
(the "Ginsburgs"), who owned or controlled 51% of the outstanding shares of
Common Stock as of that date, approved by written consent in November 1997, the
filing of amendments to the Company's Certificate of Incorporation (i) to
authorize the Company to issue Preferred Stock and (ii) to increase the number
of authorized shares of Class B Nonvoting Common Stock, par value $.001 ("Class
B Stock"), each share of which is convertible into one share of Class A Stock.


                                     PART II

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

         The Common Stock has been publicly traded under the symbol "GIIS" since
November 1996 through the National Quotation Bureau's National Daily Quotation
Price Sheets. Prior to the merger of Guardian into the Company, the Common Stock
(Everest Security common stock) was traded under the symbol EVST.

         To the best of the Company's knowledge, there are presently 12
market-makers. A public trading market for the Common Stock having the
characteristics of depth, liquidity and orderliness, depends on the existence of
market-makers as well as the presence of willing buyers and sellers. There can
be no assurance that these market-makers will continue to make a market for the
Common Stock. If the market-makers discontinue making a market for the Company,
the Common Stock would possess virtually no liquidity.

         The following table sets forth the high and low bid information of the
Common Stock for the fiscal periods indicated below, as reported by the National
Quotation Bureau during such periods. The prices reflect inter-dealer prices
without retail mark-up, mark-down, quotation, or commission. The figures do not
necessarily represent actual transactions.

                                    High                      Low
         1996
         First Quarter              $3.56                     $3.00
         Second Quarter             $4.87                     $3.25
         Third Quarter              $5.00                     $4.13
         Fourth Quarter             $2.50                     $1.75

         1997
         First Quarter              $2.50                     $1.00
         Second Quarter             $1.25                     $0.63
         Third Quarter              $1.75                     $0.78
         Fourth Quarter             $2.50                     $1.47


         The Company is authorized to issue 30,000,000 shares of Preferred
Stock, of which 3,475,000 shares are issued and outstanding as of March 26,
1998. The Company is presently authorized to issue 100,000,000 shares of Class A
Stock, of which 11,080,441 shares are issued 11,073,441 are outstanding as of
March 26, 1998. There are 127 holders of record of Class A Stock. The Company is
authorized to issue 1,000,000 shares of Class B Stock, of which 634,035 shares
are issued and outstanding as of March 26, 1998. Heller is the sole holder of
record of Class B Stock.

         Pursuant to the terms of the agreement and plan of merger dated August
15, 1996 by and among the Company, Guardian and Guardian's principal
shareholders (the "Merger Agreement"), the pre-merger Guardian shareholders were
entitled to receive an additional 1,000,000 million shares of Common Stock if
certain additional capital was not raised and deposited with the Company within
60 days of the closing date of the Merger (the "Outside Date"). The additional
capital was not deposited on or prior to the Outside Date and, therefore, the
pre-merger Guardian shareholders, which includes the Ginsburgs, received the
pledged shares proportionately to their ownership in pre-merged Guardian.
Subsequently, the principal shareholders distributed 500,000 of the pledged
shares to other shareholders of the Company.

         In connection with the merger of Guardian into the Company, Heller
received 484,035 shares of Class B Stock in exchange for certain capital
appreciation rights with respect to the common stock of pre-merger

                                                                              17

<PAGE>


Guardian held by Heller. In addition, pursuant to the terms of an agreement
entered into among the pre-merger Guardian shareholders and Heller, as a result
of the Company's failure to raise the additional equity capital (see paragraph
immediately above), the Company was required to issue 150,000 shares of Class B
Stock to Heller. In order to fulfill this commitment, the Company's Articles of
Incorporation were amended to authorize additional shares of Class B Stock which
were issued to Heller in November 1997.

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 restricted pursuant to the terms of the existing credit
facility with Heller and is likely to remain subject to such restriction for the
foreseeable future. For additional information regarding the Heller credit
facility, see "Credit Facility," in Item 6 Management's Discussion and Analysis
or Plan of Operation, below.

         The Company has not declared any cash dividends on its Series A
Preferred Stock (the "Preferred Stock") and Series B Preferred Stock and does
not anticipate paying cash dividends until required to do so two years after the
Preferred Stock was issued. During the interim period, the Company will pay
dividends in the form of additional shares of Preferred Stock. The payment of
cash dividends is currently restricted pursuant to the terms of the existing
credit facility with Heller (see Item 6 - Management's Discussion and Analysis
or Plan of Operation "Credit Facility").

         Assuming the payment of dividends is not prohibited under the Renewed
Credit Facility, defined below, the payment of any future dividends rests within
the discretion of the Board, subject to the conditions then existing, including
the Company's earnings, capital requirements, financial condition and other
relevant factors.

TRANSFER AGENT

         The transfer agent for the Common Stock is Interwest Transfer Company,
1981 E. Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117.

RECENT SALES OF UNREGISTERED SECURITIES

         On June 7, 1995, the Company issued 20,000,000 shares of common stock
for 100,000 shares of J.A. Industries, Inc. valued at $100,000. The shares were
issued in reliance upon the exemption from registration afforded by Section 4(2)
of the Securities Act. The shares were issued in a private placement to
International Treasury & Investments Ltd.
<TABLE>
<CAPTION>

                                                                                                  AGGREGATE
                                                                    NUMBER OF                   CONSIDERATION
          PURCHASER                DATE OF PURCHASES              COMMON SHARES                     PAID



<S>                                      <C>              <C>                             <C>
International Treasury                   6/7/95           20,000,000 (before the 1 for    $100,000 in J.A.
& Investments Ltd.                                        20 reverse split)               Industries stock
</TABLE>

         On July 5, 1995, the Company issued 3,975,000 shares of Everest common
stock to three individuals (or entities owned or controlled by such individuals)
for par value. Two of the individuals were officers and

                                                                              18

<PAGE>

directors of the Company. The issuance was exempt from registration in
accordance with Rule 701 of the Securities Act. The shares were issued as
compensation for services rendered or to be rendered.

<TABLE>
<CAPTION>


                                                                                                  AGGREGATE
                                                                     NUMBER OF                  CONSIDERATION
           PURCHASER                 DATE OF PURCHASES             COMMON SHARES                    PAID

<S>                                       <C>               <C>                                    <C>
427968 B.C. Ltd. (1)                      7/5/95            1,325,000 (prior to 1:20               $1,325
                                                            reverse split)

Knight Financial Ltd. (2)                 7/5/95            1,325,000 (prior to the                $1,325
                                                            1:20 reverse split)

Steven A. Sanders                         7/5/95            1,325,000 (prior to the                $1,325
                                                            1:20 reverse split)
</TABLE>

         In October 1995, the Company issued 500,000 shares of Everest common
stock at $2.00 per share. The issuance was exempt from registration pursuant to
Rule 504 of Regulation D promulgated under the Securities Act.
These shares were issued in a private placement to accredited investors.

<TABLE>
<CAPTION>
                                                                                                   AGGREGATE
                                                                         NUMBER OF               CONSIDERATION
              PURCHASER                    DATE OF PURCHASES           COMMON SHARES                 PAID

<S>                                            <C>                        <C>                      <C>
427968 B.C. Ltd.                               10/13/95                   50,000                   $100,000

427968 B. C. Ltd.                              10/17/95                   10,000                    $20,000

Royal Bank of Scotland (3)                     10/30/95                  100,000                   $200,000

Anne Huber                                     10/31/95                   15,000                    $30,000

Rodney Adler                                   12/04/95                  100,000                   $200,000

Tiger Eye Investments
[Cayman] Ltd. (4)                              12/15/95                   75,000                   $150,000

International Treasury &
Investments Ltd. (5)                           12/15/95                   75,000                   $150,000

Langara Capital Foundation (6)                 12/15/95                   75,000                   $150,000
</TABLE>

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

(1)      427968 B.C. Ltd. is controlled by J.A. Michie.
(2)      Knight Financial Ltd. is controlled by Robert Knight.
(3)      Royal Bank of Scotland purchased shares for clients of the bank,
         identities unknown.
(4)      Tiger Eye Investments (Cayman) Ltd. is owned by Campbell Nominees, Ltd.
(5)      International Treasury & Investments is owned by Warwyck Nominees,
         Ltd. and an affiliate of G.M. Capital Partners, Ltd.

                                                                              19

<PAGE>

(6)      Langara Capital Foundation is owned by Lichtenstein Trust,
         administered by J.A. Michie.

         In November  1995,  the Company  issued 100,000 shares of Everest
common stock at $0.01 per share to Frank Bauer in accordance with the terms of
the purchase agreement of SDI. These shares were issued in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities Act.
<TABLE>
<CAPTION>

                                                                                                  AGGREGATE
                                                                    NUMBER OF                   CONSIDERATION
          PURCHASER                DATE OF PURCHASES              COMMON SHARES                     PAID

<S>                                      <C>                         <C>                           <C>
Frank Bauer                              11/95                       100,000                       $1,000
</TABLE>

         On March 12, 1996, the Company issued 30,000 shares of Everest common
stock to employees and directors of the Company as payment for their services.
The issuance was exempt from registration under Section 4(2) of the Securities
Act.
<TABLE>
<CAPTION>

                                                                                                  AGGREGATE
                                                                    NUMBER OF                   CONSIDERATION
          PURCHASER                DATE OF PURCHASES              COMMON SHARES                     PAID

<S>                                     <C>                           <C>                           <C>
Frank Bauer                             3/12/96                       10,000                        $100

Gary Liscio                             3/12/96                       5,000                         $ 50

Harvey Doischen                         3/12/96                       5,000                         $ 50

Karl Gelbard                            3/12/96                       10,000                        $100
</TABLE>

         On August 14, 1996, the Company issued a total of 1,000,000 shares of
Everest common stock at $3.50 per share to the following institutions. The
issuance was exempt from registration under Regulation S promulgated under the
Securities Act.
<TABLE>
<CAPTION>

                                                                                                  AGGREGATE
                                                                    NUMBER OF                   CONSIDERATION
           PURCHASER                DATE OF PURCHASES             COMMON SHARES                     PAID

<S>                                      <C>                          <C>                            <C>
Bank of Austria
(Switzerland)
                                         8/14/96                      15,000                         $52,500

Bank Leu                                 8/14/96                      60,000                        $210,000

Coutts & Co. AG Zurich                   8/14/96                      15,000                         $52,500

Credit Suisse                            8/14/96                     170,000                        $595,000

Darier Hentsch Private
Bank & Trust                             8/14/96                      30,000                        $105,000

FAI Overseas Investments                 8/14/96                     200,000                        $700,000

Royal Bank of Scotland                   8/14/96                     400,000                      $1,400,000

Swiss Bank Corp.                         8/14/96                     110,000                        $385,000
</TABLE>

                                                                              20

<PAGE>

         On October 4, 1996, pursuant to a Plan and Agreement of Merger between
the Company (then known as Everest Security Systems Corporation) and Guardian
International, Inc., a Florida corporation ("Guardian"), 3,226,902 shares of
Common Stock were issued to the shareholders of Guardian in exchange for all of
the outstanding shares of common stock of Guardian. These shares were issued in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act.

                                                                     NUMBER OF
           PURCHASER                 DATE OF PURCHASES             COMMON SHARES


Harold Ginsburg                          10/04/96                     903,533

Rhonda Ginsburg                          10/04/96                     629,245

Richard Ginsburg                         10/04/96                     629,246

Sheilah Ginsburg                         10/04/96                     903,533

Robert and Nancy Kasky                   10/04/96                     161,345

         In connection with the acquisition of the assets of Alarm Controls
Inc., the Company issued 50,000 shares of Common Stock to Terry Akins and
100,000 options to purchase 100,000 shares of Common Stock at a price of $2.50
per share, pursuant to the Option Agreement dated May 7, 1997.


                                                                     NUMBER OF
           PURCHASER                 DATE OF PURCHASES             COMMON SHARES


Terry Akins                               5/7/97                       50,000

         On October 21, 1997 and November 24, 1997, pursuant to a Stock Purchase
Agreement between the Company and Westar Capital, Inc., dated as of October 14,
1997, the Company issued 2,500,000 shares of Common Stock to Westar Capital,
Inc. and 1,875,000 shares of Series A Preferred Stock.

                                                                     NUMBER OF
           PURCHASER                 DATE OF PURCHASES             COMMON SHARES

Westar Capital, Inc.                     10/14/97                    2,500,000
Westar Capital, Inc.                     11/24/97                    1,875,000*

* On an as-converted basis. In February 1998, Westar increased its holdings in
the Company with the purchase of 1,600,00 shares of Series B Preferred Stock at
$2.50 per share, the proceeds of which were used to fund the Mutual acquisition.
See Item 1 - Description of Business "Recent Developments" and Item 11 -
Security Ownership of Certain Beneficial Owners and Management.

                                                                              21

<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         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

         The majority of the Company's revenues is derived from recurring
payments for the monitoring of security systems, pursuant to contracts with
initial terms typically ranging from one to five years. The remainder of the
Company's revenues is derived from the sale and installation of security
systems, servicing of such installed systems and from third party subcontract
installation revenue. Monitoring and service revenues are recognized as the
service is provided. Installation revenue is recognized when the required work
is completed. All direct installation costs, which include equipment, labor and
installation overhead and selling and marketing costs are generally expensed in
the period when incurred. In cases where the Company maintains ownership of the
equipment, however, the costs of such equipment is capitalized to property and
equipment and amortized over seven years.

         Alarm monitoring revenues generate a significantly higher gross margin
than do the other services provided by the Company. During Fiscal Year 1997,
installation and service revenues generated only negligible gross margins.
Management believes, however, that such installation and service activity is
necessary for the generation and retention of alarm monitoring subscribers.

         All direct external costs associated with purchases of subscriber
accounts (primarily through the Independent Alarm Acquisition Program and Dealer
Program, discussed in Item 1 - Description of Business) are capitalized and
amortized over 10 years on a straight-line basis. In contrast, the Company's
costs related to the sales, marketing and installation of new alarm monitoring
systems generated by the Company's internal sales force are generally expensed
in the period in which incurred. In cases where the Company maintains ownership
of the equipment, however, the costs of such equipment is capitalized to
property and equipment and amortized over seven years. To date, the Company has
not had a large internal sales force and the number of subscriber accounts
generated internally during Fiscal Year 1997 was not material. In the future, if
the Company expands its internal sales operations, as anticipated, the
accounting treatment for such internally generated revenues would result in
higher operating expenses in the period such revenues are generated, but lower
amortization expenses as a percentage of revenues.


         The Company loses customers from time to time for various reasons,
including, primarily, the following: (i) the customer moves from the service
location; (ii) the customer dies; (iii) a business or commercial accounts closes
or goes out of business; (iv) a building or home is destroyed; and (v) the
customer can no longer afford to pay for service(ivii) a customer is
dissatisfied with the Company's level of service. Subscriber attrition has a
direct impact on the Company's results of operations, since it affects both the
Company's revenues and its amortization expense. Attrition can be measured in
terms of canceled subscriber accounts and the resulting decreased monitoring
revenue. Net attrition for a given period of time is defined as the number of
accounts disconnecting service during the period in question, net of any
replacement of such subscriber by means of Dealer or independent company
replacement during the guarantee period, or by other account replacement methods
employed by the Company. These methods might include, for example, the
solicitation of monitoring contracts from new occupants (if attrition is
attributable to customer relocation). Net subscriber attrition of the Company's
own customers during fiscal years 1997 and 1996 was less than 10%.

                                                                              22

<PAGE>

         The Company has developed an in-house program for identifying and
decreasing account attrition that includes the following: (1) the identification
of possible lost accounts via a daily test; (2) false alarm fines, tracking and
cause identification; (3) early account delinquent procedures; (4) quality
customer service; (5) control lockout; (6) early identification of new
tenants/residences in homes with alarms installed by the Company; and (7)
aggressive problem solving by management. These procedures identify possible
account attrition at various stages and attempt to prevent lost accounts or
replace lost accounts by quick and efficient intervention.

         Amounts paid to independent alarm companies and Dealers are capitalized
and amortized over ten years. If a customer signed on by an independent alarm
company or Dealer is lost and not replaced, the unamortized contract amount is
written off. Such write-offs are included in amortization of customer contracts
in the accompanying Statements of Operations.

         MRR represents the monthly recurring revenue the Company is entitled to
receive under subscriber contracts in effect at the end of the period. Included
in MRR and the number of subscribers are amounts associated with subscribers
with past due balances. The Company maintains the policy and practice of
expending every economically feasible effort to preserve the revenue stream
associated with these contractual obligations. To this end, the Company actively
works toward the collection of amounts owed and the retention of subscribers. In
certain instances, this collection and evaluation period may exceed six months.
When, in the judgment of the Company's collection personnel, all reasonable
efforts have been made to collect balances due and certain legal steps are taken
to ensure proper cancellation of the relevant monitoring contract, nonpaying
subscribers are disconnected from the Company's monitoring center and are
included in the calculation of net subscriber and MRR attrition.

RESULTS OF OPERATIONS

         As discussed in various portions of this Annual Report, including Note
2 of the Notes to Consolidated Financial Statements of the Company set forth in
Item 7 herein, the Company is the surviving corporation of a merger of Guardian
with the Company's predecessor, Everest Security, which was consummated on
August 28, 1996. See Item 1- Description of Business "History," above. The
transaction was a reverse acquisition for accounting purposes, with Guardian
deemed to be the acquirer. The financial results for fiscal year 1996 include
the consolidated balance sheet of the surviving entity as of December 31, 1996;
the statement of operations and of cash flows include Guardian's figures for the
entire twelve month period, but include SDI's figures only from the date of
merger (August 28, 1996).

                                                                              23

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS

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

                                                         Year Ended December 31,
                                                          1997         1996
Revenues:
   Monitoring                                               67.1        74.2
   Installation and service                                 32.9        25.8
                                                           -----       -----
Total revenues                                             100.0       100.0

Operating expenses
   Monitoring                                               10.3        13.8
   Installation and service                                 29.4        25.6
   General and administrative                               44.2        40.1
                                                           -----       -----
                                                            83.9        79.5
                                                           -----       -----
Income before interest expense, amortization and
depreciation                                                16.1        20.5
                                                           -----       -----
Interest expense                                            17.8        15.5
Amortization of customer contracts                          21.0        16.0
Depreciation and amortization                                5.3         5.4
                                                           -----       -----
                                                            44.1        36.9
                                                           -----       -----
Net loss                                                   (28.0)      (16.4)
                                                           -----       -----

         Neither the Company nor the pre-merged Guardian International, Inc.
(see Item 1 - Description of Business "History") has ever had any net income and
has a history of consistent and sometimes significant net losses. Although no
assurance can be given by the Company as to when or if the Company will realize
net earnings, the Company anticipates that, based on its strategy of continued
growth and customer account expansion and barring any unforeseen significant
changes in the nature of its business or operations (including its method of
financing customer account acquisitions through its existing and/or any renewed
credit facility with Heller and the accounting for such acquisitions), it will
continue to record net losses until such time as the Company's retail customer
contract base totals approximately more than 20,000 contracts and it has
significantly reduced its indebtedness. At December 31, 1997, the Company had
approximately 11,900 retail customer contracts. A large increase in customers is
necessary to achieve net earnings because a significant amount of interest
expense and amortization costs are incurred in connection with account
acquisitions. The Company believes that its existing credit facilities with
Heller, in conjunction with additional equity financing to maintain prudent
debt/equity levels, will provide sufficient capital availability for achieving a
base of 20,000 customers. There can be no assurances, however, that the Company
will achieve a base of 20,000 customers. For information regarding the Company's
strategy for expanding its customer account base and the average terms of
monitoring contracts, please refer to the information under the caption
"Business Strategy" in Item 1 - Description of Business, above.

         EBITDA is another important factor in considering profitability. EBITDA
does not represent cash flow from operations as defined by generally accepted
accounting principles, should not be construed as an alternative to net earnings
and is indicative neither of the Company's operating performance nor of cash
flows available to fund all the Company's cash needs. Items excluded from EBITDA
are significant components in understanding and assessing the Company's
financial performance. Management believes presentation of EBITDA enhances

                                                                              24

<PAGE>

an understanding of the Company's 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 has been used by the investment
community to determine the current borrowing capacity and to estimate the
long-term value of companies with recurring cash flows from operations and net
losses. The following table provides a calculation of EBITDA for fiscal years
1997 and 1996:

                                              For the Fiscal Year Ended
                                                     December 31,

                                                 1997                 1996

    Net loss                                   $(1,574,091)          $(590,348)
    Plus:
    Amortization of customer contracts           1,181,607             577,611
    Depreciation and amortization                  295,666             195,679
    Interest expense                             1,001,187             560,680
                                               -----------           ---------
    EBITDA *                                      $904,369            $743,622
                                               -----------           ---------

     * 1997 includes non-recurring costs of approximately $143,000 in connection
with a proposed merger which was not consummated.

FISCAL 1997 COMPARED TO FISCAL 1996

         Total revenues for "Fiscal Year 1997" increased 55% to $5,624,790, from
$3,620,990 for the fiscal year ended December 31, 1996 ("Fiscal Year 1996").
Monitoring revenues increased by 40% to $3,772,108 during Fiscal Year 1997, from
$2,685,734 during Fiscal Year 1996. Installation and service revenues increased
by 98% to $1,852,682 during Fiscal Year 1997, compared to $935,256 during Fiscal
Year 1996. Total retail subscribers numbered approximately 11,900 at December
31, 1997, compared to approximately 7,900 at December 31, 1996, a net increase
of approximately 51%. The increase in revenues and number of subscribers from
Fiscal Year 1996 to Fiscal Year 1997 is primarily attributable to the Company's
portfolio acquisition of Alarm Controls, Inc. (ACI) during the second quarter of
Fiscal Year 1997, which added approximately 2,200 retail subscribers, the
ongoing Independent Alarm Acquisition Program and Dealer Program and the
continued addition of new accounts through the Company's internal sales force.
Additionally, during Fiscal Year 1996 SDI provided approximately $520,000 in
installation and service revenue subsequent to the merger of Guardian and
Everest.

         Total operating expenses for Fiscal Year 1997 increased 70% to
$6,197,694, from $3,650,658 during Fiscal Year 1996. Monitoring expenses
increased 16% to $579,373 during Fiscal Year 1997, compared to $498,929 during
Fiscal Year 1996. The increase in monitoring costs from Fiscal Year 1996 to
Fiscal Year 1997 was a result of the significant increase in monitoring revenues
and number of subscriber accounts (see previous paragraph). As a percentage of
monitoring revenues, however, monitoring expenses decreased to 15% in Fiscal
Year 1997, compared to 19% in Fiscal Year 1996. The decrease in monitoring
expenses as a percentage of monitoring revenue is attributable to the Company's
state-of-the-art monitoring facility, which currently is configured to monitor
up to 250,000 subscribers. Though the ongoing costs of monitoring will increase
as the number of subscriber accounts increase, such costs will not increase
proportionately to the increase in MRR. The Company expects monitoring costs

                                                                              25

<PAGE>

to continue to decrease as a percentage of monitoring revenue until such time as
the central monitoring facility is at or near capacity. Installation and service
costs for Fiscal Year 1997 increased by 78% to $1,653,003, compared to $926,319
during Fiscal Year 1996. Included in installation and service costs during
Fiscal Year 1996 is approximately $398,000 incurred by SDI subsequent to the
merger of Guardian and Everest. The increase in total installation and service
costs from Fiscal Year 1996 to Fiscal Year 1997 was the result of a similar
percentage increase in related revenues from Fiscal Year 1996 to Fiscal Year
1997 (see previous paragraph). As a percentage of installation and service
revenue, such costs were 89% in Fiscal Year 1997, compared to 99% in Fiscal Year
1996. The Company does not now generate, nor does it anticipate generating in
the future, any appreciable margins or profits from installation and service
activity, but such activity is necessary to the generation and retention of
alarm monitoring subscribers.

         Total gross profit, defined as total revenues less monitoring costs and
installation and service costs, increased by 55% to $3,392,414 in Fiscal Year
1997, compared to $2,195,742 in Fiscal Year 1996. Gross profit from monitoring
revenues increased by 46% to $3,192,735 in Fiscal Year 1997, compared to
$2,186,805 in Fiscal Year 1996. Gross profit from installation and service
activities increased 2,134% to $199,679 compared to $8,937 in Fiscal Year 1996.
See the previous two paragraphs for a discussion of revenues and expenses of
such monitoring and installation and service activity.

         General and administrative ("G&A") costs increased by 71% to $2,488,045
in Fiscal Year 1997, compared to $1,452,120 during Fiscal Year 1996. Included in
G&A costs during Fiscal Year 1996 is approximately $246,000 incurred by SDI
subsequent to the merger of Guardian and Everest. The increase in G&A costs from
Fiscal Year 1996 to Fiscal Year 1997 is related primarily to the Company's
growth in revenue, resulting in an increase in the Company's overhead cost
structure. Additionally, there were certain nonrecurring costs of approximately
$143,000 incurred in 1997 in connection with a proposed merger which was not
consummated. Included in G&A is bad debt expense of $287,870 in Fiscal Year
1997, compared to $124,015 in Fiscal Year 1996. As a percentage of total
revenues, bad debt expense was 5.1% in Fiscal Year 1997 compared to 3.4% in
Fiscal Year 1996. The increased bad debt expense during Fiscal Year 1997 over
Fiscal Year 1996 resulted from increases in revenues and a stricter reserve
policy. Along with the stricter reserve policy, deductions against the bad debt
reserve increased as a result of the policy permitting a shorter period for
collection efforts. As a percentage of total revenues, G&A increased to 44% in
Fiscal Year 1997 compared to 40% in Fiscal Year 1996. As with monitoring costs,
discussed above, the Company does not anticipate a proportionate increase in G&A
as a percentage of revenues as subscriber revenue increases in the future.

         Amortization of customer contracts increased 105% to $1,181,607 during
Fiscal Year 1997, compared to $577,611 during Fiscal Year 1996. The increase in
such costs from 1996 to 1997 resulted from the increase in the amount of
capitalized customer contracts, which increased from a net balance of $5,124,449
at December 31, 1996 to $8,048,495 at December 31, 1997. Such costs are
amortized over 10 years, unless a contract is canceled and not replaced by the
corresponding independent alarm company or Dealer, or otherwise, in which case
the remaining unamortized balance is written off (charged to amortization
expense). Included in such amortization costs are $373,408 and $138,000 for
Fiscal Year 1997 and Fiscal Year 1996, respectively, relating to customer
attrition. See discussion in "Overview," above.

         Depreciation and amortization increased by 51% to $295,666 during
Fiscal Year 1997, compared to $195,679 during Fiscal Year 1996. Such costs
include (i) depreciation of property and equipment (the gross balance of which
increased from approximately $785,000 at December 31, 1996 to approximately $1.2
million at December 31, 1997 as a result of the Company's continued expansion
activities and the merger of Guardian and Everest, which resulted in additional
property and equipment being acquired); (ii) the investment in new

                                                                              26

<PAGE>

monitoring automation host computers; (iii) amortization of goodwill recorded in
connection with the merger of Guardian and Everest (such gross amount totaling
approximately $1.2 million which is being amortized over 10 years); and (vi)
amortization of certain other intangible assets.

         Interest expense increased 79% to $1,001,187 during Fiscal Year 1997,
compared to $560,680 during Fiscal Year 1996. The increase in interest expense
was the result of additional debt incurred primarily in connection with the cost
of acquiring subscriber accounts. The total number of retail subscriber accounts
increased from approximately 7,900 as of December 31, 1996 to approximately
11,900 as of December 31, 1997. The majority of such subscriber acquisition
costs, amounting to $4.2 million, were financed by Heller and by the proceeds of
the investment in the Company's Preferred Stock by Westar. Total borrowings
under the Heller Credit Facility decreased from approximately $5.0 million as of
December 31, 1996 to approximately $753,000 million as of December 31, 1997. As
of March 26, 1998, the Company had approximately $8.8 million of borrowings
under the Heller Renewed Credit Facility, in connection with the acquisition of
Mutual, discussed in Item 1 - Description of Business "Recent Developments".

         Net loss increased by 167% to $1,574,091 during Fiscal Year 1997,
compared to $590,348 during Fiscal Year 1996. The increased net loss is
attributable to increased amortization costs and increased interest expense, as
discussed in the preceding paragraphs.

Credit Facility

         On November 16, 1994, Guardian, prior to its merger into the Company,
entered into a $7,000,000 Loan and Security Agreement with Heller primarily for
the purpose of borrowing funds to acquire customer accounts (the "Credit
Facility"). Borrowings under the Credit Facility bore interest at 3% to 4% above
the prime rate and the Company was required to pay a funding fee of 1% of any
amounts borrowed. The loan was collateralized by the Company's assets and
secured by the personal guarantees of Harold and Sheilah Ginsburg, both of whom
are directors, officers and principal shareholders of the Company. The Credit
Facility had a maturity date of November 30, 1999.

         As discussed in Item 1 above, under the caption "Recent Developments,"
in May 1997, the Company renegotiated the Credit Facility (the "Renewed Credit
Facility") with Heller to increase the maximum credit availability to $15
million. The Renewed Credit Facility was further amended in connection with the
investment in the Company by Westar Capital to increase the availability,
subject to various constraints including operating cash flow coverage and MRR
levels, to $20,000,000.

         The Credit Facility and the Renewed Credit Facility included customary
covenants, including, but not limited to, restrictions related to the incurrence
of other debt, the encumbrance or sale of the Company's assets and the payment
of dividends or other distributions to the Company's shareholders. At December
31, 1997 and 1996, the Company did not comply with certain conditions of the
Credit Facility and the Renewed Credit Facility for which waivers were obtained
from Heller. Specifically, at December 31, 1997, the Company exceeded the
allowable annualized net attrition rate, had a debt service coverage ratio below
the permissible level and had made a $12,000 loan outside the limits of the
conditions (see Exhibit 10(m)). Borrowings under the Credit Facility amounted to
$753,000 as of December 31, 1997. Borrowings under the Renewed Credit Facility
amounted to approximately $8.8 million as of March 26, 1998 (see Item 1 -
Description of Business "Recent Developments"). For information regarding
Heller's ownership of Class B Stock see Item 5, above.

                                                                              27

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         As discussed in various portions of this Annual Report, the surviving
Company is the result of a merger of the predecessor Guardian International,
Inc. ("Guardian") with Everest, which occurred on August 28, 1996. Everest
conducted a private placement in August 1996 under Regulation S promulgated
under the Securities Act of 1,000,000 shares of common stock for $3.50 per
share. Everest received proceeds of approximately $3.0 million, net of related
costs of the private placement. Subsequent to the merger of Guardian and
Everest, approximately $1.8 million was paid to Harold Ginsburg, a shareholder
of Guardian, in repayment of certain loans to Guardian and as a return of
capital and approximately $1.2 million remained within the Company for working
capital purposes.

         During fiscal 1994, Guardian entered into the $7 million credit
facility with Heller, with a maturity date of November 30, 1999. (See "Credit
Facility," immediately above.) The Credit Facility was increased to $15 million
in May 1997 under the terms of the Renewed Credit Facility and subsequently
increased again to $20 million simultaneous with the investments by Westar
Capital, Inc. The Renewed Credit Facility is used primarily for acquisitions of
customer subscriber accounts. Borrowings under the Credit Facility amounted to
$753,000 as of December 31, 1997. Borrowings under the Renewed Credit Facility
amounted to approximately $8.8 million as of March 26, 1998, see Item 1 -
Description of Business "Recent Developments". The Company's continued plan of
growth, through acquisitions of subscriber accounts, is contingent upon its
ability to borrow under the Heller Renewed Credit Facility.

         At December 31, 1997, the Company had a working capital deficit of
$342,200 and a current ratio of .68 to 1, compared to working capital of
$841,220 and current ratio of 2.1 to 1 at December 31, 1996. Net cash flow
provided by operating activities during Fiscal Year 1997 and Fiscal Year 1996
was $427,540 and $212,647, respectively. The Company incurred a net loss of
$1,574,091 during Fiscal Year 1997, compared to a net loss of $590,348 during
Fiscal Year 1996; however, included in such losses was depreciation and
amortization totaling approximately $1.5 million during Fiscal Year 1997,
compared to approximately $773,000 during Fiscal Year 1996. Also included in net
cash provided by operations during Fiscal Year 1997 was a cash outflow of
approximately $258,000 related to an increase in accounts receivable from Fiscal
Year 1996 to Fiscal Year 1997. The increase in accounts receivable relates to
the Company's overall increase in revenues (the Company's accounts receivable
turnover ratio was 7.9 in Fiscal Year 1997, compared to a ratio of 8.1 in Fiscal
Year 1996). Net cash used in investing activities was $4,397,264 during Fiscal
Year 1997, comprised primarily of acquisition of customer accounts of
approximately $4.2 million (such significant amount of acquisitions being
consistent with the Company's continued growth strategy). Net cash used in
investing activities was $358,790 in Fiscal Year 1996, comprised primarily of
approximately $3.3 million of acquisition of customer accounts partially offset
by approximately $3.2 million of cash received in the merger of Guardian and
Everest (such amount constituting the net proceeds from the Regulation S common
stock offering as described above). Net cash provided by financing activities
was $3,026,176 in Fiscal Year 1997. The primary items were approximately $7.7
million of net proceeds from the Heller Renewed Credit Facility and proceeds of
approximately $7.3 million, net of associated costs, from the issuance of the
Series A Preferred Stock and Class A Stock, partially offset by approximately
$11.9 million in repayments of long-term debt. Net cash provided by financing
activities was $1,169,741 during Fiscal Year 1996. The primary items included in
such financing activities during Fiscal Year 1996 were proceeds from Heller of
approximately $5.1 million, less repayments of long-term debt under the Credit
Facility of approximately $2.0 million, further offset by a payment to Harold
Ginsburg, a former majority shareholder of Guardian (and presently a director,
officer and principal shareholder of the Company) in repayment of loans to
pre-merger Guardian and as a return of capital of approximately $1.8 million.
For the various reasons specified, the Company's cash balance amounted to
$94,313 at December 31, 1997, compared to $1,037,861 million at December 31,
1996.

                                                                              28

<PAGE>


         Total shareholder' equity was $9,016,226 as of December 31, 1997,
compared to $3,115,590 as of December 31, 1996. The net increase of
approximately $5.9 million consisted primarily of an increase of approximately
$7.3 million relating to the issuance of the Series A Preferred Stock and Class
A Stock and a decrease of approximately $1.6 million relating to the net loss
incurred during Fiscal Year 1997.


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

Year 2000 Compliance

         The Company has received assurance from Monitoring Automation Systems
(MAS) that, with the exception of an upgrade to be installed to our operating
system during 1998, all applications in their software are Year 2000 compliant.

         The Year 2000 compliance status of no other supplier will materially
affect the Company's business.

         The Company believes that any costs incurred in connection with the
Year 2000 compliance will not have a material adverse effect.

Concentration of Credit Risk

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


                                                                              29
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


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

We have audited the accompanying consolidated balance sheets of Guardian
International, Inc. and subsidiary ("the Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Guardian International, Inc.
and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II - Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.


                                       McKEAN, PAUL, CHRYCY, FLETCHER & CO.

Miami, Florida,
  March 5, 1998.

                                                                              30
<PAGE>
<TABLE>
<CAPTION>

                          GUARDIAN INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

                                                                                        1997             1996
                                     Assets
<S>                                                                                <C>                  <C>
Current Assets:
   Cash and cash equivalents                                                       $       94,313       $1,037,861
   Accounts receivable, net of allowance for doubtful accounts of
     $198,848 and $166,315  in 1997 and 1996, respectively                                539,512          569,180
   Other                                                                                  121,223           20,736
                                                                                   --------------       ----------
       Total Current Assets                                                               755,048        1,627,777
                                                                                   --------------       ----------

Property and Equipment, net                                                               729,058          484,859
Customer Accounts, net                                                                  8,048,495        5,124,449
Intangible Assets, net                                                                  1,514,951        1,718,377
Deposits and Other Assets                                                                  27,506           26,517
                                                                                   --------------       ----------
         Total Assets                                                                 $11,075,058       $8,981,979
                                                                                   --------------       ----------

                      Liabilities and Shareholders' Equity
Current Liabilities:
   Accounts payable and accrued expenses                                           $      781,879     $    578,592
   Unearned revenue                                                                       242,168          123,961
   Current portion of long term obligations                                                73,201           84,004
                                                                                   --------------       ----------
       Total Current Liabilities                                                        1,097,248          786,557
                                                                                   --------------       ----------

Long Term Obligations, less current portion                                               961,584        5,079,832

Shareholders' Equity:
   Preferred stock, $.001 par value, 30,000,000 shares authorized; and
     1,894,033 and 0 shares issued and outstanding in 1997 and 1996,
     respectively                                                                           1,894                -
   Class A voting common stock, $.001 par value, 100,000,000 shares
     authorized; 9,003,804 and 6,453,804 shares issued; and 8,996,804
     and 6,453,804 shares outstanding in 1997 and 1996, respectively                        9,004            6,454
   Class B non-voting common stock, $.001 par value, 1,000,000 shares
     authorized; and 634,035 and 484,035 issued and outstanding in 1997
     and 1996, respectively                                                                   634              484
   Additional paid-in capital                                                          12,091,050        4,777,772
   Accumulated deficit                                                                 (3,079,918)      (1,467,762)
   Treasury shares                                                                         (6,438)               -
   Notes receivable from sale of stock                                                          -         (201,358)
                                                                                   --------------       ----------
                                                                                        9,016,226        3,115,590
                                                                                   --------------       ----------
         Total Liabilities and Shareholders' Equity                                   $11,075,058       $8,981,979
                                                                                   --------------       ----------

       The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                                                              31
<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                               For the Year Ended December 31,
                                                  1997             1996
Revenues:
     Monitoring                                 $3,772,108        $2,685,734
     Installation and service                    1,852,682           935,256
                                                ----------        ----------
          Total Revenues                         5,624,790         3,620,990
                                                ----------        ----------

Operating Expenses:
     Monitoring                                    579,373           498,929
     Installation and service                    1,653,003           926,319
     General and administrative                  2,488,045         1,452,120
     Amortization of customer contracts          1,181,607           577,611
     Depreciation and amortization                 295,666           195,679
                                                ----------        ----------
          Total Operating Expenses               6,197,694         3,650,658
                                                ----------        ----------

          Loss From Operations                    (572,904)          (29,668)

Interest Expense                                 1,001,187           560,680
                                                ----------        ----------

         Net Loss                              $(1,574,091)        $(590,348)
                                                ----------        ----------

Average Common Shares Outstanding                7,510,549         4,497,771
                                                ----------        ----------

Loss Per Common Share                       $        (0.21)    $       (0.13)
                                                ----------        ----------

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

                                                                        32<PAGE>
<TABLE>
<CAPTION>


                          GUARDIAN INTERNATIONAL, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                        PREFERRED        COMMON STOCK         COMMON       ADDITIONAL
                                          STOCK             CLASS A            STOCK         PAID-IN        ACCUMULATED
                                         SERIES A     SHARES      AMOUNT      CLASS B        CAPITAL          DEFICIT

<S>                                     <C>           <C>           <C>        <C>            <C>               <C>
Balance, January 1, 1996                $             3,226,902     $3,227     $      -       $1,060,903        $(877,414)
                                                 -

   Issuance of stock in connection
     with Everest acquisition                    -    3,226,902      3,227            -        4,962,429                -
   Distribution to shareholder                   -            -          -            -       (1,667,838)               -
   Issuance of 484,035 shares of
     stock to financial institution              -            -          -          484          422,278                -
   Net loss for period                           -            -          -            -                -         (590,348)
                                        ----------    ---------     ------     --------       ----------       ----------

Balance, December 31, 1996                       -    6,453,804      6,454          484        4,777,772       (1,467,762)

   Purchase of treasury shares                   -       (7,000)         -            -                -                -
   Write-off of notes receivable from
     sale of stock                               -            -          -            -         (201,358)               -
   Issuance of Class A voting common
     stock in connection with
     acquisition                                 -       50,000         50            -           38,950                -
   Issuance of 150,000 shares of
     stock to financial institution              -            -          -          150          130,350                -
   Sale of 1,875,000 Series A
     preferred stock at $2.00 per
     share and Class A voting
     common stock at $1.50 per
     share, net of issuance costs of
     $188,335                                1,875    2,500,000      2,500            -        7,307,290                -
   Dividend on Series A preferred
     stock of 19,033 shares                     19            -          -            -           38,046          (38,065)
   Net loss for period                           -            -          -            -                -       (1,574,091)
                                        ----------    ---------     ------     --------       ----------       ----------

Balance, December 31, 1997                  $1,894    8,996,804     $9,004         $634      $12,091,050      $(3,079,918)
                                        ==========    =========     ======     ========       ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                     NOTES RECEIVABLE
                                        TREASURY           FROM
                                         SHARES       SALE OF STOCK        TOTAL

<S>                                     <C>            <C>                  <C>
Balance, January 1, 1996                $        -     $             -      $186,716


   Issuance of stock in connection
     with Everest acquisition                    -            (201,358)    4,764,298
   Distribution to shareholder                   -                   -    (1,667,838)
   Issuance of 484,035 shares of
     stock to financial institution              -                   -       422,762
   Net loss for period                           -                   -      (590,348)
                                        ----------     ---------------    ----------

Balance, December 31, 1996                       -            (201,358)    3,115,590

   Purchase of treasury shares              (6,438)                  -        (6,438)
   Write-off of notes receivable from
     sale of stock                               -             201,358             -
   Issuance of Class A voting common
     stock in connection with
     acquisition                                 -                   -        39,000
   Issuance of 150,000 shares of
     stock to financial institution              -                   -       130,500
   Sale of 1,875,000 Series A
     preferred stock at $2.00 per
     share and Class A voting
     common stock at $1.50 per
     share, net of issuance costs of
     $188,335                                    -                   -     7,311,665
   Dividend on Series A preferred
     stock of 19,033 shares                      -                   -             -
   Net loss for period                           -                   -    (1,574,091)
                                        ----------     ---------------    ----------

Balance, December 31, 1997                 $(6,438)     $            -    $9,016,226
                                        ==========     ===============    ==========
</TABLE>

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

                                                                              33
<PAGE>
<TABLE>
<CAPTION>

                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                                                        1997              1996
<S>                                                                                    <C>               <C>
Cash Flows From Operating Activities:

   Net Loss                                                                            $(1,574,091)      $  (590,348)

   Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Depreciation and amortization                                                       295,666           195,679
       Amortization of customer accounts                                                 1,181,607           577,611
       Amortization of deferred financing costs                                            323,210            14,092
       Provision for doubtful accounts                                                     287,870           124,015

   Changes in assets and liabilities:
       Accounts receivable                                                                (258,202)         (349,874)
       Intangibles and other assets                                                       (248,043)           57,327
       Accounts payable and accrued liabilities                                            301,316           121,064
       Unearned revenue                                                                    118,207            63,081
                                                                                       -----------       -----------
         Net Cash Provided By Operating Activities                                         427,540           212,647
                                                                                       -----------       -----------

Cash Flows From Investing Activities:

   Purchase of fixed assets                                                               (215,712)         (237,731)
   Acquisition of customer accounts                                                     (4,181,552)       (3,274,389)
   Cash acquired in acquisition                                                                  -         3,153,330
                                                                                       -----------       -----------
         Net Cash Used In Investing Activities                                          (4,397,264)         (358,790)
                                                                                       -----------       -----------
Cash Flows From Financing Activities:

   Payments of long term obligations                                                   (11,938,404)       (2,022,467)
   Proceeds from line of credit                                                          7,659,353         5,054,690
   Payment of shareholder loans                                                                  -          (194,644)
   Distribution to shareholder                                                                   -        (1,667,838)
   Proceeds from sale of preferred stock, net                                            7,311,665                 -
   Purchase of treasury shares                                                              (6,438)                -
                                                                                       -----------       -----------
         Net Cash Provided By Financing Activities                                       3,026,176         1,169,741
                                                                                       -----------       -----------

         Net Change In Cash and Cash Equivalents                                          (943,548)        1,023,598

Cash and Cash Equivalents, beginning of period                                           1,037,861            14,263
                                                                                       -----------       -----------

Cash and Cash Equivalents, end of period                                              $     94,313        $1,037,861
                                                                                       -----------       -----------
</TABLE>
                                                    (CONTINUED)
                                                                              34
<PAGE>
<TABLE>
<CAPTION>

                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                    (CONTINUED)
                                                                                        1997              1996

<S>                                                                                       <C>           <C>
Noncash Investing and Financing Activities:

   Financed acquisition of property                                                       $150,000      $    100,537
                                                                                          --------      ------------
   Issuance of Class B common stock                                                       $130,500      $    422,761
                                                                                          --------      ------------
   Issuance of Class A common stock in acquisition of:
     Vehicles                                                                            $  16,870      $          -
                                                                                          --------      ------------
     Customer contracts                                                                  $  22,130      $          -
                                                                                          --------      ------------
   Write off of notes from sale of stock                                                  $201,358      $          -
                                                                                          --------      ------------
   Contract holdbacks applied against accounts written off                               $  98,029      $          -
                                                                                          --------      ------------
   Dividend on Preferred Stock                                                           $  38,065      $          -
                                                                                          --------      ------------

   Value of Everest net assets acquired :
     Subscriber accounts acquired                                                        $       -      $    352,000
     Goodwill                                                                            $       -      $  1,223,000
     Other assets                                                                        $       -      $    332,743
     Purchase price and assumed liabilities                                              $       -      $ (1,870,032)

Supplemental Disclosures:

   Interest paid                                                                         $ 698,833      $    540,933
                                                                                          --------      ------------
   Income taxes paid                                                                     $       -      $          -
                                                                                          --------      ------------
</TABLE>

           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.
                                                                              35
<PAGE>

                          GUARDIAN INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF CONSOLIDATION
     The consolidated financial statements include the accounts of Guardian
     International, Inc. ("Guardian") and its wholly owned subsidiary,
     collectively the Company ("the Company"). All significant intercompany
     accounts and transactions have been eliminated in consolidation.

     DESCRIPTION OF BUSINESS
     The Company operates a central monitoring alarm station and sells and
     installs alarm systems for residential and commercial customers in the
     United States (its primary market).

     REVENUE RECOGNITION
     Revenues are recognized when installation of security alarm systems has
     been performed and when monitoring services are provided. Customers are
     billed for monitoring 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 monitoring.
     Costs of providing installations, including inventory, are charged to
     income in the period when the installation occurs, except in cases where
     the Company maintains ownership of the equipment installed, in which case
     the Company capitalizes the cost of the equipment to property and equipment
     and depreciates the amount over a seven year period. Losses on contracts
     for which future costs are anticipated to exceed revenues are recognized in
     the period in which such losses are identified. 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. A substantial number of contracts are on an automatic renewal
     basis.

     CASH AND CASH EQUIVALENTS
     All highly liquid investments purchased with a remaining maturity of three
     months or less at the date acquired are considered cash equivalents.

     CUSTOMER ACCOUNTS AND INTANGIBLE ASSETS
     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 and included in "Customer Accounts, net" in the accompanying
     consolidated balance sheets. Costs applicable to internally generated
     customer accounts are expensed as incurred. Customer accounts that are
     capitalized are amortized on a straight-line basis over a 10 year period.
     It is the Company's policy to perform monthly evaluations of acquired
     customer account attrition and, if necessary, adjust the remaining useful
     lives. The Company periodically estimates future cash flows from customer
     accounts. Because expected cash flows have exceeded the unamortized cost of
     customer accounts the Company has not recorded an impairment loss.
                                                                              36
<PAGE>

     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 operating cash flows
     derived from such intangibles is less than their carrying value.

     PROPERTY AND EQUIPMENT
     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 five to seven years, and the
     estimated useful lives for leasehold improvements (see Note 8) is
     approximately thirty years.

     FAIR VALUE OF FINANCIAL INSTRUMENTS
     Carrying amounts of certain of the Company's financial instruments
     including cash and cash equivalents, accrued payroll, and other accrued
     liabilities approximate fair value because of their short term maturities.

     INCOME TAXES
     Everest, the predecessor company (see Note 2), is a C Corporation subject
     to income taxes at the corporate level. Prior to the merger, Guardian was
     an S Corporation and subject to tax at the shareholder level. As a result
     of the merger on August 28, 1996, Guardian's S Corporation was terminated
     and any future earnings will be subject to income taxes at the corporate
     level.

     The Company has established deferred tax assets and liabilities for
     temporary differences between financial statement and tax bases of assets
     and liabilities, using enacted tax rates in effect in the years in which
     the differences are expected to reverse.

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

     LOSS PER COMMON SHARE
     The Company adopted SFAS No. 128 "Earnings Per Share", in December 1997.
     Basic loss per common share is computed by dividing net loss attributable
     to common shareholders (net loss of $1,574,091 plus the preferred dividends
     of $38,065) 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 into Class A voting common stock
     and the stock options to purchase shares of Class A voting common stock
     (see Note 11) are exercised, is not presented because the effect would be
     anti-dilutive for both 1997 and 1996. The Company's reported loss per share
     for 1996 has been restated to comply with the requirements of SFAS No. 128;
     however, there was no change to the amount previously reported. The
     weighted average shares outstanding used in the computation of net loss
     attributable to common shares are as follows:

                                         Weighted Average Shares
                                        Outstanding for the Year
                                           Ended December 31,
                                           1997           1996

       Class A common stock                7,008,842      4,332,005
                                                                              37
<PAGE>


       Class B common stock                  501,707        165,766
                                           ---------      ---------
                                           7,510,549      4,497,771
                                           =========      =========

     USE OF ESTIMATES
     The preparation of financial statements, in conformity with generally
     accepted accounting principles, requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     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.

 2.  ACQUISITIONS

     On August 28, 1996, Everest Security Systems Corporation ("Everest" or "the
     predecessor company") acquired all of the outstanding common stock of
     Guardian International, Inc. ("Guardian"), a non public company, by issuing
     3,226,902 new shares of Everest, representing 50% of Everest at August 28,
     1996. In addition, the merger specified that $1,750,000 shall be paid to
     the principal shareholder of Guardian as consideration for consummating the
     transaction as a return of capital (including repayment of remaining
     shareholder loans of $82,162 at the merger date). The transaction has been
     accounted for under the purchase method of accounting as a reverse
     acquisition with Guardian being deemed the acquirer. The fair value of the
     acquired company, Everest, was $1,948,539, not including net cash of
     approximately $3,100,000 from a private placement conducted by Everest on
     August 14, 1996. The excess of the cost over the fair value of the net
     assets acquired was $1,223,000 and is being amortized on a straight-line
     basis over 10 years. The name of the surviving entity was changed from
     Everest to Guardian. The consolidated balance sheet at December 31, 1996
     includes the consolidated balance sheet of the surviving entity and its
     wholly owned subsidiary; the consolidated statements of operations and cash
     flows include Guardian's operations for the twelve month period ended
     December 31, 1996 and include the wholly owned subsidiary acquired by
     Guardian from the merger date (August 28, 1996) through December 31, 1996.

     In connection with the acquisition, the Company issued during 1996, 484,035
     shares of Class B non-voting common stock to a financial institution for
     cancellation of their existing Capital Appreciation Rights, as defined in
     the loan agreement. Also, in accordance with the terms of an agreement the
     financial institution was issued during 1997, an additional 150,000 shares
     of Class B non-voting common stock. The shares were valued at $0.87 per
     share ($422,762 and $130,500 in the aggregate, respectively), capitalized
     as a cost of the acquisition of Everest and are being amortized over the
     remaining life of the debt expiring in May 1999 (see Note 7).

     In May 1997, the Company purchased customer accounts and contracts from a
     private alarm company for $2,200,000 in cash, 50,000 shares of Class A
     voting common stock valued at $0.78 per share, the market price of the
     Company's common stock on the date of the transaction ($39,000 in the
     aggregate), and an option to the Seller to purchase 100,000 additional
     shares of Class A voting common stock at $2.50 per share (see Note 11).

     Subsequent to year end in February 1998, the Company acquired all of the
     outstanding common stock of a private alarm company, for approximately
     $10,000,000 in cash and 1,981,700 shares of restricted Class A voting
     common stock, valued at $3.25 per share ($6,440,525 in the aggregate).
     The cash portion of the
                                                                              38
<PAGE>

     transaction was funded through the Company's credit facility
     (approximately $6,250,000) and the sale of 1,600,000 shares of 10 1/2%
     convertible, cumulative preferred stock for $4,000,000. The transaction
     will be accounted for under the purchase method of accounting. The fair
     value of the net assets acquired is approximately $15,530,000, not
     including net cash and cash equivalents. The acquisition agreement also
     contains a provision whereby a net working capital surplus (as defined)
     will be distributed to the former owners within forty-five days of the
     closing date. The excess of the cost over the fair value of the net
     assets acquired, approximately $1,119,000, will be amortized on a
     straight-line basis over 10 years. The pro forma balance sheet is based
     on initial estimates, as the Company has not yet finalized its purchase
     price allocation. The effects resulting from the finalization of the
     purchase price allocation is not expected to have a material effect on
     the financial statements.

     Unaudited pro forma balance sheet at December 31, 1997 giving effect to the
     February 1998 acquisition as of January 1, 1997 is reflected below.

                                                              UNAUDITED
                                                            December 31,
                                                                1997

       Cash and cash equivalents                             $  1,805,197
       Other current assets                                     2,185,506
       Property and equipment, net                                827,861
       Customer accounts, net                                  21,177,331
       Intangibles, net                                         2,521,862
       Other assets                                               187,804
                                                              -----------
         Total assets                                         $28,705,561
                                                              -----------

       Current liabilities                                  $   2,977,865
       Long term obligations                                    7,836,584
       Shareholders' equity                                    17,891,112
                                                              -----------
         Total liabilities and shareholders' equity           $28,705,561
                                                              -----------

     Unaudited pro forma results of operations giving effect to the acquisitions
     as of January 1, 1997 and 1996 are reflected below.
                                                           UNAUDITED
                                                      For the Years Ended
                                                          December 31,
                                                     1997             1996

       Revenues, net                                $11,029,936      $9,305,514
       Net loss applicable to common shares         $ 3,042,876      $2,385,709
       Loss per common share                        $      0.32      $     0.29
       Average common shares outstanding              9,624,577       8,357,109

     Pro forma net loss per share is computed by dividing the pro forma net loss
     by the pro forma average number of common shares outstanding during the
     periods.

     Pro forma average number of common shares outstanding represents the
     number of shares of common stock outstanding after giving retroactive
     effect to the 1,981,700 and 3,226,902 shares issued in connection with the
     acquisitions.
                                                                              39
<PAGE>

     The pro forma information is not necessarily indicative of the results
     of operations that would have occurred had the acquisition taken place on
     January 1 of the years presented, or of results, which may occur in the
     future.

3.   CUSTOMER ACCOUNTS

     The following is an analysis of the changes in acquired customer accounts
     for the years ended December 31, 1997 and 1996.

                                                   1997            1996
       Balance, beginning of year                 $5,124,449      $2,075,671
         Purchase of customer accounts             4,203,682       3,274,389
         Customer accounts acquired in merger              -         352,000
         Charges against contract holdbacks          (98,029)              -
         Amortization of customer accounts        (1,181,607)       (577,611)
                                                  ----------      ----------
       Balance, end of year                       $8,048,495      $5,124,449
                                                  ----------      ----------

     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
     withheld $292,297 and $92,949 at December 31, 1997 and 1996, respectively,
     as contract holdbacks in connection with the acquisition of customer
     accounts which are included in "Accounts payable and accrued expenses" in
     the consolidated balance sheets (see Note 6).


4.   PROPERTY AND EQUIPMENT

     Property and equipment, net, consist of the following at December 31, 1997
     and 1996:

                                                        1997         1996
       Property and equipment, at cost:
         Station equipment                             $  673,381     $504,973
         Station equipment under capital lease            150,000            -
         Vehicles, furniture and office equipment         183,878      147,244
         Leasehold improvements                           157,585      133,025
                                                       ----------     --------
                                                        1,164,844      785,242
       Accumulated depreciation and amortization         (435,786)    (300,383)
                                                       ----------     --------
                                                        $ 729,058     $484,859
                                                       ----------     --------
                                                                              40
<PAGE>

5.   INTANGIBLE ASSETS

     Intangible assets, net, consist of the following at December 31, 1997 and
     1996:
<TABLE>
<CAPTION>

                                                        Amortization
                                                           Period             1997             1996
       <S>                                                <C>                <C>              <C>
       Intangibles, at cost:
         Excess of acquisition cost over net
           assets acquired                                10 years           $1,223,000       $ 1,223,000
         Deferred financing costs                          3 years              695,686           422,761
         Covenant not to compete, organization
           costs and other                                 Various              203,187           215,429
                                                                             ----------       -----------
                                                                              2,121,873         1,861,190
       Less accumulated amortization                                           (606,922)         (142,813)
                                                                             ----------       -----------
                                                                             $1,514,951       $ 1,718,377
                                                                             ----------       -----------
</TABLE>

     Excess of acquisition cost over net assets acquired was recorded as a
     result of the merger of Guardian and Everest as described in Note 2.

     Deferred financing costs were incurred as a result of issuing to a
     financial institution 634,035 shares of Class B non-voting common stock in
     connection with the merger of Guardian and Everest as described in Note 2.
     The Company has also accrued the cost of commitment fees and expenses
     incurred in connection with the refinancing of its credit facility (see
     Note 7). The amortization of such costs is charged to interest expense over
     the life of the related indebtedness.


6.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of the following at December
     31, 1997 and 1996:

                                                  1997            1996
       Trade accounts payable                      $192,900         $357,219
       Contract holdbacks                           292,297           92,949
       Accrued commitment fee                        85,266                -
       Other                                        211,416          128,424
                                                   --------         --------
                                                   $781,879         $578,592
                                                   --------         --------

7.   LONG TERM OBLIGATIONS

     Long term obligations consist of the following at December 31, 1997 and
     1996:

                                                      1997          1996
       Credit facility with financial institution    $  752,898     $4,968,571
       Obligation for assets under capital lease        136,267              -
       Equipment notes payable and other                145,620        195,265
                                                      ---------      ---------
                                                      1,034,785      5,163,836
       Less current portion                             (73,201)       (84,004)
                                                      ---------      ---------
                                                       $961,584     $5,079,832
                                                      ---------      ---------

     During 1997, the Company entered into a lease agreement for central station
     equipment expiring in 2002, which specifies for annual and aggregate future
     minimum rentals of $38,700 and $170,925, respectively. The lease has been
     capitalized using an interest rate of approximately 10.51%. Amortization of
     the capitalized amount is included in depreciation expense.
                                                                              41
<PAGE>

     During 1997, the Company refinanced its existing credit facility with its
     lender (the "Renewed Credit Facility"). Under the Renewed Credit Facility,
     as amended and restated, the maximum credit facility available to the
     Company was increased from $7 million, available under the then existing
     agreement, to $20 million. Interest under the Renewed Credit Facility is
     based on the 90 day LIBOR plus an additional percentage varying from 4% to
     5% (10.89% at December 31, 1997), depending on the Company's outstanding
     borrowings and Tangible Net Worth (as defined). Interest under the prior
     credit facility bore interest at prime plus 3% (8.50% at December 31,
     1996). The Renewed Credit Facility expires in May 1999, and shall
     automatically renew from year to year thereafter unless terminated by
     either party. The credit facility is collateralized by substantially all of
     the Company's assets.

     On December 31, 1997 and 1996, the Company did not comply with certain
     conditions of the credit facility, primarily the debt service and the
     net worth ratio requirements for which waivers were obtained from the
     lender.

     Subsequent to year end and in connection with the February 1998 acquisition
     (see Note 2), the Company amended its credit facility with its lender ("the
     Amended Credit Facility"). Under the Amended Credit Facility, the term of
     the credit facility has been extended to May 31, 2001. Borrowings will bear
     interest at a Base Rate (defined as the Federal Reserve System's Prime
     Rate) plus one and three-quarters percent (1.75%) or, at the Company's
     election, the LIBOR rate plus three and one-half percent (3.50%).
     Availability under the Amended Credit Facility is subject to certain
     "Borrowing Base" limitations (as defined). The Amended 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, and the payment of dividends or making of other
     distributions to the Company's shareholders.

     Long term obligations mature as follows: $73,201 in 1998, $828,260 in 1999,
     $68,920 in 2000, $48,694 in 2001, and $15,710 in 2002.

8.   COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

     LEASED FACILITIES
     The Company leases its monitoring facilities from an affiliate which is
     owned by the principal shareholders of the Company at an annual rental of
     approximately $84,000 (plus annual increases not to exceed 3%) through
     December 31, 1999 with an option to renew for an additional 5 years under
     the same terms. Future minimum payments under operating and capital leases
     (see Note 7) are as follows:

                                                       Operating        Capital
       1998                                            $102,086        $ 38,700
       1999                                             104,528          38,700
       2000                                             103,020          38,700

                                                                              42
<PAGE>

       2001                                              97,335          38,700
       2002                                             100,256          16,125
       Thereafter                                       298,185               -
                                                       --------         -------
                                                       $805,410         170,925
                                                       --------         -------
       Less interest                                                    (34,658)
                                                                        -------
       Capital lease obligations reflected as current
         ($25,585) and non-current ($110,682) portions
         of long term obligations                                       $136,267
                                                                        --------
9.   INCOME TAXES

     At December 31, 1997, the Company has net operating loss carryforwards for
     federal income tax purposes of approximately $3,200,000, which begin to
     expire in 2010. The components of deferred tax assets and liabilities at
     December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>

                                                                              1997            1996
<S>                                                                           <C>            <C>
       Deferred tax (liabilities) assets
            Allowance for doubtful accounts - current                         $  77,551      $    64,863
            Difference in amortization of customer contracts                   (491,076)        (222,931)
            Net operating loss carryforwards                                  1,241,041          231,702
            Other                                                                39,325           54,925
                                                                              ---------      -----------
                                                                                866,841          128,559
              Less valuation allowance                                         (866,841)        (128,559)
                                                                              ---------      -----------
            Net deferred tax (liabilities) assets                             $       -      $         -
                                                                              =========      ===========
</TABLE>

     Realization of the above deferred tax assets is dependent on generating
     sufficient taxable income in the future to offset the deductible temporary
     differences generating the deferred tax assets. Net deferred tax assets
     have been fully reserved as their net realizability is not assured at the
     current time.


10.  SHAREHOLDERS' EQUITY

     COMMON AND PREFERRED STOCK
     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) and
     1,875,000 newly authorized shares of 9 3/4% Convertible, Cumulative
     Preferred Stock for $2.00 per share ($3,750,000 in the aggregate). The
     proceeds of the $7,500,000 investment was used to reduce debt and for
     acquisitions. The Preferred Shares are convertible (at the option of the
     holder or any time after two years from the date of issuance if the common
     stock trades above $3.00 per share for 20 consecutive days) into shares of
     Class A voting common stock on a share for share basis and have a
     liquidation preference of $2.00 per share. Dividends, at 9 3/4% per annum,
     are payable quarterly at the Company's option in cash or additional
     Preferred Shares during the first two years after issuance and in cash
     thereafter. The January 1, 1998 dividends will be paid by the issuance of
     additional Preferred Shares (19,033 shares or $38,065 in the aggregate,
     representing the pro-rata dividend from November 25, 1997). All references
     to the number of Preferred Shares have been restated to reflect the effect
     of the stock dividend.

     The Company's Class B non-voting common shares are convertible into Class A
     voting common stock at any time at the holder's election.

                                                                              43
<PAGE>

     NOTES RECEIVABLE FROM SALE OF STOCK
     Prior to its merger with Guardian International, Inc. (see Note 2), Everest
     Security Systems Corporation issued, among other issuances of common stock,
     485,000 shares of Common Stock at $2.00 per share. As consideration for
     285,000 of the shares issued pursuant to such offering, Everest received
     notes with original balances totaling $570,000. As of the date of the
     merger of Guardian and Everest, the balances outstanding on the notes was
     $201,358. After exhaustive collection efforts by the Company subsequent to
     the merger, no further monies have been received, nor are any additional
     collections anticipated. In light of the above factors, during the quarter
     ended June 30, 1997 the Company wrote off the $201,358 as a direct
     reduction to additional paid-in capital.

11.  STOCK OPTIONS

     During 1997, the Company issued 300,000 stock options to purchase shares of
     common stock at exercise prices ranging from $1.95 to $2.50 per share to
     various employees. 200,000 of these options are exercisable on a pro rata
     basis over five years and the remaining are exercisable on January 1, 1998.
     Also, there were 184,720 options shares issued and outstanding preceding
     and subsequent to the merger with Everest (see Note 2). As of December 31,
     1997 and 1996, 214,720 and 184,720 stock options were exercisable,
     respectively.

     The following is a summary of stock option activity for the years ended
     December 31, 1997 and 1996:
<TABLE>
<CAPTION>

                                                                 WEIGHTED AVERAGE
                                                     OPTION       EXERCISE PRICE
                                                     SHARES                                  DATE OF EXPIRATION
       <S>                                           <C>          <C>                  <C>
       Outstanding at January 1, 1996                       -
         Granted                                            -
         Assumed in connection with merger            184,720      $2.05               December 31, 2000
         Expired                                            -
         Exercised                                          -
                                                      -------
       Outstanding at December 31, 1996               184,720      $2.05
         Granted                                      300,000      $2.13               100,000 options on January 1, 2002
                                                                                       200,000 options on October 21, 2007
         Expired                                      (10,000)     $3.00
         Exercised                                          -
                                                      -------
       Outstanding at December 31, 1997               474,720      $2.08
                                                      -------
</TABLE>

                                                                              44
<PAGE>

     The Company has adopted Statement No. 123, ("SFAS No. 123") "Accounting for
     Stock-Based Compensation", which requires the Company 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 stock options pursuant to APB No. 25.
     Accordingly, the Company does not record compensation costs unless the
     market price exceeds the exercise price on the date of grant. If the
     Company had elected to recognize compensation cost based on the fair value
     of the options granted, the pro forma net loss and net loss per common
     share would be as follows:
<TABLE>
<CAPTION>
                                                                            UNAUDITED
                                                                 For the Year Ended December 31,
                                                                     1997             1996
       <S>                                                          <C>               <C>
       Net loss applicable to common shares:
          As reported for 1997 and previously reported pro
            forma for 1996                                          $1,612,156        $1,065,830
         Pro forma for SFAS No. 123                                 $1,758,116        $1,083,730

       Net loss per common share:
         As reported for 1997 and previously reported pro
            forma for 1996                                               $0.21     $        0.17
         Pro forma for SFAS No. 123                                      $0.23     $        0.17
</TABLE>

     The value of each option grant was estimated on the date of grant using the
     Black-Scholes option pricing model using the following weighted average
     assumptions: expected volatility approximating 157%, risk-free interest
     rate ranging from 6% to 7%, expected dividends of $0 and expected lives of
     5 to 10 years.


12.  IMPLEMENTATION OF NEW FINANCIAL ACCOUNTING STANDARDS

     In June 1997, the Financial Accounting Standards Board issued Statements of
     Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
     Income" and No. 131 "Disclosure About Segments of an Enterprise and Related
     Information." SFAS No. 130 requires that an enterprise classify items of
     other comprehensive income by their nature in a financial statement and
     display the accumulated balance of other comprehensive income separately
     from retained income and additional capital in the shareholders' equity
     section of the balance sheet. SFAS 131 established standards for the way
     that public enterprises report information about operating segments in
     annual financial statements and requires that those enterprises report
     selected information about operating segments in interim financial reports
     issued to stockholders. It also established standards for disclosures about
     products and services, geographic areas and major customers. Both
     statements are effective for fiscal year 1998. The Company has not
     completed evaluating the impact of implementing the provisions of SFAS Nos.
     130 and 131.

                                                                              45
<PAGE>
<TABLE>
<CAPTION>

                          GUARDIAN INTERNATIONAL, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



                                       BALANCE AT             CHARGED TO        CHARGED TO OTHER                     BALANCE AT
                                    BEGINNING OF YEAR     COST AND EXPENSES       ACCOUNTS (A)      DEDUCTIONS (B)   END OF YEAR

<S>                                 <C>                   <C>                   <C>                 <C>              <C>
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from assets for
  Doubtful accounts                          $166,315              $287,870         $         -         $(255,337)      $198,848
                                             --------              --------         -----------         ---------       --------

YEAR ENDED DECEMBER 31, 1996
Allowances deducted from assets for
  Doubtful accounts                           $15,000              $124,015         $    27,300         $       -       $166,315
                                             --------              --------         -----------         ---------       --------
</TABLE>



     (A) Allowance of subsidiary acquired in merger.

     (B) Results from write-offs of accounts receivable.
46
<PAGE>

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

None.

                                    PART III

ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The following table sets forth the names, ages and positions of the executive
officers and directors of the Company as of December 31, 1997. A summary of the
background and experience of each of these individuals is set forth following
the table. Under the Company's bylaws, directors hold office for a period of one
year, at which time the shareholders elect new directors. Further, under the
Company's bylaws, directors hold office until their successors are elected and
qualified.
<TABLE>
<CAPTION>



NAME                          AGE
POSITION

<S>                            <C>               <C>
Harold Ginsburg (1)            29                Chief Executive Officer, President, Director

Sheilah Ginsburg (1)           58                Secretary/Treasurer, Director

Harold Ginsburg (1)            65                Chairman of the Board of Directors

Darius G. Nevin                40                Vice President, Chief Financial Officer, Director

William Remington              68                Director

Terry E. Akins                 51                Chief Operating Officer, Vice President

</TABLE>

(1) Richard Ginsburg is the son of Harold and Sheilah Ginsburg.

                                                                              47

<PAGE>


RICHARD GINSBURG

Mr. Ginsburg was a co-founder of Guardian. He received a Bachelor of Science
degree in communications from the University of Miami. He subsequently acquired
management skills at Guardsman Central Security Corporation where he was the
Central Station Manager from 1987 to 1990. Mr. Ginsburg then became Operations
Manager for the Alert Centre, another security alarm company, a position he
filled from 1990 to 1992. From 1993 to the present, at Guardian, Mr. Ginsburg
developed and implemented the Guardian Authorized Dealer Program, the Guardian
acquisition strategy program and the development of Guardian's central
monitoring station and related operations. Mr. Ginsburg has a working knowledge
of numerous industry automation systems, including PICK, UNIX and off-site data
base management programs commonly used within the alarm industry.

Mr. Richard Ginsburg does not hold directorships in any other reporting
companies.

HAROLD GINSBURG

Mr. Harold Ginsburg was a co-founder and the President of Guardian from its
inception in 1993 until August 15, 1996. Mr. Ginsburg is an acknowledged
authority on electronic/computer technology security systems and has personally
developed high-tech security systems for such companies as United Parcel
Services, WendiCorp, Lufthansa and many other regional and national firms. Mr.
Ginsburg also has served as a consultant to financial organizations and
government agencies throughout Latin America and Europe. In addition to being
regarded as an international consultant in the alarm service and monitoring
industry, he is responsible for the start-up of several successful security
companies, including Guardsman Security Corporation, which he owned and operated
from 1983 to 1991, at which time Guardsman was sold to Alert Centre, now owned
by ADT Security, Inc. In 1978, Mr. Ginsburg founded Gibraltar Central Security
Corporation, which he partially owned and operated until 1982, at which time
Gibraltar Central was sold to Security Centres of London, England.

Mr. Harold Ginsburg does not hold directorships in any other reporting
companies.

SHEILAH GINSBURG

Mrs. Sheilah Ginsburg was a co-founder of Guardian. She is responsible for
day-to-day accounting and administrative functions of the Company. Prior to her
participation in the development of Guardian, Mrs. Ginsburg was the Vice
President/Controller of Guardsman Central Security, a business similar to
Guardian.

Mrs. Ginsburg does not hold directorships in any other reporting companies.


                                                                              48
<PAGE>

DARIUS G. NEVIN

Mr. Darius G. Nevin assumed the position of Chief Financial Officer of the
Company in October 1997. For most of the ten years leading up to that time, Mr.
Nevin served as Chief Financial Officer of Guard Technologies, Inc. (now
Security Technologies Group, Inc.), a provider of electronic security systems
and services to the commercial market. For the last three years, prior to
joining the Company, Mr. Nevin also served as President of Guard Technologies,
Inc. Before entering the security industry, Mr. Nevin was a junior partner of
Madison Dearborn Partners, at that time the venture capital division of First
Chicago Corp. Mr. Nevin holds an A.B. from Harvard University and an M.B.A. from
the University of Chicago.

Mr. Nevin does not hold directorships in any other reporting companies.

WILLIAM REMINGTON

Mr. William Remington is a Canadian citizen and resident. For the past
twenty-one years, Mr. Remington has been the Director General of the Town of
Hampstead, Quebec, Canada. In addition, Mr. Remington has participated in the
design and installation of central monitoring stations for alarm monitoring
companies located in Montreal, Canada, Kingston, Jamaica, London, England and
Florida.

Mr. Remington does not hold directorships in any other reporting companies.

TERRY E. AKINS

Mr. Terry E. Akins served as president of ACI, which he co-founded in 1970,
between 1989 and May 1997. From 1970 to 1989, Mr. Akins served as Vice President
of ACI. In addition, Mr. Akins has been active with local, state and national
alarm associations, having served in 1989 as President of The Alarm Association
of Florida, an association he co-founded in 1970. Mr. Akins received a Bachelor
of Science from the Georgia Institute of Technology in 1969.

Mr. Akins does not hold directorships in any other reporting companies.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company's directors and executive officers are required to file initial
reports of ownership and reports of changes of ownership of Common Stock with
the Securities and Exchange Commission. Based upon a review of these filings and
written representations from the directors and executive officers, all required
filings were timely made in 1997, except that Messrs. Richard Ginsburg and
Darius G. Nevin each failed to report one transaction on a Form 4.

ITEM 10.      EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The following sets forth certain information regarding the aggregate cash and
other compensation paid to or earned by the Chief Executive Officer of the
Company. No other executive officer earned salary and bonus in Fiscal Year 1997
in excess of $100,000.

SUMMARY COMPENSATION TABLE

                                                   ANNUAL COMPENSATION

       NAME AND PRINCIPAL POSITION           YEAR      SALARY (1)     OTHER(2)

Richard Ginsburg, President and              1997          $91,985    $10,800
CEO, Director                                1996           29,042     10,800

(1)  Mr. Ginsburg's salary was increased in October 1997, with the execution of
     his employment agreement, see below. The 1996 compensation represents only
     the amounts paid between September 1, 1996, the date Mr. Ginsburg was
     elected Chief Executive Officer of the Company, and December 31, 1996. The
     annualized compensation for 1996 for Mr. Ginsburg was $90,000.
(2)  Included in other annual compensation, in both 1997 and 1996, is
     approximately $600 per month for lease payments for the automobile used by
     Mr. Ginsburg and approximately $300 per month for health insurance
     premiums.


COMPENSATION OF DIRECTORS

Directors of the Company received no compensation to act in such capacity,
during Fiscal Year 1997.

EMPLOYMENT AGREEMENTS

On October 14, 1997, the Company entered into an employment agreement for an
initial three year term with Mr. Richard Ginsburg pursuant to which he serves as
Chief Executive Officer of the Company. Under the terms of the agreement, Mr.
Ginsburg receives an initial annual base salary of $100,000, which may be
increased from time to time by the Board of Directors and will be eligible for
annual bonuses also determined at the discretion of the Board. Also included was
a grant of 100,000 options to purchase Guardian Common Stock at $1.95 per share,
which vest 20% at the inception of the contract and 20% on each anniversary of
employment until fully vested and expire in ten years.



                                                                              49
<PAGE>


ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 26, 1998 by the executive
officers and directors of the Company. The percentages shown include the Common
Stock and the Preferred Stock, unless otherwise indicated.
<TABLE>
<CAPTION>


                                                                                SHARES
                                                                             BENEFICIALLY           PERCENTAGE OF
NAME OF BENEFICIAL OWNER OF IDENTITY GROUP (1)                                  OWNED            OUTSTANDING SHARES

<S>                                                                                  <C>                   <C>
Richard Ginsburg(2)                                                                  649,246               4.1%

Harold Ginsburg(2)                                                                 1,003,533               6.4

Sheilah Ginsburg(2)                                                                  903,533               5.7

Other Directors and Officers, as a group (3)                                       3,272,910              20.8
</TABLE>

(1)  The address for each person listed in this table is c/o Guardian
     International, Inc., 3880 North 28 Terrace, Hollywood, Florida 33020-1118.

(2)  Richard Ginsburg is the son of Harold and Sheilah Ginsburg. Harold and
     Sheilah and are husband and wife and each disclaims ownership of the
     other's shares.

(3)   Includes 100,000 shares issuable upon exercise of options held by Terry
      E. Akins.

     The following table sets forth certain information regarding each person
known to the Company, other than the executive officers and directors of the
Company (similar information regarding executive officers and directors is shown
in the above table), who may be considered a beneficial owner of more than 5% of
the outstanding shares of the Common Stock as of March 26, 1998. The percentages
shown include both the Class A Stock and the Preferred Stock. The information
below was obtained from Schedule 13D, Amendment No. 3, dated February 26, 1998,
filed by Westar Capital, Inc. with the Securities and Exchange Commission.
<TABLE>
<CAPTION>



                                                                       SHARES BENEFICIALLY          PERCENTAGE OF
NAME OF BENEFICIAL OWNER OF IDENTITY GROUP                                  OWNED (1)           OUTSTANDING SHARES (1)

<S>                                                                                 <C>                  <C>
Westar Capital, Inc.                                                                6,454,033            41.0%
818 Kansas Avenue
Topeka, KS  66612

Harold Ginsburg(2)                                                                  1,003,533            6.4

Sheilah Ginsburg(2)                                                                   903,533            5.7
</TABLE>

(1) The Company issued to Westar Security, Inc. an additional 19,033 shares of
Series A Preferred Stock as a stock dividend, which were not included in the
Schedule 13D referenced above.
(2) The address for each person listed in this table is c/o Guardian
International, Inc., 3880 North 28 Terrace, Hollywood, Florida 33020-1118.
(3) Harold and Sheilah and are husband and wife and each disclaims ownership
of the other's shares.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company leases its corporate headquarters from Guardian Investment,
a Florida partnership owned by Harold and Sheilah Ginsburg, both of whom are
directors, officers and principal shareholders of the Company. During 1997, the
Company occupied 6,000 square feet of the building which houses the Company's
central monitoring station, located at 3880 N. 28 Terrace, Hollywood, Florida
33020. The telephone number is (954) 926-5200. The lease will expire on December
31, 1999, but the Company has an option to renew for an additional five years
under the same terms and conditions. At December 31, 1997 the annual rental was
approximately $84,000, with annual increases not to exceed three percent (3%).
The terms of the lease are no less favorable to the Company than those which
could be obtained from unaffiliated third parties.

     For a discussion of certain Common Stock issuances and transfers to certain
affiliates of the Company, see Item 5 - Market for Common Equity and Related
Stockholder Matters.

                                                                              50

<PAGE>


ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K (SEE TABLE OF CONTENTS)

EXHIBITS

3(i)         Articles of Incorporation dated October 30, 1986 incorporated by
             reference to the Company's Form 10SB12G filed as of June 18, 1996

3(i)(a)      Amendment to the Articles of Incorporation incorporated by
             reference to the Company's Form 10SB12G filed as of June 18, 1996

3(i)(b)      Amendment to the Articles of Incorporation incorporated by
             reference to the Company's Form 10SB12G filed as of June 18, 1996

3(i)(c)      Amendment to the Articles of Incorporation incorporated by
             reference to the Company's Form 10SB12G/A filed as of January 23,
             1997

3(i)(d)      Amendment to the Articles of Incorporation filed with the Secretary
             of the State of Nevada on November 24, 1997

3(ii)        Amended and Restated Bylaws of the Company incorporated by
             reference to Exhibit 3(ii) of the Company's Quarterly Report on
             Form 10QSB filed as of November 14, 1997

4(a)         Specimen Stock Certificate incorporated by reference to the
             Company's Form 10SB12G as of June 18, 1996

4(b)         Certificate of the Designations, Voting Power, Preferences and
             Relative, Participating, Optional and Other Special Rights and
             Qualifications, Limitations or Restrictions of Preferred Stock,
             filed in the Office of the Secretary of State of the State of
             Nevada on November 24, 1997 designating the first series of
             Preferred Stock of the Company as "Series A 9 3/4% Convertible
             Cumulative Preferred Stock, par value $.001 per share"

4(c)         Certificate of the Designations, Voting Power, Preferences and
             Relative, Participating, Optional and Other Special Rights and
             Qualifications, Limitations or Restrictions of Preferred Stock, of
             Guardian International, Inc., filed in the Office of the Secretary
             of State of the State of Nevada on February 23, 1998 designating
             the second series of Preferred Stock of the Company as "Series B 10
             1/2% Convertible Cumulative Preferred Stock, par value $.001 per
             share"

4(d)         Amendment to Certificate of the Designations, Voting Power,
             Preferences and Relative, Participating, Optional and Other Special
             Rights and Qualifications, Limitations or Restrictions of the
             Series A 9 3/4% Convertible Cumulative Preferred Stock, par value
             $.001 per share, of Guardian International, Inc., filed in the
             Office of the Secretary of State of the State of Nevada on March
             13, 1998.

4(e)         Amendment to Certificate of the Designations, Voting Power,
             Preferences and Relative, Participating, Optional and Other Special
             Rights and Qualifications, Limitations or Restrictions of the
             Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
             $.001 per share, of Guardian International, Inc., filed in the
             Office of the Secretary of State of the State of Nevada on March
             13, 1998.

9            Lock-up Agreement dated August 15, 1996 among the Company,
             International Treasury and Investments, Ltd., Steven Sanders,
             Knight Financial Corporation and Frank Bauer incorporated by
             reference to Exhibit 9 of the Company's Annual Report on Form
             10KSB40 filed as of March 31, 1997


                                                                              51

<PAGE>

10(a)        Share Purchase Agreement dated October 9, 1995 between Security
             Device Installers, Inc. and Everest Security Systems Corporation
             incorporated by reference to the Company's Form 10SB12G filed as of
             June 18, 1996

10(b)        Amendment to October 9, 1995 Share Purchase Agreement incorporated
             by reference to the Company's Form 10SB12G filed as of June 18,
             1996

10(b)(1)     Employment Agreement between Security Device Installers,  Inc. and
             Frank Bauer incorporated by reference to the Company's Form
             10SB12G/A filed January 23, 1997

10(d)        Consulting Agreement between Harold Ginsburg and the Company
             incorporated by reference to the Company's Form 10SB12G/A filed
             January 23, 1997

10(e)        Executive Employment Agreement between Richard Ginsburg and the
             Company incorporated by reference to Exhibit 10(e) of the Company's
             Annual Report on Form 10KSB filed as of March 31, 1997

10(f)        Employee Stock Option Agreement with G.M. Capital Partners, Ltd.
             incorporated by reference to the Company's Form 10SB12G/A filed
             January 23, 1997

10(g)        Employee Stock Option Agreement with Frank Bauer incorporated by
             reference to Exhibit 10(f) to the Company's Form 10SB12G filed as
             of June 18, 1996

10(h)        Loan and Security Agreement between Heller Financial, Inc. and
             Guardian International, Inc. and exhibits thereto incorporated by
             reference to the Company's Form 10SB12G/A filed January 23, 1997

10(i)        Modification Agreement with Heller Financial, Inc. incorporated by
             reference to the Company's Form 10SB12G/A filed as of January 23,
             1997

10(j)        Amended and Restated Loan and Security Agreement with Heller
             Financial, Inc. dated as of  February 23, 1998

10(k)        Waiver letter from Heller Financial, Inc. dated March 11, 1997
             incorporated by reference to Exhibit 10(k) of the Company's Annual
             Report on Form 10-KSB filed March 31, 1997

10(l)        Waiver letter from Heller Financial, Inc. dated March 26, 1997
             incorporated by reference to Exhibit 10(l) of the Company's Annual
             Report on Form 10-KSB filed March 31, 1997

10(m)        Waiver letter from Heller Financial, Inc. dated March 26, 1998

10(n)        Plan and Agreement of Merger of Guardian International, Inc. with
             and into Everest Security Systems Corporation, incorporated by
             reference to Exhibit 2.1 AG of the Company's 8-K filed September
             12, 1996

10(o)        Stock Subscription Agreement dated as of October 14, 1997
             incorporated by reference to Exhibit (1) to the Company's Form 8-K
             filed as of October 23, 1997

10(p)        Registration Rights Agreement dated as of October 21, 1997
             incorporated by reference to Exhibit (2) to the Company's Form 8-K
             filed as of October 23, 1997

10(q)        Stockholders Agreement dated as of October 21, 1997 incorporated
             by reference to Exhibit (3) to the Company's Form 8-K filed as of
             October 23, 1997

10(r)        Employment Agreement with Harold Ginsburg effective as of October
             10, 1997

                                                                              52
<PAGE>

10(s)        Employment Agreement with Richard Ginsburg dated October 15, 1997

10(t)        Employment Agreement with Darius G. Nevin dated October 15, 1997

10(u)        Stock Purchase Agreement dated as of February 23, 1998
             incorporated by reference to Exhibit 10(a) of the Company's Form
             8-K filed as of March 10, 1998

10(v)        Registration Rights Agreement dated as of February 23, 1998
             incorporated by reference to Exhibit 10(b) of the Company's Form
             8-K filed as of March 10, 1998

10(w)        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 as of March 10, 1998

10(x)        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 as of March 10, 1998

10(y)        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 as of March 10, 1998

10(aa)       Asset Purchase Agreement effective as of March 9, 1998
             incorporated by reference to Exhibit 10(a) to the Company's Form
             8-K filed as of March 24, 1998

10(bb)       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 as of
             March 24, 1998

10(cc)       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 as of March 24, 1998

10(dd)       Guaranty Agreement dated as of March 9, 1998 incorporated by
             reference to Exhibit 10(d) to the Company's Form 8-K filed as of
             March 24, 1998

10(ee)       Escrow Agreement date March 9, 1998 incorporated by reference to
             Exhibit 10(e) to the Company's Form 8-K filed as of March 24, 1998

10(ff)       Employment Agreement with Dan Lawrence dated March 9, 1998
             incorporated by reference to Exhibit 10(f) to the Company's Form
             8-K filed as of March 24, 1998

10(gg)       Amendment to Registration Rights Agreement dated as of February 23,
             1998

10(hh)       Stock Subscription Agreement dated as of February 23, 1998

10(ii)       Guardian International, Inc. Incentive Stock Option Plan
             incorporated by reference to the Company's Form 10SB12G filed as
             of June 18, 1996

21           List of the Company's wholly-owned subsidiaries as of March 26 1998

27           Financial Data Schedule

                                                                              53
<PAGE>

REPORTS ON FORM 8-K

         On October 22, 1997 the Company filed a Form 8-K announcing the $7.5
million investment by Westar Capital, Inc., which resulted in a change in
control of the Company.

                                                                              54

<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.

                                    GUARDIAN INTERNATIONAL, INC.


                                    By:   /s/ RICHARD GINSBURG
                                          Richard Ginsburg
                                          President and Chief Executive Officer


         In accordance with the Exchange Act, this report has been signed 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                       March 31, 1998
Harold Ginsburg


/s/ RICHARD GINSBURG                Director, President                          March 31, 1998
Richard Ginsburg                    and Chief Executive Officer
                                    (Principal Executive Officer)


/s/ SHEILAH GINSBURG                Director, Secretary and Treasurer           March 31, 1998
Sheilah Ginsburg


/s/ DARIUS G. NEVIN                 Director, Chief Financial Officer           March 31, 1998
Darius G. Nevin                     (Principal Financial and Principal
                                    Accounting Officer)


/s/ WILLIAM REMINGTON               Director                                    March 31, 1998
William Remington

</TABLE>

                                                                              55

<PAGE>
<TABLE>
<CAPTION>

                                INDEX TO EXHIBITS

                                                                                                            SEQUENTIALLY
EXHIBIT                                                                                                     NUMBERED
NUMBER            DESCRIPTION                                                                                 PAGE

<S>          <C>                                                                                            <C>
3(i)         Articles of Incorporation dated October 30, 1986 incorporated by
             reference to the Company's Form 10SB12G filed as of June 18, 1996

3(i)(a)      Amendment to the Articles of Incorporation incorporated by
             reference to the Company's Form 10SB12G filed as of June 18, 1996

3(i)(b)      Amendment to the Articles of Incorporation incorporated by
             reference to the Company's Form 10SB12G filed as of June 18, 1996

3(i)(c)      Amendment to the Articles of Incorporation incorporated by
             reference to the Company's Form 10SB12G/A filed as of January 23,
             1997

3(i)(d)      Amendment to the Articles of Incorporation filed with the Secretary
             of the State of Nevada on November 24, 1997

3(ii)        Amended and Restated Bylaws of the Company incorporated by
             reference to Exhibit 3(ii) of the Company's Quarterly Report on
             Form 10QSB filed as of November 14, 1997

4(a)         Specimen Stock Certificate incorporated by reference to the
             Company's Form 10SB12G as of June 18, 1996

4(b)         Certificate of the Designations, Voting Power, Preferences and
             Relative, Participating, Optional and Other Special Rights and
             Qualifications, Limitations or Restrictions of Preferred Stock,
             filed in the Office of the Secretary of State of the State of
             Nevada on November 24, 1997 designating the first series of
             Preferred Stock of the Company as "Series A 9 3/4% Convertible
             Cumulative Preferred Stock, par value $.001 per share"

4(c)         Certificate of the Designations, Voting Power, Preferences and
             Relative, Participating, Optional and Other Special Rights and
             Qualifications, Limitations or Restrictions of Preferred Stock, of
             Guardian International, Inc., filed in the Office of the Secretary
             of State of the State of Nevada on February 23, 1998 designating
             the second series of Preferred Stock of the Company as "Series B 10
             1/2% Convertible Cumulative Preferred Stock, par value $.001 per
             share"

4(d)         Amendment to Certificate of the Designations, Voting Power,
             Preferences and Relative, Participating, Optional and Other Special
             Rights and Qualifications, Limitations or Restrictions of the
             Series A 9 3/4% Convertible Cumulative Preferred Stock, par value
             $.001 per share, of Guardian International, Inc., filed in the
             Office of the Secretary of State of the State of Nevada on March
             13, 1998.

4(e)         Amendment to Certificate of the Designations, Voting Power,
             Preferences and Relative, Participating, Optional and Other Special
             Rights and Qualifications, Limitations or Restrictions of the
             Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
             $.001 per share, of Guardian International, Inc., filed in the
             Office of the Secretary of State of the State of Nevada on March
             13, 1998.

9            Lock-up Agreement dated August 15, 1996 among the Company,
             International Treasury and Investments, Ltd., Steven Sanders, Knight
             Financial Corporation and Frank Bauer incorporated by reference to
             Exhibit 9 of the Company's Annual Report on Form 10KSB40 filed as of
             March 31, 1997



                                                                              56


<PAGE>

10(a)        Share Purchase Agreement dated October 9, 1995 between Security
             Device Installers, Inc. and Everest Security Systems Corporation
             incorporated by reference to the Company's Form 10SB12G filed as of
             June 18, 1996

10(b)        Amendment to October 9, 1995 Share Purchase Agreement incorporated
             by reference to the Company's Form 10SB12G filed as of June 18,
             1996

10(b)(1)     Employment Agreement between Security Device Installers, Inc. and
             Frank Bauer incorporated by reference to the Company's Form
             10SB12G/A filed January 23, 1997

10(d)        Consulting Agreement between Harold Ginsburg and the Company
             incorporated by reference to the Company's Form 10SB12G/A filed
             January 23, 1997

10(e)        Executive Employment Agreement between Richard Ginsburg and the
             Company incorporated by reference to Exhibit 10(e) of the Company's
             Annual Report on Form 10KSB filed as of March 31, 1997

10(f)        Employee Stock Option Agreement with G.M. Capital Partners, Ltd.
             incorporated by reference to the Company's Form 10SB12G/A filed
             January 23, 1997

10(g)        Employee Stock Option Agreement with Frank Bauer incorporated by
             reference to Exhibit 10(f) to the Company's Form 10SB12G filed as
             of June 18, 1996

10(h)        Loan and Security Agreement between Heller Financial, Inc. and
             Guardian International, Inc. and exhibits thereto incorporated by
             reference to the Company's Form 10SB12G/A filed January 23, 1997

10(i)        Modification Agreement with Heller Financial, Inc. incorporated by
             reference to the Company's Form 10SB12G/A filed as of January 23, 1997

10(j)        Amended and Restated Loan and Security Agreement with Heller
             Financial, Inc. dated as of  February 23, 1998

10(k)        Waiver letter from Heller Financial, Inc. dated March 11, 1997
             incorporated by reference to Exhibit 10(k) of the Company's Annual
             Report on Form 10-KSB filed March 31, 1997

10(l)        Waiver letter from Heller Financial, Inc. dated March 26, 1997
             incorporated by reference to Exhibit 10(l) of the Company's Annual
             Report on Form 10-KSB filed March 31, 1997

10(m)        Waiver letter from Heller Financial, Inc. dated March 26, 1998

10(n)        Plan and Agreement of Merger of Guardian International, Inc. with
             and into Everest Security Systems Corporation, incorporated by
             reference to Exhibit 2.1 AG of the Company's 8-K filed September
             12, 1996

10(o)        Stock Subscription Agreement dated as of October 14, 1997
             incorporated by reference to Exhibit (1) to the Company's Form 8-K
             filed as of October 23, 1997

10(p)        Registration Rights Agreement dated as of October 21, 1997
             incorporated by reference to Exhibit (2) to the Company's Form 8-K
             filed as of October 23, 1997

10(q)        Stockholders Agreement dated as of October 21, 1997 incorporated
             by reference to Exhibit (3) to the Company's Form 8-K filed as of
             October 23, 1997

10(r)        Employment Agreement with Harold Ginsburg effective as of October
             10, 1997

                                                                              57
<PAGE>

10(s)        Employment Agreement with Richard Ginsburg dated October 15, 1997

10(t)        Employment Agreement with Darius G. Nevin dated October 15, 1997

10(u)        Stock Purchase Agreement dated as of February 23, 1998
             incorporated by reference to Exhibit 10(a) of the Company's Form
             8-K filed as of March 10, 1998

10(v)        Registration Rights Agreement dated as of February 23, 1998
             incorporated by reference to Exhibit 10(b) of the Company's Form
             8-K filed as of March 10, 1998

10(w)        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 as of March 10, 1998

10(x)        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 as of March 10, 1998

10(y)        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 as of March 10, 1998

10(aa)       Asset Purchase Agreement effective as of March 9, 1998
             incorporated by reference to Exhibit 10(a) to the Company's Form
             8-K filed as of March 24, 1998

10(bb)       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 as of
             March 24, 1998

10(cc)       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 as of March 24, 1998

10(dd)       Guaranty Agreement dated as of March 9, 1998 incorporated by
             reference to Exhibit 10(d) to the Company's Form 8-K filed as of
             March 24, 1998

10(ee)       Escrow Agreement date March 9, 1998 incorporated by reference to
             Exhibit 10(e) to the Company's Form 8-K filed as of March 24, 1998

10(ff)       Employment Agreement with Dan Lawrence dated March 9, 1998
             incorporated by reference to Exhibit 10(f) to the Company's Form
             8-K filed as of March 24, 1998

10(gg)       Amendment to Registration Rights Agreement dated as of February 23,
             1998

10(hh)       Stock Subscription Agreement dated as of February 23, 1998

10(ii)       Guardian International, Inc. Incentive Stock Option Plan
             incorporated by reference to the Company's Form 10SB12G filed as
             of June 18, 1996

21           List of the Company's wholly-owned subsidiaries as of March 26 1998

27           Financial Data Schedule

</TABLE>

                                                                              58
<PAGE>

                                 EXHIBIT INDEX

3(i)(d)      Amendment to the Articles of Incorporation filed with the Secretary
             of the State of Nevada on November 24, 1997

4(b)         Certificate of the Designations, Voting Power, Preferences and
             Relative, Participating, Optional and Other Special Rights and
             Qualifications, Limitations or Restrictions of Preferred Stock,
             filed in the Office of the Secretary of State of the State of
             Nevada on November 24, 1997 designating the first series of
             Preferred Stock of the Company as "Series A 9 3/4% Convertible
             Cumulative Preferred Stock, par value $.001 per share"

4(c)         Certificate of the Designations, Voting Power, Preferences and
             Relative, Participating, Optional and Other Special Rights and
             Qualifications, Limitations or Restrictions of Preferred Stock, of
             Guardian International, Inc., filed in the Office of the Secretary
             of State of the State of Nevada on February 23, 1998 designating
             the second series of Preferred Stock of the Company as "Series B
             10 1/2% Convertible Cumulative Preferred Stock, par value $.001 per
             share"

4(d)         Amendment to Certificate of the Designations, Voting Power,
             Preferences and Relative, Participating, Optional and Other Special
             Rights and Qualifications, Limitations or Restrictions of the
             Series A 9 3/4% Convertible Cumulative Preferred Stock, par value
             $.001 per share, of Guardian International, Inc., filed in the
             Office of the Secretary of State of the State of Nevada on March
             13, 1998.

4(e)         Amendment to Certificate of the Designations, Voting Power,
             Preferences and Relative, Participating, Optional and Other Special
             Rights and Qualifications, Limitations or Restrictions of the
             Series B 10 1/2% Convertible Cumulative Preferred Stock, par value
             $.001 per share, of Guardian International, Inc., filed in the
             Office of the Secretary of State of the State of Nevada on March
             13, 1998.

10(j)        Amended and Restated Loan and Security Agreement with Heller
             Financial, Inc. dated as of  February 23, 1998

10(m)        Waiver letter from Heller Financial, Inc. dated March 26, 1998

10(r)        Employment Agreement with Harold Ginsburg effective as of October
             10, 1997

10(s)        Employment Agreement with Richard Ginsburg dated October 15, 1997

10(t)        Employment Agreement with Darius G. Nevin dated October 15, 1997

10(gg)       Amendment to Registration Rights Agreement dated as of February 23,
             1998

10(hh)       Stock Subscription Agreement dated as of February 23, 1998

21           List of the Company's wholly-owned subsidiaries as of March 26 1998

27           Financial Data Schedule