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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                |X| Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 1999

              |_| Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                  For the transition period from _____ to _____

                         Commission File Number 0-28490

                          GUARDIAN INTERNATIONAL, INC.

           (Name of Small Business Issuer as specified in its charter)
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                   Florida                           58-1799634
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    (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 1999 fiscal year were $18,233,485.

         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 24, 2000 was $3,855,699.

         As of March 24, 2000, there are 8,384,441 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                                                                                            1

PART I.

Item 1.                    Description of Business                                                           2

Item 2.                    Description of Property                                                           13

Item 3.                    Legal Proceedings                                                                 13

Item 4.                    Submission of Matters to a Vote of Security Holders                               14

PART II.

Item 5.                    Market for Common Equity and Related Stockholder Matters                          15

Item 6.                    Management's Discussion and Analysis or Plan of Operations                        17

Item 7.                    Financial Statements                                                              25

Item 8.                    Changes In and Disagreements With Accountants on Accounting and Financial         25
                           Disclosure
PART III.

Item 9.                    Directors, Executive Officers, Promoters and Control Persons;                     43
                             Compliance with Section 16(a) of the Exchange Act

Item 10.                   Executive Compensation                                                            46

Item 11.                   Security Ownership of Certain Beneficial Owners and Management                    47

Item 12.                   Certain Relationships and Related Transactions                                    48

Item 13.                   Exhibits and Reports on Form 8-K                                                  49
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<PAGE>

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 made herein. Any statements that
express, or involve discussions as to, expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, identified
through the use of words or phrases such as the Company or management
"believes," "expects," "anticipates," "hopes," words or phrases such as "will
result," "are expected to," "will continue," "is anticipated," "estimated,"
"projection" and "outlook," and words of similar import) are not statements of
historical facts and may be forward-looking. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, including but not limited to, economic, competitive,
regulatory, growth strategies, available financing and other factors discussed
elsewhere in this report and in the documents filed by the Company with the
Securities and Exchange Commission ("SEC"). Many of these factors are beyond the
Company's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.

         Such forward-looking statements involve estimates, assumptions, and
uncertainties, and, accordingly, actual results could differ materially from
those expressed in the forward-looking statements. Such uncertainties include,
among others, the following: (i) the ability of the Company to add additional
customer accounts to its account base through acquisitions from third parties,
through internal sales efforts and through strategic alliances; (ii) the level
of 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 resources; (iv) increased false alarm fines
and/or the possibility of reduced public response to alarm signals; (v) changes
in local, state and federal regulations; (vi) availability of qualified
personnel; (vii) competitive factors in the industry, including additional
competition from existing competitors or future entrants to the industry; (viii)
social and economic conditions; (ix) natural disasters; and (x) other risk
factors described in the Company's reports filed with the SEC from time to time.

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


                                       1
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                                    PART I.

Item 1.  Description of Business
-------  -----------------------

The Company's Services

         The Company is presently a leading supplier of security monitoring and
high grade monitored security and fire systems in Florida and New York City. The
Company's principal activities include the following: (i) monitoring services
provided pursuant to alarm contracts owned by the Company; (ii) acquisition of
alarm contracts in connection with the acquisition of other alarm companies;
(iii) the sales and installation of electronic security and fire systems
including alarm, closed circuit television ("CCTV") and access control systems;
(iv) maintenance of electronic security systems; and (v) monitoring services
provided pursuant to alarm contracts owned by other alarm companies (wholesale
monitoring).

         The majority of the Company's revenue is derived from recurring
payments for the monitoring and maintenance of security and fire systems,
pursuant to contracts with initial terms typically ranging from one to five
years. The remainder of the Company's revenue is derived from the sale and
installation of security and fire systems and the servicing and upgrades of such
installed systems. For fiscal year 1999, monitoring revenues represented
approximately 63% of total revenues. The balance of the Company's revenues was
derived from (i) the sale and installation of security and fire systems
(approximately 29% of total revenues); (ii) the provision of maintenance
services (approximately 8% of total revenues) and (iii) miscellaneous sources
(less than 1% of total revenues).

         Based on the Company's gross revenues for the year ended December 31,
1998, the Company was ranked 23rd in Security Distributing and Marketing
Magazine's ("SDM Magazine") May 1999 issue with the annual listing of the top
security companies in the United States. Based on monthly recurring revenues
("MRR"), a standard industry measurement, the Company holds the position of 17th
largest company. The Company expects that it will be ranked among the top 25
security companies in SDM Magazine's 2000 annual listing. In addition, according
to the 1998 Fact Book Issue of Security Sales (Vol. 21, No. 12, supplement),
only 9.2% of all security companies in the United States generate gross revenues
in excess of $2,500,000. These statistics place the Company as a leader among
United States security firms. As reflected in the Company's financial
statements, set forth in Item 7 below, the Company's net revenues for the year
ended December 31, 1999 were $18,233,485.

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 two central
monitoring stations, one of which is located in Hollywood, Florida and the other
of which is located in New York City, New York. Each central monitoring station
is listed by Underwriters Laboratories, Inc. ("UL") as (i) a burglar alarm
system central station; and (ii) a protective signaling services central
station.

         The Company's central monitoring stations have 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
generally contain the latest enhancements, and most of the equipment is less
than five years old.

         The central monitoring stations operate with redundant systems and,
therefore, upon any failure of equipment, an exact duplicate is available to
back it up within minutes. The central station monitoring

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facility is largely paperless, resulting in lower costs and greater efficiency
than would be obtained otherwise. To the extent feasible, every alarm function
is handled through automation including the dialing of customer and police
telephone numbers, thereby reducing the possibility of human error.

         The central monitoring stations are comprised of a number of electronic
devices including: alarm receiving equipment, telephone dialers, radio signal
receiving equipment, a 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 security and service software is
maintained by Monitoring Automation Systems (Irvine, CA) ("MAS"), the accounting
software by Great Plains Software, Inc. (Fargo, ND) and the Data General
Corporation (Boston, MA) ("Data General") computers and terminals are maintained
by Data General pursuant to annual maintenance contracts.

         Monitoring services provided by the Company include monitoring homes
and commercial facilities for burglary, fire and environmental problems. If an
alarm 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 periodic reports reflecting the date, time, action and
employee name with respect to each opening or closing activity during the
relevant period. The reports can be sent to any location around the world via
mail, facsimile or email.

         Retail monitoring generated revenue of approximately $10.9 million and
$8.5 million in 1999 and 1998, respectively. As of the date of this Annual
Report, the Company had approximately 25,800 retail customers. No individual
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. The
Company has, in fact, purchased customer accounts that were being monitored
under the Wholesale Monitoring Program.

         The Wholesale Monitoring Program generated revenues of approximately
$631,000 and $606,000 in 1999 and 1998, respectively. As of the date of this
Annual Report, the Company had approximately

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<PAGE>

23,900 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 and fire 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. With the exception of sales to builders
of residential developments or communities, most of the electronic security
systems sold by the Company are 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 and by Detection Systems,
Inc. and its subsidiaries. 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 and fire
systems totaled approximately $5.2 million and $4.7 million in 1999 and 1998,
respectively. Increased revenues are a result of a full year of revenues for
businesses acquired in 1998 and of the increased sales and marketing efforts of
the Company.

Maintenance of Electronic Security and Fire Systems

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

         Maintenance of security and fire systems generates revenue primarily
through billable field service calls or contractual payments under service
agreements. Revenue derived from maintenance services totaled approximately $1.4
million and $1.1 million in 1999 and 1998, respectively. Increased revenues
correlate to the increase in the Company's account base, which increased to
approximately 25,800 subscriber accounts at December 31, 1999 from approximately
23,400 subscriber accounts at December 31, 1998.

History

         The Company was incorporated under the laws of the State of Nevada on
October 30, 1986. In July 1999, the Company changed its state of domicile and is
now incorporated in the State of Florida.

         On August 15, 1996, the Company executed an Agreement and Plan of
Merger ("Merger Agreement") with Guardian International, Inc. ("Guardian"), a
Florida corporation. The merger ("Merger") was completed on August 28, 1996.
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 "Securities Act"), the Company issued 3,226,902 shares of Class A
Voting Common Stock, par value $.001 per share ("Class A 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 Class A 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.

                                       4
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         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.

         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 Series A 9 3/4% Convertible Cumulative
Preferred Stock, par value $.001 per share ("Series A Preferred Stock"), for
$2.00 per share ($3,750,000) to Westar Capital, Inc., a subsidiary of Western
Resources, Inc. ("Western"). Such shares were subsequently contributed by
Western to its majority-owned security business subsidiary, Protection One
Investments, Inc. ("Protection One").

         In February 1998, the Company completed the acquisition of all of the
capital stock of Mutual Central Alarm Services, Inc. ("Mutual"), the nation's
then 60th largest monitored alarm company (according to SDM Magazine) and one of
the largest independent alarm companies in the metropolitan New York area.
Founded in 1989, Mutual grew through a strategy of concentrating on high-grade
UL listed commercial security, fire, CCTV and access control systems. Mutual
provides services to high-end retail businesses, financial institutions and
Fortune 500 companies. As a result of the acquisition, the Company increased its
subscriber base by approximately 2,600 accounts and added MRR of approximately
$320,000.

         Mutual is continuing to operate under its trade name as a wholly-owned
subsidiary of the Company.

         During 1998, the Company acquired three significant additional security
alarm installation and monitoring companies, two of which were located in the
state of Florida and one in Staten Island, New York. The additional acquisitions
increased the subscriber base by approximately 6,100 customers and increased MRR
by approximately $208,000.

         On October 21, 1998, Protection One purchased 10,000 shares of Series D
6% Convertible Cumulative Preferred Stock, par value $.001 per share ("Series D
Preferred Stock"), of the Company for $10 million.

         The Series D Preferred Stock is non-convertible until the third
anniversary of the date of issuance, after which date, the shares are
convertible at a rate of 333.3333 shares of Class A Common Stock for each share
of Series D Preferred Stock. Dividends are payable annually either in cash or in
additional shares of Series D Preferred Stock. As of December 31, 1999, 605
shares of Series D Preferred Stock are accounted for as dividends payable and
are expecteed to be issued during the first half of 2000. The holders of Series
D Preferred Stock have no voting rights until such shares are converted into
Class A Common Stock except that the holders of Series D Preferred Stock are
allowed to vote on an as-converted basis with the holders of Class A Common
Stock under the following circumstances: (i) until the third anniversary of the
date of issuance, upon a Change in Control as that capitalized term is defined
in Article III Section 7 of the Articles of Amendment to the Articles of
Incorporation filed with the Florida Secretary of State on March 9, 2000
("Articles of Amendment") (see Exhibit 3(iii)); (ii) or at any time the Series D
Preferred Stock is outstanding, under an Event of Default, as that capitalized
term is defined in Article III Section 7 of the Articles of Amendment (see
Exhibit 3(iii)). The holders of Series D Preferred Stock have no redemption
rights except upon a Change in Control. After the third anniversary of issuance,
the Company can elect to redeem the Series D Preferred Stock for a premium.

         In addition, Protection One exchanged its existing equity holdings in
Guardian (2,980,000 million shares of Class A Common Stock, 2,037,133 million
shares of Guardian Series A Preferred Stock and

                                       5
<PAGE>

1,704,232 million shares of Guardian Series B 10 1/2% Convertible Cumulative
Preferred Stock, par value $.001 per share ("Series B Preferred Stock")) for
16,397 shares of Series C 7% Redeemable Preferred Stock, par value $.001
("Series C Preferred Stock"), of the Company.

         The Series C Preferred Stock is non-voting and is redeemable on the
sixth anniversary of the date of issuance at a liquidation value of $1,000 per
share. Dividends are payable quarterly in cash and have been made each quarter
since the issuance of the Series C Preferred Stock. The holders of Series C
Preferred Stock have the right to optional redemption upon a Change in Control,
as that capitalized term is defined Article III Section 6 of the Articles of
Amendment (see Exhibit 3(iii)). At any time after issuance, the Company can
elect to redeem the Series C Preferred Stock for a premium. Due to the
redeemable nature of the Series C Preferred Stock, the capital will reside
outside the stockholders' equity section in the mezzanine section of the balance
sheet, following long-term debt. This treatment is consistent with the hybrid
characteristics of the issue.

         The holders of the Series D Preferred Stock do not have any right to
nominate directors unless and until conversion of the Series D Preferred Stock.
After giving effect to the transactions, Protection One presently owns
approximately 26% of the outstanding capital stock of the Company on a
fully-diluted as-converted basis.

Heller Credit Facility
----------------------

         The Company's credit facility with Heller was amended in October 1998
to include Heller's consents: (i) to allow the above-mentioned transactions;
(ii) to improve the Company's borrowing base calculation through the period
ended September 30, 1999 after which time it reverted to the prior calculation;
(iii) to allow for the payment of cash dividends on the Series C Preferred
Stock; (iv) to allow for use of funds drawn on the credit facility for the
Company's stock repurchase program; and (v) to extend the termination date to
May 2001.

1999 Developments
-----------------

Stock Repurchase Program
------------------------

         In accordance with the Stock Repurchase Program authorized by the Board
of Directors in October 1998, the Company purchased 197,800 shares of its Class
A Common Stock, during the year ended December 31, 1999. In accordance with
Florida securities law, the shares were concurrently retired. The treasury
shares acquired in connection with the October 1998 investment by Protection One
have also been retired. The excess of the cost of the treasury shares over
issuance price of the retired shares resulted in a charge to accumulated deficit
of approximately $4.4 million.

Market Overview and Trends

         The Company's target market consists of the owners of single family
residences, builders of and homeowners within residential development
communities and the owners and tenants of commercial establishments.

         The security alarm industry is characterized by a high degree of
fragmentation and currently is comprised of a small number of relatively large
competitors (greater than $20 million annual sales) and a great many small
providers of alarm systems and services. A survey published by SDM Magazine in
May 1999 reported that in 1998, 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 thousands of
smaller alarm service companies, because of their small size, have higher


                                       6
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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 to make a
substantial investment in each new subscriber. In order to be competitive,
security alarm companies must sell equipment at or 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 Company believes that several factors
have spawned an increased demand for residential security alarm systems in the
markets where the Company operates, including unacceptably high levels of crime,
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
may subsidize any weaknesses that may occur in the other, a reputation earned in
one sector may carry over into the reputation for the other, and cash flow from
commercial projects may help fund investments in the residential market.

         Advances in digital communications technology permit 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 equipment
manufacturers to build more features into security systems, such as remote user
interface, lighting and heating controls and user programming features.


         Large, consumer-oriented companies in industries facing deregulation,
including long distance and local telephone companies and electric and gas
utilities, such as Southern California Edison, Southern Company, Inc., Western
Resources, Inc., and SBC Communications, Inc., have demonstrated an increased
interest in the security alarm industry over the last several years. Except for
SBC Communications, regional Bell operating companies ("RBOCs") have been
prohibited from owning assets in the alarm industry until early 2001. The
Company believes telecommunications 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 alarm industry. Such price wars, if they
were to occur, could have a materially adverse effect on the Company's financial
condition. The Company has, however, successfully developed one strategic
partnership with a utility, Western Resources, and believes it is an attractive
partner for other companies seeking to enter this industry. As evidenced by
Protection One's total investment of $21.5 million cash in Guardian, the Company
believes that its strategic alliance with affiliates of Western Resources, Inc.
has helped and 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; and (iv) improving and expanding acquisition and
investment opportunities made available to the Company.


                                       7
<PAGE>


Business Strategy

         The Company has never had any net income and has a history of
consistent and sometimes significant net losses. The Company has two core
strategies; (1) generating monitoring contracts through its own sales and
installation efforts and (2) acquiring alarm monitoring contracts. The first
core strategy requires a cost infrastructure that results in lower operating
margins than are achievable by companies that only acquire and service alarm
monitoring contracts. In order to pursue the second core strategy of acquiring
alarm monitoring contracts, the Company has chosen to issue yield-bearing
instruments (such as senior debt or preferred stock). The Company's present
amortization policy for those acquired contracts results in significant
amortization costs. The issuance of yield-bearing instruments results in related
interest and dividend expense. The Company believes that these strategies, which
emphasize creating long-term value over short-term net income, will result in
the Company's recording of net losses until such time as (i) the Company's cash
flow from its increased customer base allows it to reduce significantly its
indebtedness and related interest costs; and (ii) the Company's amortization
expense, through the passage of time and recognition of account losses, is
reduced.

         The Company's strategy for growth has consisted primarily of the
implementation of an aggressive and strategic acquisition plan. Since 1994
Guardian has acquired more than thirty alarm companies and/or portfolios of
customer monitoring contracts from existing alarm companies. The financing for
these acquisitions has been derived from an initial $7 million credit facility
with Heller, which has been replaced by the Company's Renewed Credit Facility of
$20 million (see "Management's Discussion and Analysis - Liquidity and Capital
Resources - Capital Resources"), with Company stock and with the proceeds from
several investments by Protection One (see "History").

         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 and of portfolios of subscriber accounts, some
of which may be significant to the Company's expected future growth. Through its
1998 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 throughout North America. Acquisitions of account portfolios, thus far,
have been achieved primarily through the acquisition of alarm companies and
through the Company's "Independent Alarm Acquisition 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. Such customers 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 period not to exceed a 60
month term. The independent alarm company then sells the customer contract to
Guardian for an amount 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 costs of such acquisitions are
accounted for at the fair value as of the date of acquisition and amortized over
10 years.

         Under the program, the independent alarm company (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

                                       8
<PAGE>

Company typically withholds an average of 10% of the payment made to the
Contract Seller at the inception of the transaction (referred to as a
"holdback"). After the guarantee period lapses, the Company will pay the
Contract Seller the holdback monies due.

         Another source of growth of the Company's account portfolio is the
Company's internal sales departments. The Company has various marketing programs
in place intended to generate additional subscribers, the most notable of which
is the Company's affiliation with First Alert Professional, an equipment
manufacturer that provides a variety of joint marketing programs. The Company
expects that its internal sales programs will create accounts in excess of
attrition, affording the Company moderate growth even in the absence of
significant acquisitions.

         Based on projections for new home starts from its builder clients,
management expects additional revenue from the Company's new construction
residential installations. The Company is under contract with builders of new
home developments in South Florida and the greater Tampa Bay area. The Company
is one of the leading providers of alarm systems to the new residential
construction market in the state of Florida.

         In addition, the Company currently has master association contracts
("Master Contracts") with five development companies throughout Florida. 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 five years. The Company's revenue
under a Master Contract increases incrementally with 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
$40,000 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 Company's commercial business units in Florida and New York are
among the leaders in their respective areas. The Company intends to broaden
geographic coverage in the Northeast via its 1998 acquisition of the Staten
Island burglar alarm company and to increase direct sales representation and
product lines offered in Florida.

         The financial strategy for effecting the business goals is enhanced by
the Company's relationship with Protection One (see "History"). The Company
believes that the relationship will enhance its access to 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.

         In 1999, the Company became an authorized distributor of the IBM Home
Director product line of structured wiring systems. The Company believes that
its association with IBM enhances its ability to compete for large new
residential development projects and to realize more attractive returns from
that work.

Equipment and Technology

General Corporate Technology
----------------------------

         The Company believes that it utilizes automation equipment that is the
same as or comparable to those systems utilized by the largest national security
alarm companies.

         The Company operates two alarm-monitoring centers, one in Hollywood,
Florida, and the other in

                                       9
<PAGE>

mid-town Manhattan, the commercial center of New York City. Each control center
is equipped with equipment that enables the Company to receive, analyze, and
process information from alarm, fire, temperature-sensing, video, and access
control systems located at customer sites. The Company can, in most cases, also
perform remote diagnostics for many customers from the control center. The
automation equipment also enables the Company to process accounting information,
service maintenance, and scheduled compliance requirements required by the
Company's customers.

         The Company has departmental file servers which accommodate the
Company's internal e-mail network, new accounts payable and general ledger
software, as well as proprietary alarm system manufacturers' software to enhance
the Company's ability to communicate with customer security alarm panels.

         The Company has invested in monitoring hardware upgrades over the
years. These enhancements enable the Company to link its New York City, Staten
Island, Tampa, Florida and Miami, Florida offices into the main system.
Furthermore, the Company has a number of web sites (www.4Guardian.com,
www.4Mutual.com, www.Statland.com, www.PrepareandProtect.net) that are used for
both informational purposes and marketing, as well as sites where customers can
make routine requests for small items, request service, and order additional
security equipment. These enhancements enable a large part of the Company to
share one customer database and to improve its efficiency in the areas of
monitoring, service routing, and internal communication. 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 5.50.65 version for its
automation, service and billing system. The Company also relies heavily on
integrated MAS fax technology. MAS technology gives the Company the ability to
automate numerous aspects of information that were previously processed
manually. In addition, such technological advancements as the provision of
alphanumeric alarm indications give the Company the ability to process data
efficiently with little or no human interaction.

         The Company's central monitoring systems currently have 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.

         Mutual Central Alarm Services Enhancement Project
         -------------------------------------------------

         In October 1998, the Company embarked on a $250,000 upgrade project, in
conjunction with the renewal of the Company's lease in New York City. The
primary objective of the project was the upgrading of the New York monitoring,
accounting, and service system from an older PICK operating system-based
automation system to the same automation and accounting systems used by the rest
of the Company. The project was completed in November 1999.

         The project significantly increased consistency of operations between
the Florida and New York offices of the Company, which permits the Company to
realize efficiencies across numerous critical disciplines. In addition, the New
York monitoring station now has additional capacity to aggregate more customers
on the new system.

         The Company consolidated the monitoring of its subscribers in Staten
Island from a competitive third party monitoring station into the new system at
Mutual. In addition, the Manhattan and Staten

                                       10
<PAGE>

Island offices were upgraded with additional communication equipment, which
enables live access to the new system from the satellite office in Staten Island
as well as from the Company's headquarters in Florida.

Marketing

         A large portion of the Company's marketing activities has 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. Since 1998, the Company has applied significantly more resources
to direct mail and limited media advertising, improved distribution of Company
yard signs, and other marketing programs.

         In 1999, the Company became an authorized distributor of the IBM Home
Director product line of structured wiring systems. The Company believes that
its association with IBM enhances its ability to compete for large new
residential development projects and to realize more attractive returns from
that work.

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 1998 survey conducted by SDM Magazine (published in May
1999), the 100 largest companies in the security industry account for
approximately twenty-five percent of the industry's total revenue. Therefore,
the majority of 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. The Company
believes that large regional companies, such as Guardian, 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").

         There are a number of larger companies which may have significantly
greater capital and resources than the Company (see "Market Overview and
Trends"). The following chart reflects the size of Guardian as compared to the
nine largest alarm companies. The information was obtained from the May 1999
issue of SDM Magazine.


                                       11
<PAGE>
<TABLE>
<CAPTION>


                                                                1998 Revenue           Number of
Company                                                         (in millions)          Accounts
                                                                  ---------            --------
<S>                                                                 <C>                <C>
ADT Security Services                                               $1,330             2,200,000
SecurityLink from Ameritech                                            482             1,200,000
Protection One, Inc. (1)                                               421             1,542,000
Brinks Home Security, Inc.                                             204               580,000
Honeywell, Inc.                                                        201               250,000
Edison Security Services                                                90               175,000
Slomin's, Inc.                                                          68               112,000
Checkpoint Security Systems Group, Inc.                                 55                   n/a
Bay Alarm Co.                                                           50                75,000
Guardian International, Inc.                                            15                23,400
</TABLE>

(1)  Protection One Investments, Inc., an affiliate of Protection One, Inc.,
     a Delaware corporation and majority-owned subsidiary of Western
     Resources, Inc, owns 27% of the Company's outstanding shares of Class A
     Common Stock, on an as-converted basis, as of March 24, 2000.

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 State of Florida licensed low-voltage electrical contractors. In
addition, the Company believes it holds all the licenses required to operate in
the counties and municipalities in Florida in which it is presently providing
services. In New York, the Company is qualified to provide low-voltage
electrical services, uniformed response services and fire monitoring for
customers in New York.

         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 1997, the Company filed an application with the United States
Patent and Trademark Office ("Office") to register the mark "Security By
Guardian International" and "G" design. In late 1997, the Company received
notification from the Office that its application had not been accepted. The
Company retained the Washington D.C. intellectual property law firm of Cohen &
Smith. The Company was advised to continue its common law use of the mark and
file for state trademark protection. Two state trademark registrations were
granted for Guardian International Security and "G" design (T98000000478 on
April 29, 1998) and a "G" design contained within a circle (T98000000637 on June
1, 1998). The Company has been using these marks in Florida since January 1993
without third party opposition. Based on a later review of the federal register,
Cohen & Smith advised the Company to refile

                                       12
<PAGE>

an application for the mark "Security by Guardian International" and "G" design
(U.S. application for the mark - U.S. application serial no. 75/597, 830 on
November 30, 1998).

         The Company has a federal trademark for the mark "Mutual Central Alarm
Services, Inc." and design (U.S. registration no. 2,277,912). The Company is
currently monitoring its trademarks: Guardian International, Inc., Gibraltar
Security Alarm Services, Alarm Control, Inc., Mutual Central Alarm Services,
Inc. and Gator Telecom, Inc. in order to evaluate the availability and
feasibility of continuing to operate under separate trademarks or of
consolidating them into one name. No assurances can be given that third parties
will not attempt to assert superior trademark rights in similar marks or that
the Company will be able to successfully enforce and protect its rights in its
trademarks against third party infringers.

Employees

         At December 31, 1999, the Company employed 212 individuals, all but one
of whom were full-time employees. Any future increase in the number of employees
will depend upon growth of the Company's business.

Research and Development and Environmental Issues

         The Company does not conduct any research and development activity.

         The Company has the need to dispose of many batteries, which constitute
environmentally sensitive waste. The used batteries are stored in the Company's
warehouse until such time as 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). The Company's corporate
headquarters occupies a 12,000 square foot building, which houses a central
monitoring station, offices and warehouse facilities, located in Hollywood,
Florida. The lease expires on December 31, 2002, but the Company has a renewal
option for an additional five years under the same terms and conditions. The
annual rent is approximately $105,000, 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 an unaffiliated third party.

         The Company leases space with Windbrook Realty in New York, New York.
The lease expires in December 2004, with a renewal option for an additional five
years under the same terms and conditions. The 3,500 square feet of leased space
houses a central monitoring station, offices and warehouse facilities. The
annual rent is approximately $91,000.

         The Company also leases office space in Miami and Tampa, Florida and in
Staten Island, New York. The leases expire on various dates through July 2003
and most are renewable at the option of the Company.

Item 3.  Legal Proceedings
--------------------------

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

                                       13
<PAGE>

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

         The Company's annual meeting was held on June 21, 1999. The following
number of votes were cast for the matters indicated:

         1. Election of Board of Directors

              Director                            For          Withheld
              --------                            ---          --------
              Harold Ginsburg                    6,772,501        8,470
              Richard Ginsburg                   6,771,501        9,470
              Sheilah Ginsburg                   6,772,501        8,470
              Darius G. Nevin                    6,772,501        8,470
              William Remington                  6,772,501        8,470
              Douglas T. Lake                    6,772,501        8,470
              Joel A. Cohen                      6,773,871        7,100
              David Heidecorn                    6,773,871        7,100

         2. Ratification of Arthur Andersen, LLP as the independent accountants
            for the Company for the year ending December 31, 1999.

                    For           Against       Abstain        Non-vote
                    ---           -------       -------        --------
                 6,774,500         1,000         5,471            -

         3. Approval of the 1999 Stock Option Plan and ratification of non-plan
            grants of stock options.

                    For           Against       Abstain        Non-vote
                    ---           -------       -------        --------
                 4,657,672        415,794        4,135        1,703,370

         4. Approval of a change in domicile of the Company from Nevada to
            Florida.

                    For           Against       Abstain        Non-vote
                    ---           -------       -------        --------
                 5,021,119         4,000         52,482       1,703,370




                                       14
<PAGE>


                                     PART II

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

         The Class A Common Stock has been publicly traded under the symbol
"GIIS" since November 1996 through the OTC Bulletin Board.

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

                                              High                Low
                                              ----                ---
         1998
         ----
         1st Quarter                          $3.38               $2.06
         2nd Quarter                          $2.69               $1.66
         3rd Quarter                          $1.84               $0.94
         4th Quarter                          $1.44               $0.56

         1999
         ----
         1st Quarter                          $1.69               $0.84
         2nd Quarter                          $1.00               $0.78
         3rd Quarter                          $0.94               $0.55
         4th Quarter                          $0.75               $0.47


         The Company is authorized to issue 30,000,000 shares of Preferred
Stock, of which 27,122 shares are issued and outstanding as of March 24, 2000.
The Company is presently authorized to issue 100,000,000 shares of Class A
Common Stock, of which 8,384,441 are outstanding as of March 24, 2000. There are
130 holders of record of Class A Common Stock. The Company is authorized to
issue 1,000,000 shares of Class B Common Stock, of which 634,035 shares are
issued and outstanding as of March 24, 2000. Heller is the sole holder of record
of the Class B Common Stock.


         In connection with the merger of Guardian into the Company, Heller
received 484,035 shares of Class B Common Stock in exchange for certain capital
appreciation rights with respect to the common stock of pre-merger Guardian held
by Heller. In addition, pursuant to the terms of an agreement entered into among
the pre-merger Guardian shareholders and Heller, the Company was required to
issue 150,000 shares of Class B Common Stock to Heller. In order to fulfill this
commitment, the Company's Articles of Incorporation were amended to authorize
additional shares of Class B Common Stock which were issued to Heller in
November 1997.

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 (see "Management's Discussion and Analysis - Liquidity and
Capital Resources").

         Quarterly dividends are payable at a rate of 1.75% on the Series C
Preferred Stock in cash or, if prohibited by the Company's credit facility, in
shares of Class A Common Stock. To date, the Company

                                       15
<PAGE>

has paid the Series C Preferred Stock quarterly dividends in cash. The Series D
Preferred Stock pays dividends at a rate of 6% on an annual basis in either cash
or additional shares of the Series D Preferred Stock. The Company has elected to
pay the Series D Preferred dividends in additional shares of the preferred
stock.

Transfer Agent

         The Company's transfer agent is Continental Stock Transfer & Trust
Company, 2 Broadway, New York, New York 10004.

Recent Sales of Unregistered Securities

         In connection with the acquisition of the assets of Alarm Control,
Inc., the Company issued 50,000 shares of Class A Common Stock to Terry Akins
and options to purchase 100,000 shares of Class A Common Stock at a price of
$2.50 per share, pursuant to the Option Agreement dated May 7, 1997. The
issuance was exempt from registration under Section 4(2) of the Securities Act.

                                      Date of             Number of
  Purchaser                          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 Protection One, dated as of October 14, 1997,
the Company issued 2,500,000 shares of Class A Common Stock to and 1,875,000
shares of Series A Preferred Stock to Western Resources, Inc. The shares were
exchanged in a transaction outlined above in "Description of Business -
History". The issuance was exempt from registration under Section 4(2) of the
Securities Act.
<TABLE>
<CAPTION>
                                      Date of             Number of                Aggregate
  Purchaser                          Purchases          Common Shares         Consideration Paid
  ---------                          ---------          -------------         ------------------
<S>                                   <C>                 <C>                       <C>
  Protection One                      10/16/97            2,500,000                 $3,750,000
  Protection One                      11/24/97            1,875,000*                $3,750,000
</TABLE>
* On an as-converted basis.

         On February 19, 1998, the Company issued 1,981,700 shares of Class A
Common Stock, pursuant to a Stock Purchase Agreement dated February 23, 1998, as
partial consideration in acquiring all of the outstanding common stock of
Mutual. The shares were registered with the Securities and Exchange Commissions,
effective August 13, 1998.
<TABLE>
<CAPTION>
                                      Date of             Number of
  Purchaser                           Purchase          Common Shares
  ---------                           --------          -------------
<S>                                    <C>                 <C>
  Mutual Sellers                       2/23/98             1,981,700

</TABLE>

         On February 19, 1998, pursuant to a Stock Purchase Agreement between
the Company and Protection One, dated as of February 23, 1998, the Company
issued 1,600,000 shares of Series B Preferred Stock at $2.50 per share, the
proceeds of which were used in the funding of the Mutual acquisition. The
issuance was exempt from registration under Section 4(2) of the Securities Act;
however, these shares were exchanged in a transaction outlined above in
"Description of Business - History".
<TABLE>
<CAPTION>

                                      Date of              Number of                 Aggregate
  Purchaser                           Purchase           Common Shares           Consideration Paid
  ---------                           --------           -------------           ------------------
<S>                                    <C>                <C>                        <C>
  Protection One                       2/19/98            1,600,000*                 $4,000,000
</TABLE>
* On an as-converted basis.


                                       16
<PAGE>

         In connection with the acquisition of the assets of Gator Telecom,
Inc., the Company issued 94,937 shares of Class A Common Stock on March 9, 1998.
The issuance was exempt from registration under Section 4(2) of the Securities
Act.

                                      Date of             Number of
  Purchaser                           Purchase          Common Shares
  ---------                           --------          -------------
  Gator Telecom, Inc.                  3/9/98               94,937

         On April 27, 1998, the Company issued 194,269 shares of Class A Common
Stock, pursuant to a Stock Purchase Agreement, dated April 27, 1998, as partial
consideration in acquiring all of the outstanding common stock of Precision
Security Systems, Inc. The issuance was exempt from registration under Section
4(2) of the Securities Act.

                                      Date of               Number of
  Purchaser                           Purchase           Common Shares
  ---------                           --------           -------------
  David Weston                        4/27/98               194,269

         On May 4, 1998, the Company issued 5,513 shares of Class A Common Stock
to Terry E. Akins, for services performed in connection with an acquisition by
the Company in December 1997. The issuance was exempt from registration under
Section 4(2) of the Securities Act.

                                      Date of              Number of
  Purchaser                           Purchase          Common Shares
  ---------                           --------          -------------
  Terry E. Akins                       5/4/98               5,513

         On August 13, 1998, the Company issued 289,018 shares of Class A Common
Stock, pursuant to a Stock Purchase Agreement, dated August 13, 1998, as partial
consideration for the Company's acquisition of the outstanding common stock of
Stat-Land Burglar Alarm Systems & Devices, Inc. The issuance was exempt from
registration under Section 4(2) of the Securities Act.

                                      Date of              Number of
  Purchaser                          Purchase            Common Shares
  ---------                          --------            -------------
  Stat-Land Sellers                   8/13/98              289,018


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

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

Overview

         The majority of the Company's revenue is derived from recurring
payments for the monitoring, maintenance and leasing of security and fire
systems, pursuant to contracts with initial terms typically ranging from one to
five years. The remainder of the Company's revenue is derived from the sale and
installation of security and fire systems and the servicing and upgrades of such
installed systems. Monitoring and service revenues are recognized as the service
is provided. On installations for which the

                                       17
<PAGE>

Company retains title to the electronic security systems, the excess of
installation revenue over estimated selling costs is amortized over the initial
term of the related service/monitoring contract (generally five years). All
other installation revenues are recognized in the period in which installation
occurs. All direct installation costs, which include materials, labor and
installation overhead are capitalized and amortized over a five year period.
When the Company maintains ownership of the equipment, the costs of such
equipment are capitalized to property and equipment and amortized over seven
years.

         The Company has never had any net income and has a history of
consistent and sometimes significant net losses. The Company has two core
strategies; (1) generating monitoring contracts through its own sales and
installation efforts and (2) acquiring alarm monitoring contracts. The first
core strategy requires a cost infrastructure that results in lower operating
margins than are achievable by companies that only acquire and service alarm
monitoring contracts. In order to pursue the second core strategy of acquiring
alarm monitoring contracts, the Company has chosen to issue yield-bearing
instruments (such as senior debt or preferred stock). The Company's present
amortization policy for those acquired contracts results in significant
amortization costs. The issuance of yield-bearing instruments results in related
interest and dividend expense. The Company believes that these strategies, which
emphasize creating long-term value over short-term net income, will result in
the Company's recording of net losses until such time as (i) the Company's cash
flow from its increased customer base allows it to reduce significantly its
indebtedness and related interest costs; and (ii) the Company's amortization
expense, through the passage of time and recognition of account losses, is
reduced.

         Alarm monitoring revenues generate favorable gross margins.
Historically, installation and service activity generated unfavorable gross
margins because such activity was necessary for the generation and retention of
residential and mid-market commercial alarm monitoring customers. With the
February 1998 acquisition of Mutual Central Alarm Services, Inc. ("Mutual"), a
New York City-based provider to high-end commercial customers, however,
approximately 40% of the Company's installation activity now generates favorable
gross margins because competition in the high-end commercial market is based
less on price and more on the ability of competitors to design, deliver and
maintain sophisticated security systems.

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

Key Operating Measures

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

         EBITDA. Earnings before interest, taxes, depreciation and amortization
("EBITDA") does not represent cash flow from operations as defined by generally
accepted accounting principles, should not be construed as an alternative to
operating income and is indicative neither of operating performance nor of cash
flows available to fund the cash needs of the Company. Items excluded from
EBITDA are significant components in understanding and assessing the financial
performance of the Company. The Company believes presentation of EBITDA enhances
an understanding of financial condition, results of

                                       18
<PAGE>

operations and cash flows because EBITDA is used by the Company to satisfy
its debt service obligations and its capital expenditure and other operational
needs, as well as to provide funds for growth. In addition, EBITDA is used by
senior lenders and the investment community to determine the current borrowing
capacity and to estimate the long-term value of companies with recurring cash
flows from operations. The Company's computation of EBITDA may not be comparable
to other similarly titled measures of other companies. The following table
provides a calculation of EBITDA for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>

                                                     Year Ended December 31,
                                                     ----------------------
                                                     1999              1998
                                                     ----              ----
<S>                                                 <C>               <C>
  Net loss                                       $(3,041,655)      $(2,188,342)
  Plus:
     Amortization of customer contracts            4,873,131         3,972,575
     Depreciation and amortization                   805,641           545,181
     Interest expense and other                    1,050,922         1,352,203
                                                 -----------       -----------

        EBITDA                                   $ 3,688,039        $3,681,617
                                                 ===========       ===========
</TABLE>

         Monthly Recurring Revenue ("MRR"). MRR is revenue that the Company is
entitled to receive under monitoring and service contracts in effect at the end
of the period. Because the Company has grown rapidly, often by acquiring
security alarm companies and portfolios of customer accounts which are included
in revenues only from the date of acquisition, the Company's revenues are not
proportional to the level of its investment of capital reported to the end of
the period upon which a return must be earned. Management believes MRR enhances
an investor's understanding of the Company's financial condition, results of
operations and cash flows because it provides a measure of the Company's revenue
that can be used to derive estimated annual revenues acquired in acquisitions
for a full year of operations. As a result, MRR can be compared to the level of
investment in the statement of financial condition at the end of the period. By
comparing MRR to cash, debt and equity balances at the end of a period, an
investor can assess the Company's investment track record. Further, management
believes an investor's consideration of MRR relative to the Company's customer
base helps identify trends in MRR per customer. MRR does not measure
profitability or performance, and does not include any allowance for future
losses of customers or allowance for doubtful accounts. The Company does not
have sufficient information as to the losses of acquired customers accounts to
predict with absolute certainty the amount of acquired MRR that will be realized
in future periods or the impact of the loss of acquired accounts on our overall
rate of customer loss. Our computation of MRR may not be comparable to other
similarly titled measures of other companies and MRR should not be viewed by
investors as an alternative to actual monthly revenue as determined in
accordance with generally accepted accounting principles. MRR at December 31,
1999 and 1998 was approximately $1,040,000 and $927,000, respectively.

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

                                       19
<PAGE>

period. Net MRR attrition of the Company's customers during the years ended
December 31, 1999 and 1998 was less than 10%, on an annualized basis.

Consolidated Statements of Operations

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

                                                                   Year Ended
                                                                  December 31,
                                                                  ------------
                                                                1999       1998
                                                                ----       ----
<S>                                                              <C>        <C>
Revenues:
   Monitoring                                                    63.3       60.2
   Installation and service                                      36.7       39.8
                                                               ------     ------
Total revenues                                                  100.0      100.0

Operating expenses
   Monitoring                                                    11.6       13.2
   Installation and service                                      28.8       27.4
   General and administrative                                    39.3       35.1
                                                               ------     ------
                                                                 79.7       75.7
                                                               ------     ------
Income before interest expense, amortization and
   depreciation                                                  20.3       24.3
                                                               ------     ------

Interest and other expense                                        5.8        8.9
Amortization of customer contracts                               26.7       26.2
Depreciation and amortization                                     4.4        3.6
                                                               ------     ------
                                                                 36.9       38.7
                                                               ------     ------
Net loss                                                        (16.6)     (14.4)
                                                               ======     ======
</TABLE>

Years Ended December 31, 1999 and 1998

         Revenue. Total revenues for 1999 increased 20% to $18,233,485, from
$15,165,755 for 1998. Monitoring revenues increased by 27% to $11,545,257 during
1999, from $9,125,514 during 1998. Installation and service revenues increased
by 11% to $6,688,228 during 1999, compared to $6,040,241 during 1998. Total
retail subscribers numbered approximately 25,800 at December 31, 1999, compared
to approximately 23,400 at December 31, 1998, a net increase of approximately
10%. The increase in revenues is due to the full year of revenues in 1999 for
the companies acquired in 1998, as well as the results of the purchase of two
portfolios of subscriber accounts and the Company's internal installation
efforts.

         Operating Expenses. Total operating expenses, net of amortization of
customer contracts and depreciation and amortization, for 1999 increased 27% to
$14,545,446, from $11,484,138 during 1998. Monitoring expenses increased 6% to
$2,118,781 during 1999, compared to $2,002,700 during 1998. As a percentage of
monitoring revenues, monitoring expenses decreased to 18% in 1999, compared to
22% in 1998. The increase in monitoring expenses was a result of the increase in
the number of subscriber accounts and the costs associated with the full year of
monitoring the accounts acquired in 1998. Installation and service costs for
1999 increased by 26% to $5,259,775, compared to $4,161,520 during 1998. The
increase in total installation and service costs from 1999 to 1998 was partly
the result of increases in volume of installation activities in 1999 from 1998.
As a percentage of installation and service revenue, such costs were 79% in
1999, compared to 69% in 1998. Costs as a percentage of sales

                                       20
<PAGE>

increased because the Company derived a larger percentage of sales from lower
revenue/higher cost sales to homeowners and builders in 1999 compared to 1998.

         Gross Profit. Total gross profit, defined as total revenues less
monitoring, installation and service costs, increased by 21% to $10,854,929 in
1999, compared to $9,001,535 in 1998. Gross profit from monitoring revenues
increased by 32% to $9,426,476 in 1999, compared to $7,122,814 in 1998. Gross
profit from installation and service activities decreased 24% to $1,428,453 in
1999 compared to $1,878,721 in 1998. See the previous two paragraphs for a
discussion of revenues and expenses of such monitoring and installation and
service activity.

         Selling, General and Administrative. General and administrative
("SG&A") costs increased by 35% to $7,166,890 in 1999, compared to $5,319,918
during 1998. The increase in SG&A costs from 1999 to 1998 is related primarily
to additional personnel and resources necessary to service the Company's growing
customer base and to certain legal and other professional expenses related to
terminated acquisition activity and related expenses. Included in G&A is bad
debt expense of $452,450 in 1999, compared to $511,333 in 1998. The decreased
bad debt expense during 1999 from 1998 resulted from increased efforts in the
Company's collection process. As a percentage of total revenues, G&A increased
to 39% in 1999 compared to 35% in 1998.

         Amortization of Customer Contracts. Amortization of customer contracts
increased 23% to $4,873,131 during 1999, compared to $3,972,575 during 1998. The
increase in such costs from 1998 to 1999 is primarily attributable to the 1998
acquisitions. Amortization for 1999 includes a full year of amortization on the
contracts acquired in 1998 and the amortization for 1998 includes only the
period from the date which the contracts were acquired. Such costs are amortized
over 10 years, unless a contract is canceled and not replaced by the
corresponding independent alarm company, or otherwise, in which case the
remaining unamortized balance is written off as a charge to amortization
expense.

         Depreciation and Amortization. Depreciation and amortization increased
by 48% to $805,641 during 1999, compared to $545,181 during 1998. Such costs
include depreciation of property and equipment (the gross balance of which
increased to approximately $5.4 million at December 31, 1999 from approximately
$3.2 million at December 31, 1998 as a result of (i) the Company's continued
expansion activities and (ii) the Company's 1998 acquisitions (which resulted in
additional property and equipment being acquired)), goodwill amortization (a
gross balance of approximately $430,000 in goodwill was recorded in connection
with the 1998 acquisitions, which is being amortized over 10 years), and
amortization of certain other intangible assets.

         Interest Expense. Interest expense decreased 24% to $999,388 during
1999, compared to $1,312,703 during 1998. The decrease in interest expense
resulted from reduced average borrowings under the Renewed Credit Facility.
Total borrowings under the Renewed Credit Facility averaged approximately $7.3
million during 1999 compared to an average of approximately $9.2 million during
1998. The decrease in debt was due to the October 1998 repayment of a portion of
the debt, as a result of the investment by Protection One, discussed in Note 10
in Notes to Consolidated Financial Statements. As of March 24, 2000, the Company
had approximately $10.0 million of borrowings under the Heller Renewed Credit
Facility.

         Net Loss. Net loss applicable to Class A Common Stock for the year
ended December 31, 1999 was approximately $4.8 million, or $(0.52) per share,
basic and diluted, compared to a net loss of approximately $3.1 million, or
$(0.28) per share, for the year ended December 31, 1998. The increase in net
loss is primarily attributable to increased selling, general and administrative
expenses and amortization expenses associated with the Company's growth and
prior-year acquisition initiatives, as

                                       21
<PAGE>

well as to higher preferred stock dividends associated with financing used to
fund internal growth and acquisitions.

Liquidity and Capital Resources

         Capital Resources. As of December 31, 1999, the Company believes it
will maintain the ability to generate sufficient cash to fund future operations
of the business. Generally, cash flow will be generated from a combination of
(1) the Company's existing $20.0 million Renewed Credit Facility with Heller,
subject to compliance with the provisions of the debt covenants in the Renewed
Credit Facility, and (2) recurring revenue from its security monitoring customer
base, which generated $3.7 million of EBITDA in the year ended December 31,
1999. At December 31, 1999, there was $4.3 million of availability under the
Renewed Credit Facility. Cash flow from operating activities was $3.8 million
for the year ended December 31, 1999.

         In May 1997, the Company refinanced its existing credit facility with
Heller. Under the Renewed Credit Facility, the maximum credit facility available
to the Company was increased from an existing $7.0 million to $15.0 million. In
connection with the acquisition of Mutual, the Renewed Credit Facility was
further amended to increase the maximum available to $20.0 million. The Renewed
Credit Facility expires in May 2001. Availability under the Renewed Credit
Facility is subject to certain "Borrowing Base" limitations (as defined in the
Renewed Credit Facility). In relation to the October 1998 investment by
Protection One (see Note 10 to Notes to Consolidated Financial Statements),
Heller consented to increase the Company's borrowing base and made other
amendments to conform the agreement with the transactions. The Renewed Credit
Facility includes 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 making of other
distributions to the Company's shareholders and other financial performance
covenants. The Company believes it was in compliance with all such covenants as
of December 31, 1999.

         The Renewed Credit Facility will be used primarily for acquisitions of
subscriber accounts. The Company's continued plan of growth through acquisitions
of subscriber accounts is contingent upon its ability to borrow under the
Renewed Credit Facility.

         In accordance with the Stock Repurchase Program authorized by the Board
of Directors in October 1998, the Company purchased 197,800 shares of its Class
A Common Stock, during the year ended December 31, 1999. In accordance with
Florida securities law, the shares were concurrently retired. The treasury
shares acquired in connection with the October 1998 investment by Protection One
(see "History") have also been retired. The excess of the cost of the treasury
shares over issuance price of the retired shares resulted in a charge to
accumulated deficit of approximately $4.4 million.

         Liquidity. Net cash provided by operating activities during the year
ended December 31, 1999 was approximately $3.8 million. The Company incurred a
net loss of approximately $3.0 million during such period; however, included in
such loss was depreciation and amortization expense, amortization of customer
accounts, amortization of capitalized installation costs and amortization of
deferred financing costs totaling approximately $6.8 million, cash outflows of
approximately $1.6 million related to increases in accounts receivable and other
assets and cash inflows of approximately $1.1 million related to net increases
in liabilities and unearned revenue.

         Net cash used in investing activities was approximately $6.7 million
during the year ended December 31, 1999 and was comprised of the purchase and
placement of customer accounts of approximately $4.6 million and the purchases
of fixed assets of approximately $2.1 million which includes equipment under
lease at customer premises of approximately $1.5 million.


                                       22
<PAGE>

         Net cash provided by financing activities was approximately $2.7
million, during the year ended December 31, 1999, consisting of proceeds under
borrowings from Heller of approximately $4.9 million reduced by repayments to
Heller and other long-term debt of approximately $1.0 million, payment of cash
dividends on preferred stock of approximately $1.1 million and open market
purchases of the Company's stock of approximately $144,000. As of December 31,
1999, the Company's cash balance was $578,034.

         Total shareholders' equity decreased by a net amount of $4,940,504
during fiscal 1999 to $4,174,989 as of December 31, 1999. The net decrease
resulted primarily from the payment and accrual of dividends on the Company's
preferred stock of approximately $1.8 million and the net loss of approximately
$3.0 million.

         Affiliation with Western Resources, Inc. As discussed above, in
"History", Western Resources, Inc. indirectly holds a significant investment in
the Company though its majority-owned subsidiary, Protection One Investments,
Inc.

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

Year 2000 Compliance

General

         The Company faced the same Year 2000 problem that other participants in
the security and alarm monitoring industry faced given the high reliance on
computer-based monitoring and electronic customer site equipment. The Year 2000
problem was a result of prior computer programming limiting the use of the year
placeholder to a two digit number, such as "98" (rather than a four digit), so
that when the year 2000 arrived, many systems could have interpreted the year
date "00" as being of the turn of a prior century. This is generally referred to
as the "Year 2000 Issue." Accordingly, unless corrective action was taken to
ensure that such systems were "Year 2000 Ready," many systems may have failed or
the processes which those systems control may have malfunctioned due to the
inappropriate year interpretation.

         The Year 2000 problem did not have an impact on the Company or on its
continuing ability to deliver installation and alarm monitoring goods and
services to its customer base. Furthermore, management believes it has no
further contingencies related to the Year 2000 problem.

State of Readiness
------------------

         The Company's primary business process is the act of monitoring
electronic signals from equipment placed at residential and commercial customer
premises, which are generally sent over standard analog telephone lines. The
Company conducts this primary process, including secondary processes of
accounting and financial reporting, through the use of systems acquired from
Monitoring Automation Systems ("MAS"). In a technical bulletin received from MAS
in 1999, the Company was informed that all of the MAS monitoring, database and
billing systems are Year 2000 compliant, however, its legacy general ledger and
accounts payable programs are no longer being offered. The Company implemented
Year 2000 ready general ledger and accounts payable software during 1999. The
Company's other significant monitoring station resides at its Mutual subsidiary
in New York. Testing of the New York site MAS software for Year 2000 readiness
was successfully completed in July 1999.

         Certain non-information technology-related ("IT") processes are of
critical importance to the Company's business, but are largely beyond the
Company's ability to control. These non-IT processes

                                       23
<PAGE>

encompass the Company's interaction with providers of local and long-distance
telephony, local police and fire response, utilities including, but not limited
to, electricity and water, and both public and private transportation.

Readiness Program
-----------------

         In order to address the remainder of what the Company believed to be
its Year 2000 risk, it developed a multi-phase plan to identify, assess and
remediate the Year 2000 problem from its business processes. Accordingly, the
Company categorized the following phases through which it progressed in 1999:
<TABLE>
<CAPTION>
                  Phase                                                                         Status
                  -----                                                                         ------
<S>                                                                                            <C>
I.       Identification                                                                        Completed
         o        Establish readiness program and methodology
         o        Identify all computer programs and collect manufacturers' statements
         o        Identify and evaluate all equipment with embedded programs

II.      Assessment and Inventory                                                              Completed
         o        Awareness assessment (vendors) and inventory phase

III.     Contingency Plans                                                                     Completed
         o        Develop written contingency plan and policy
         o        Update contingency plan

IV.      Remediation and Testing                                                               Completed
         o        Corrective application and sample testing
         o        Completion of MAS software testing - Hollywood

V.       Post-Evaluation                                                                       Completed
         o        Post Y2K evaluation of life safety systems (implementation of full testing field services)
</TABLE>

Costs
-----

         The Company's total cost to remediate its controllable Year 2000 risks
was not more than $15,000. These costs were primarily incurred on IT upgrades.

Risks
-----

         The Company believed that its most likely worst case scenario was a
limited failure of some portion of its customer premise equipment leased by the
Company. As a general rule, such equipment is Year 2000 ready either as a result
of recent vendor updates and upgrades, new equipment, or equipment that is not
date dependent. However, the Company does not believe that it will be able to
physically visit, assess, test and potentially remediate all of its thousands of
leased systems that are currently in operation. The Company intends to work in
concert with its equipment vendors to ensure that the risk of the most
reasonable likely worst case scenario actually occurring is reduced to a minimum
level.


                                       24
<PAGE>

Contingency Plans
-----------------

         In accordance with regulations established as part of the Underwriter's
Laboratories Listing process, the Company had previously developed a monitoring
contingency plan. In the event of an equipment failure, the Company would
continue to process electronic signals on a manual basis. This plan was modified
in mid-1999 implementing Year 2000 issues as well.

         The Company acquires other companies from time to time as part of its
business development strategy, and it anticipates that acquisitions will
continue through the Year 2000. The Company has established procedures in its
due diligence investigations of acquisition candidates to ascertain whether or
not their products or services, or those of their critical suppliers, are Year
2000 ready, and whether or not such suppliers and key customers, if any, were
adversely affected by the Year 2000 issue. While acquisition candidates may
provide certain information or make representations and warranties regarding
Year 2000 readiness, in some cases, the Company may be unable to verify the
status of readiness until the acquisition is completed and the steps outlined
herein as part of the Company's Year 2000 program are undertaken.

         The preceding "Year 2000 Readiness Disclosures" contain forward-looking
statements of the Company's expectations regarding the ability of its products
and systems to be Year 2000 ready, as well as its ability to assess the
readiness of its suppliers and customers, and related risks. These statements
relate to future events, the outcome of which is uncertain, and should be read
in conjunction with the cautionary factors listed in the Introductory Note to
this report.

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.

Item 7.  Financial Statements
-----------------------------

         Consolidated financial statements as of December 31, 1999 and for each
of the two years then ended contained herewithin.

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

         None.



                                       25


<PAGE>
<TABLE>
<CAPTION>




                                               Index to Financial Statements

                                                                                                   Page

<S>                                                                                                 <C>
                Report of Independent Public Accountants                                            27

                Consolidated Balance Sheet                                                          28
                  December 31, 1999

                Consolidated Statements of Operations                                               29
                  For the Years Ended December 31, 1999 and 1998

                Consolidated Statement of Changes in Shareholders' Equity                           30
                  For the Years Ended December 31, 1999 and 1998

                Consolidated Statements of Cash Flows                                               31
                  For the Years Ended December 31, 1999 and 1998

                Notes to Consolidated Financial Statements                                          32


</TABLE>



                                       26


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS







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

We have audited the accompanying consolidated balance sheet of Guardian
International, Inc. (a Florida corporation) and subsidiaries as of December 31,
1999 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the two 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 subsidiaries as of December 31, 1999, and the results of their operations
and their cash flows for each of the two years then ended in conformity with
generally accepted accounting principles.




                               ARTHUR ANDERSEN LLP




Dallas, Texas
     February 25, 2000





                                       27

<PAGE>
<TABLE>
<CAPTION>


                          GUARDIAN INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1999


<S>                                                                                                            <C>
          ASSETS
          Current assets:
               Cash and cash equivalents                                                                  $      578,034
               Accounts receivable, net of allowance for doubtful accounts of $549,356                         2,896,317
               Current portion of notes receivable                                                                73,564
               Inventory                                                                                         458,385
               Other                                                                                             237,697
                                                                                                          --------------
                    Total current assets                                                                       4,243,997

          Property and equipment, net                                                                          4,101,810
          Customer accounts, net                                                                              30,230,816
          Goodwill and other intangible assets, net                                                            1,789,014
          Notes receivable, less current portion                                                                  51,683
          Deposits and other assets                                                                               90,273
                                                                                                          --------------
                    Total assets                                                                             $40,507,593
                                                                                                          ==============

          LIABILITIES AND SHAREHOLDERS' EQUITY
          Current liabilities:
              Accounts payable and accrued expenses                                                           $3,632,094
              Current portion of unearned revenue                                                              3,230,957
              Current portion of long term obligations                                                           807,421
                                                                                                          --------------
                    Total current liabilities                                                                  7,670,472
          Unearned revenue, less current portion                                                               1,656,852
          Long term obligations, less current portion                                                         10,608,280
                                                                                                          --------------
                    Total liabilities                                                                         19,935,604

          Commitments and contingencies (see Note 8)

          Redeemable preferred stock, 16,397 shares issued and outstanding                                    16,397,000

          Shareholders' equity:
          Preferred stock, $.001 par value, 30,000,000 shares authorized:
             Series D preferred stock, 10,120 shares issued and outstanding                                           10
          Class A voting common stock, $.001 par value, 100,000,000 shares authorized,
             8,384,441 shares issued and outstanding                                                                8,385
          Class B non-voting common stock, $.001 par value, 1,000,000 shares authorized,
             634,035 shares issued and outstanding                                                                   634
          Additional paid-in capital                                                                          19,516,784
          Accumulated deficit                                                                                (15,350,824)
                                                                                                          --------------
                     Total shareholders' equity                                                                4,174,989
                                                                                                          --------------
                     Total liabilities and shareholders' equity                                           $   40,507,593
                                                                                                          ==============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.

                                       28

<PAGE>
<TABLE>
<CAPTION>


                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998




                                                                                             1999             1998
                                                                                             ----             ----
<S>                                                                                      <C>               <C>
Revenues:
     Monitoring                                                                          $ 11,545,257      $ 9,125,514
     Installation and service                                                               6,688,228        6,040,241
                                                                                     ----------------    -------------
          Total revenues                                                                   18,233,485       15,165,755
                                                                                     ----------------    -------------

Operating expenses:
     Monitoring                                                                             2,118,781        2,002,700
     Installation and service                                                               5,259,775        4,161,520
     Selling, general and administrative                                                    7,166,890        5,319,918
     Amortization of customer accounts                                                      4,873,131        3,972,575
     Depreciation and amortization                                                            805,641          545,181
                                                                                     ----------------    -------------
          Total operating expenses                                                         20,224,218       16,001,894
                                                                                     ----------------    -------------

          Operating loss                                                                   (1,990,733)        (836,139)

Interest expense                                                                              999,388        1,312,703
Other expense                                                                                  51,534           39,500
                                                                                     ----------------    -------------
                                                                                            1,050,922        1,352,203
                                                                                     ----------------    -------------

          Net loss                                                                         (3,041,655)      (2,188,342)

Preferred stock dividends                                                                   1,750,035          896,336
                                                                                     ----------------    -------------

          Net loss applicable to common stock                                             $(4,791,690)     $(3,084,678)
                                                                                     ================    =============

Loss per common share                                                                         $ (0.52)         $ (0.28)
                                                                                     ================    =============

Weighted average shares outstanding                                                         9,152,808       11,084,009
                                                                                     ================    =============
</TABLE>


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


                                       29

<PAGE>
<TABLE>
<CAPTION>
                          GUARDIAN INTERNATIONAL, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

                                                                       Common Stock           Common Stock
                                             Preferred Stock              Class A               Class B            Additional
                                             ---------------              -------               -------             Paid-in
                                            Shares      Amount      Shares      Amount     Shares     Amount        Capital
                                            ------      ------      ------      ------     ------     ------     ----------
<S>                                         <C>           <C>       <C>          <C>        <C>          <C>      <C>
Balance, December 31, 1997                  1,894,033     $1,894    9,003,804    $ 9,004    634,035      $ 634    $12,091,050
  Stock dividend on Series A Preferred
   Stock                                      143,100        143            -          -          -          -        286,055
  Sale of Series B Preferred Stock, net
   of issuance costs of $13,855             1,600,000      1,600            -          -          -          -      3,984,545
  Stock dividend on Series B Preferred
   Stock                                      104,232        104            -          -          -          -        260,476
  Retirement of Series A and Series
    B Preferred Stock, acquisition of
    Treasury shares                        (3,741,365)    (3,741)           -          -          -          -     (8,331,103)
  Sale of Series D Preferred Stock, net
    of issuance costs of $130,882              10,000         10            -          -          -          -      9,869,108
  Dividends on Series C Preferred
    Stock                                           -          -            -          -          -          -              -
  Dividends on Series D Preferred
    Stock                                         120          -            -          -          -          -        120,000
  Issuance of Class A Common Stock
    In connection with acquisitions, net
    of issuance costs of $28,034                    -          -    2,565,437      2,565          -          -      5,056,339
  Net loss                                          -          -            -          -          -          -              -
                                           ----------   --------  -----------   --------  ---------   --------   ------------

Balance December 31, 1998                      10,120         10   11,569,241     11,569    634,035        634     23,336,470
  Dividends on Series C Preferred Stock             -          -            -          -          -          -              -
  Dividends on Series D Preferred Stock             -          -            -          -          -          -              -
  Acquisition of treasury shares                    -          -            -          -          -          -              -
  Retirement of treasury shares                     -          -   (3,184,800)    (3,184)         -          -     (3,815,295)
  Equity issuance costs                             -          -            -          -          -          -         (4,391)
  Net loss                                          -          -            -          -          -          -              -
                                           ----------   --------  -----------   --------  ---------   --------   ------------

Balance December 31, 1999                      10,120     $   10    8,384,441    $ 8,385    634,035      $ 634    $19,516,784
                                           ==========   ========  ===========   ========  =========   ========   ============

(RESTUBBED TABLE)
                                                                   Accumulated      Treasury
                                                                     Deficit         Shares          Total
                                                                   -----------      --------         -----
                                                                     <C>                <C>           <C>

Balance, December 31, 1997                                       $ (3,079,918)   $    (6,438)    $ 9,016,226
  Stock dividend on Series A Preferred
   Stock                                                             (286,198)             -               -
  Sale of Series B Preferred Stock, net
   of issuance costs of $13,855                                             -              -       3,986,145
  Stock dividend on Series B Preferred
   Stock                                                             (260,580)             -               -
  Retirement of Series A and Series
    B Preferred Stock, acquisition of
    Treasury stock                                                          -     (8,062,156)    (16,397,000)
  Sale of Series D Preferred Stock, net
    of issuance costs of $130,882                                           -              -       9,869,118
  Dividends on Series C Preferred
    Stock                                                            (229,558)             -        (229,558)
  Dividends on Series D Preferred
    Stock                                                            (120,000)             -               -
  Issuance of Class A Common Stock
    In connection with acquisitions, net
    of issuance costs of $28,034                                            -              -       5,058,904
  Net loss                                                         (2,188,342)             -      (2,188,342)
                                                                 ------------    -----------    ------------

Balance December 31, 1998                                          (6,164,596)    (8,068,594)      9,115,493
  Dividends on Series C Preferred Stock                            (1,144,601)             -      (1,144,601)
  Dividends on Series D Preferred Stock                              (605,434)             -        (605,434)
  Acquisition of treasury shares                                            -       (144,423)       (144,423)
  Retirement of treasury shares                                    (4,394,538)     8,213,017               -
  Equity issuance costs                                                     -              -          (4,391)
  Net loss                                                         (3,041,655)             -      (3,041,655)
                                                                 ------------    -----------    ------------

Balance December 31, 1999                                        $(15,350,824)   $         -     $ 4,174,989
                                                                 ============    ===========    ============

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

                                       30
<PAGE>
<TABLE>
<CAPTION>


                          GUARDIAN INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

                                                                                            1999           1998
                                                                                            ----           ----
<S>                                                                                   <C>              <C>
Cash flows from operating activities-
     Net loss                                                                         $(3,041,655)     $ (2,188,342)
       Adjustments to reconcile net loss to net cash provided by
          operating activities-
          Depreciation and amortization                                                   805,641           545,181
          Amortization of customer accounts                                             4,873,131         3,972,575
          Amortization of capitalized installation costs                                1,016,836           650,210
          Amortization of deferred financing costs                                        152,521           256,178
          Provision for doubtful accounts                                                 482,450           511,333
     Changes in assets and liabilities, net of acquisitions:
          Accounts receivable                                                          (1,353,972)         (623,556)
          Deposits and other assets                                                      (236,356)         (712,558)
          Accounts payable and accrued expenses                                           241,278           812,635
          Unearned revenue                                                                831,867           307,296
                                                                                -----------------  ----------------
               Net cash provided by operating activities                                3,771,741         3,530,952
                                                                                -----------------  ----------------

Cash flows from investing activities-
     Purchase of fixed assets                                                          (2,170,315)       (1,786,027)
     Business acquisitions, net of cash acquired                                                -       (16,650,382)
     Purchase and placement of customer accounts                                       (4,568,459)       (4,537,787)
                                                                                -----------------  ----------------
               Net cash used in investing activities                                   (6,738,774)      (22,974,196)
                                                                                -----------------  ----------------

Cash flows from financing activities-
     Payments of long term obligations                                                 (1,006,953)      (11,940,666)
     Proceeds from line of credit                                                       4,922,190        18,328,227
     Proceeds from equity issuance                                                         (4,391)       13,827,227
     Payment of cash dividends                                                         (1,087,213)                -
     Acquisition of treasury shares                                                      (144,423)                -
                                                                                -----------------  ----------------
               Net cash provided by financing activities                                2,679,210        20,214,788
                                                                                -----------------  ----------------

               Net increase (decrease) in cash and cash equivalents                      (287,823)          771,544

Cash and cash equivalents, beginning of year                                              865,857            94,313
                                                                                -----------------  ----------------
Cash and cash equivalents, end of year                                                   $578,034         $ 865,857
                                                                                =================  ================

Supplemental disclosures-
     Interest paid                                                                      $ 864,201         $ 874,514
     Income taxes paid                                                                     44,000            70,500
Non cash investing and financing activities-
    Exchange of Class A common stock, retained as treasury shares                               -        (8,062,156)
    Retirement of Series A and Series B Preferred Stock                                         -        (8,334,844)
    Issuance of Series C Redeemable Preferred Stock                                             -        16,397,000
    Issuance of Class A common stock in consideration for business acquisitions                 -         5,058,904
    Stock dividends on Series A and Series B preferred stock                                    -           546,778
    Stock dividends on Series D preferred stock                                           605,434           120,000
    Contract holdbacks applied against accounts written off                                25,076           156,397

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

                                       31
<PAGE>


                          GUARDIAN INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     Description of Business
     -----------------------
     The Company operates two central monitoring alarm stations and monitors and
     maintains electronic security systems for residential and commercial
     customers in the United States (its primary market).

     Liquidity
     ---------
     As of December 31, 1999, the Company maintained an accumulated deficit of
     $(15,350,824) and negative working capital of $(3,426,475). Net losses for
     1999 and 1998 were $(3,041,655) and $(2,188,342), respectively. However,
     the Company generates annual cash flows, as evidenced by its cash flow from
     operations of $3,771,741 and $3,530,952 for 1999 and 1998, respectively.

     As of December 31, 1999, the Company believes it will maintain the ability
     to generate sufficient cash to fund future operations of the business.
     Generally, cash flow will be generated from a combination of (1) the
     Company's existing $20.0 million Renewed Credit Facility with Heller,
     subject to compliance with the provisions of the debt covenants in the
     Renewed Credit Facility, and (2) recurring revenue from its security
     monitoring customer base. At December 31, 1999, there was approximately $4
     million of availability under the Renewed Credit Facility.

     Revenue Recognition
     -------------------
     Installation Revenue. Prior to 1998, installation revenues were recognized
     when installations of security alarm systems were performed. Costs of
     providing installations were charged to income in the period when the
     installation occurred, except in cases where the Company maintained
     ownership of the equipment installed, in which case the Company capitalized
     the cost of the equipment to property and equipment and depreciated the
     amount over a seven year period. Net margins on installation activities
     prior to 1998 were not material to the Company's operations.

     In 1998, as a result of the acquisition of Mutual, the Company adopted a
     new accounting policy related to installation activity due to the nature of
     the high-end commercial installations performed by Mutual. The Company
     defers the excess of installation revenue over estimated selling costs and
     amortizes such difference over the initial term of the non-cancelable
     customer monitoring/service contract (generally over five years). Costs
     attributed to providing the installations, which include direct labor,
     direct materials and direct overhead, are capitalized and amortized over a
     five year period. All other costs associated with the installation are
     charged to income in the period when the installation occurs. Customers are
     billed for installation services when the installation is completed.

     Monitoring/Service Revenue. Customers are billed for monitoring and
     maintenance services primarily on a monthly or quarterly basis in advance
     of the period in which such services are provided. Unearned revenues result
     from billings in advance of performance of services. Contracts


                                       32
<PAGE>

     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.

     Restricted Cash
     ---------------
     Included in cash and cash equivalents is restricted cash of $44,396
     representing cash held in escrow pursuant to the Company's acquisition
     activity.

     Customer Accounts, Net
     ----------------------
     Customer accounts acquired from alarm dealers are reflected at cost. The
     cost of acquired accounts is based on the estimated fair value at the date
     of acquisition and included in "Customer Accounts, net" in the accompanying
     consolidated balance sheet. Acquired customer accounts are capitalized and
     amortized on a straight-line basis over a ten-year period. For those
     accounts which are cancelled during the amortization period, the remaining
     net book value of that account is expensed in the period in which it is
     cancelled. Costs applicable to providing installation of internally
     generated customer accounts are capitalized and amortized over the life of
     the monitoring/service contract (generally five years). It is the Company's
     policy to perform monthly evaluations of acquired customer account
     attrition and, if necessary, to adjust the remaining useful lives. The
     Company periodically estimates future cash flows from customer accounts.
     Because expected cash flows continue to exceed the unamortized cost of
     customer accounts, the Company has not recorded an impairment loss.

     Goodwill and Other Intangible Assets, Net
     -----------------------------------------
     Goodwill is the excess of purchase consideration given over the net assets
     acquired in a purchase business combination. The Company amortizes its
     goodwill balances over a ten-year life. 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 are less
     than their carrying value. Included in other intangible assets are deferred
     financing costs which are amortized over the respective terms of associated
     long-term debt obligations using the interest method.

     Inventories
     -----------
     Inventories, comprised of alarm systems and parts, are stated at the lower
     of average cost or market.

     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.

     Concentration of Vendor Risk
     ----------------------------
     The Company purchases alarm systems for sale and installation from a small
     number of vendors. At December 31, 1999, approximately 55% of accounts
     payable were due to one supplier.

     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 three to

                                       33
<PAGE>

     seven years and the estimated useful lives for leasehold improvements is
     approximately ten years. During 1998, the Company adjusted its estimate of
     useful economic life for leasehold improvements from thirty years to ten
     years. There was no material impact on the loss for the year as a result of
     the change in the estimated useful life.

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

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

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

     Comprehensive Income
     --------------------
     Statement of Financial Accounting Standards No. 130, "Reporting
     Comprehensive Income" provides reporting and disclosure requirements for
     comprehensive income and its components within the financial statements.
     The Company had no comprehensive income components for the years ended
     December 31, 1999 and 1998, therefore, comprehensive loss is the same as
     net loss for both periods.

     Accounting Pronouncements
     -------------------------
     Accounting standards setters in the United States have issued several
     accounting pronouncements that the Company will be required to adopt in
     future fiscal reporting periods.

     SFAS 133 "Accounting for Derivative Instruments and Hedging Activities"
     establishes accounting and reporting standards for derivative instruments,
     including certain derivative instruments embedded in other contracts,
     (collectively referred to as derivatives) and for hedging activities. It
     requires that an entity recognize all derivatives as either assets or
     liabilities in the statement of financial position and measure those
     instruments at fair value. SFAS 133 is effective for all fiscal quarters,
     beginning after June 15, 2000. Management has not traditionally been
     required to utilize derivative instruments in managing its business and
     does not anticipate utilizing them in 2000. Accordingly, the Company does
     not believe SFAS 133 will have a material effect on the Company's
     consolidated financial statements.

     SEC Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101")
     provides guidance on accounting for revenue-earning activities. It
     highlights existing criteria for determining when revenue is realized (or
     realizable) and earned. SAB 101 is required to be implemented no later than
     the second fiscal quarter beginning after December 15, 1999. Management
     believes its revenue recognition accounting has been substantially
     consistent with the guidance found in SAB 101.

     Loss Per Common Share
     ---------------------
     The Company makes its earnings per share calculation in accordance with
     SFAS No. 128, "Earnings Per Share". Basic loss per common share is computed
     by dividing net loss attributable to common

                                       34
<PAGE>

     shareholders (net loss plus the preferred stock dividends) 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, par value $.001 per share
     "(Class A Common Stock") and the stock options to purchase shares of Class
     A Common Stock (see Note 11) are exercised, is not presented because the
     effect would be anti-dilutive for both 1999 and 1998. Options to purchase
     1,045,122 shares of Class A Common stock were outstanding at December 31,
     1999 but were not included in the computation of diluted EPS because the
     options' exercise prices were greater than the average market price of the
     common shares. The options expire on various dates through 2010. The
     weighted average shares outstanding used in the computation of net loss
     attributable to common shares are as follows:
<TABLE>
<CAPTION>

                                                          Weighted Average Shares
                                                         Outstanding for the Year
                                                            Ended December 31,
                                                            ------------------
                                                            1999           1998
                                                            ----           ----
<S>                                                       <C>           <C>
     Class A Common Stock                                 8,518,773     10,449,974
     Class B Common Stock                                   634,035        634,035
                                                        -----------    -----------
                                                          9,152,808     11,084,009
                                                        ===========    ===========
</TABLE>

     Advertising Costs
     -----------------
     Advertising costs are expensed as incurred. Total advertising expense was
     $105,106 and $100,268 for the years ended December 31, 1999 and 1998,
     respectively.

     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.

     Reclassification
     ----------------
     Certain 1998 amounts in the consolidated statements of operations,
     shareholders' equity and cash flows have been reclassified to conform to
     the 1999 presentation. Such reclassifications have no impact on the net
     loss reported for 1999.

2.   NOTES RECEIVABLE

     Notes receivable consist of the following at December 31, 1999:

      Installment sales                                         $ 90,950
      Notes with customers and dealers                            34,297
                                                               ---------
                                                                 125,247
      Current portion                                            (73,564)
                                                               ---------
      Notes receivable, less current portion                    $ 51,683
                                                               =========

     The above notes are repayable in monthly installments of principal and
     interest, will be fully repaid at various intervals during 2000 and 2001
     have interest rates varying from 6.0% to 18.85%. Certain installment sales
     with payment periods less than a year do not contain a finance component.

                                       35

<PAGE>


3.   CUSTOMER ACCOUNTS, NET

     The following is an analysis of the changes in acquired customer accounts
     for the year ended December 31, 1999:
<TABLE>
<CAPTION>
<S>                                                                           <C>
         Balance, beginning of year                                         $31,552,324
            Purchase of customer accounts from dealers                        2,819,205
            Customer accounts acquired in acquisitions                                -
            Internally generated accounts                                     1,774,330
            Charges against contract holdbacks                                  (25,076)
            Amortization of capitalized installation costs                   (1,016,836)
            Amortization of customer accounts                                (4,873,131)
                                                                            -----------
         Balance, end of year                                               $30,230,816
                                                                            ===========
</TABLE>
     The accumulated amortization of customer accounts was $6,756,730 at
     December 31, 1999. In conjunction with certain purchases of customer
     contracts and accounts, the Company withholds a portion of the price as a
     credit to offset qualifying attrition of the acquired customer accounts and
     for purchase price settlements of assets acquired and liabilities assumed.
     The Company had a total balance withheld of $297,881 at December 31, 1999,
     as contract holdbacks in connection with the acquisition of customer
     accounts which are included in "Accounts payable and accrued expenses" in
     the accompanying consolidated balance sheet.

4.   PROPERTY AND EQUIPMENT, NET

     Property and equipment, net, consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
<S>                                                                          <C>
       Property and equipment, at cost:
         Station equipment                                                   $3,837,391
         Transportation vehicles                                                399,061
         Furniture and office equipment                                         723,548
         Leasehold improvements                                                 430,742
                                                                            -----------
                                                                              5,390,742
       Accumulated depreciation and amortization                             (1,288,932)
                                                                            -----------
                                                                             $4,101,810
                                                                            ===========
</TABLE>

     Included in property and equipment at December 31, 1999 was $447,317 of
     assets held under capital leases. The accumulated depreciation on such
     assets at December 31, 1999 was $93,710.

     The depreciation and amortization charge (including amortization of assets
     held under capital leases) was $525,266 and $325,373 for the years ended
     December 31, 1999 and 1998, respectively.

     The Company believes there are no impairments of long-lived assets based on
     review of expected cash flows from the use of such assets.


                                       36

<PAGE>

5.   GOODWILL AND OTHER INTANGIBLE ASSETS, NET

     Goodwill and other intangible assets, net, consist of the following at
     December 31, 1999:
<TABLE>
<CAPTION>
                                                   Amortization
                                                      Period
                                                      ------
<S>                                                    <C>                <C>
     At cost:
        Goodwill                                       10 years           $1,943,211
        Deferred financing costs                       3 years               812,667
        Covenant not to compete and other            5 - 10 years            442,569
                                                                        ------------
                                                                           3,198,447
     Accumulated amortization                                             (1,409,433)
                                                                        ------------
                                                                          $1,789,014
                                                                        ============
</TABLE>

     The amortization of goodwill, covenant not-to-compete and other intangible
     assets was $280,375 and $219,808 for the years ended December 31, 1999 and
     1998, respectively. Amortization of deferred financing costs, included in
     interest expense, was $152,521 and $256,178 for the years ended December
     31, 1999 and 1998, respectively.

6.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of the following, at December
     31, 1999:
<TABLE>
<CAPTION>
<S>                                                                           <C>
      Trade accounts payable                                                   $ 578,660
      Contract holdbacks                                                         297,881
      Preferred dividend payable                                                 892,380
      Accrued expenses                                                         1,863,173
                                                                             -----------
                                                                              $3,632,094
                                                                             ===========
</TABLE>

7.   LONG TERM OBLIGATIONS

     Long term obligations consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
<S>                                                                         <C>
      Credit facility with financial institution                             $10,338,757
      Capital lease obligations                                                  348,648
      Equipment notes payable and other                                          728,296
                                                                          ---------------
                                                                              11,415,701
      Less-current portion                                                      (807,421)
                                                                         ---------------
      Long-term obligations, less current portion                            $10,608,280
                                                                         ===============

      Estimated maturities of long-term debt are as follows:
      2000                                                                     $ 807,421
      2001                                                                    10,567,377
      2002                                                                        29,739
      2003                                                                        11,164
      2004 and thereafter                                                              -
                                                                         ---------------
                                                                             $11,415,701
                                                                         ===============
</TABLE>

                                       37
<PAGE>

     Credit Facility. In connection with the acquisition of Mutual, the Company
     amended its credit facility (the "Renewed Credit Facility") with Heller
     Financial, Inc., the Company's senior lender. Under the Renewed Credit
     Facility, borrowings will bear interest at floating rates, either at Prime
     plus 1 3/4% or, at the Company's election, LIBOR plus 3 1/2% and is
     collateralized by substantially all of the Company's assets. At December
     31, 1999, the debt was bearing interest at varying rates. The Renewed
     Credit Facility expires in May 2001. The $20 million total availability
     under the Renewed Credit Facility is subject to certain "Borrowing Base"
     limitations (as defined in the Renewed Credit Facility). In connection with
     the investment by Protection One Investments, Inc. ("Protection One") (See
     Note 10), in October 1998, Heller made other amendments to the Renewed
     Credit Facility to conform the agreement with the transactions. The Renewed
     Credit Facility includes customary covenants including, but not limited to,
     restrictions related to the incurring of other debt, the encumbrance or
     sale of the Company's assets, and the payment of dividends or making of
     other distributions to the Company's shareholders and other financial
     performance covenants. The Company believes it was in compliance with all
     such covenants as of December 31, 1999. At December 31, 1999, there was
     approximately $4 million of availability under the Renewed Credit Facility

     Capital Lease Obligations. During 1997, the Company entered into a lease
     agreement for central station equipment, expiring in 2002. The lease has
     been capitalized in accordance with generally accepted accounting
     principles using an interest rate of 10.51%. The future minimum payments
     under this lease are disclosed in Note 8.

     Equipment Notes. Equipment notes payable and other relate to purchases of
     vehicles and equipment and the purchase of an account portfolio. Interest
     rates vary from 6.0% to 10.51%. The notes are repayable in monthly
     installment of principal and interest through 2001.

8.   COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

     Leased Facilities
     -----------------
     The Company leases its corporate headquarters from an affiliate which is
     owned by the principal shareholders of the Company. The Company's corporate
     headquarters occupies a 12,000 square foot building which houses its
     central monitoring facility located in Hollywood, Florida. The lease
     expires on December 31, 2002, but has a renewal option for an additional
     five years under the same terms and conditions. The annual rent is
     approximately $105,000, with annual increases commencing January 2000 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 an unaffiliated
     third party, in an arms length transaction.

     The Company leases space with Windbrook Realty in New York, New York. The
     lease expires in December 2004, with a renewal option for an additional
     five years under the same terms and conditions. The 3,500 square feet of
     leased space houses a central monitoring station, offices and warehouse
     facilities. The annual rent is approximately $91,000.

     The Company also leases office space in Miami and Tampa, Florida and in
     Staten Island, New York. The leases expire on various dates through July
     2003 and most are renewable at the option of the Company.


                                       38
<PAGE>

     Future minimum payments under operating leases and capital leases (see Note
     7) are as follows:
<TABLE>
<CAPTION>
                                                                Operating       Capital
                                                                ---------       -------
<S>   <C>                                                        <C>          <C>
      2000                                                       $337,704     $177,959
      2001                                                        265,929      168,424
      2002                                                        252,003       31,626
      2003                                                        147,353       11,614
      2004                                                        102,600            -
                                                                        -            -
      Thereafter                                               ----------    ---------
                                                               $1,105,589      389,623
                                                               ==========
      Less interest                                                            (40,975)
                                                                             ---------
      Capital lease obligations reflected as current
        ($149,939) and non-current ($198,709)
        portions of long-term obligations                                     $348,648
                                                                             =========
</TABLE>

9.   INCOME TAXES

     At December 31, 1999, the Company has net operating loss carryforwards for
     federal income tax purposes of approximately $6.7 million, which begin to
     expire in 2010. The components of deferred tax assets and liabilities at
     December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S>                                                                        <C>
      Deferred tax (liabilities) assets:
          Allowance for doubtful accounts - current                        $   211,697
          Difference in amortization of customer contracts                    (223,213)
          Net operating loss carryforwards                                   2,606,439
          Installation activity                                               (254,621)
          Inventory reserve                                                     17,550
          Other                                                                  4,233
                                                                        --------------
                                                                             2,362,085
          Less valuation allowance                                          (2,362,085)
                                                                        --------------
      Net deferred tax (liabilities) assets                                $         -
                                                                        ==============

</TABLE>
     The Company's 1999 and 1998 losses have not been benefited for financial
     reporting purposes because it is more likely than not that the Company will
     be unable to generate sufficient future taxable income to offset such
     losses.

10.  SHAREHOLDERS' EQUITY

     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 Series A 9 3/4% Convertible Cumulative
     Preferred Stock for $2.00 per share ($3,750,000 in the aggregate) to
     Protection One. The proceeds of the $7,500,000 investment was used to
     reduce debt and for acquisitions.

     In February 1998, the Company issued 1,600,000 newly authorized shares of
     Series B 10 1/2% Convertible Cumulative Preferred Stock, par value $.001
     ("Series B Preferred Stock") to Protection One, for $2.50 per share
     ($4,000,000 in the aggregate). The proceeds of the $4,000,000 investment
     was used in the acquisition of Mutual.


                                       39
<PAGE>

     Both issuances of the Preferred Stock paid quarterly preferred stock
     dividends. A total of 143,100 dividend shares of Series A Preferred Stock
     and 104,232 dividend shares of Series B Preferred Stock were issued in
     1998.

     On October 21, 1998, Protection One exchanged 2,980,000 million shares of
     Class A Common Stock, 2,037,133 million shares of Series A Preferred Stock,
     (both of which were previously held by Western Resources, Inc. and
     contributed to Protection One in their merger), and 1,704,232 million
     shares of Series B Preferred Stock for 16,397 shares of Series C 7%
     Redeemable Cumulative Preferred Stock, par value $.001 ("Series C Preferred
     Stock"), of the Company. After giving effect to the transactions, Guardian
     had approximately 9.2 million shares of Common Stock outstanding including
     634,035 shares of Class B Non-Voting Common Stock, par value $.001 per
     share. The Company has retired the Series A Preferred Stock and the Series
     B Preferred Stock, subsequent to the exchange transaction. Due to the
     redeemable nature of the Series C Preferred Stock, the capital will reside
     outside the stockholders' equity section in the mezzanine section of the
     balance sheet, following long-term debt. This treatment is consistent with
     the hybrid characteristics of the issue.

     The Series C Preferred Stock is non-voting and is redeemable on the sixth
     anniversary of the date of issuance at a liquidation value of $1,000 per
     share. Dividends are payable quarterly in cash and have been made each
     quarter since the issuance of the Series C Preferred Stock. The holders of
     Series C Preferred Stock have the right to optional redemption upon a
     Change in Control, as defined. At any time after issuance, the Company can
     elect to redeem the Series C Preferred Stock for a premium. Due to the
     redeemable nature of the Series C Preferred Stock, the capital will reside
     outside the stockholders' equity section in the mezzanine section of the
     balance sheet, following long-term debt. This treatment is consistent with
     the hybrid characteristics of the issue.

     Also on October 21, 1998, Protection One purchased 10,000 shares of Series
     D 6% Convertible Cumulative Preferred Stock, par value $.001 per share
     ("Series D Preferred Stock"), of the Company for $10 million. The proceeds
     of the sale of the Series D Preferred Stock were used to pay down long-term
     debt.

     The holders of Series D Preferred Stock have no voting rights until such
     shares are converted into Class A Common Stock except that the holders of
     Series D Preferred Stock are allowed to vote on an as-converted basis with
     the holders of Class A Common Stock under the following circumstances: (i)
     until the third anniversary of the date of issuance, upon a Change in
     Control, as defined; (ii) or at any time the Series D Preferred Stock is
     outstanding, under an Event of Default, as defined. The holders of Series D
     Preferred Stock have no redemption rights except upon a Change in Control.
     After the third anniversary of issuance, the Company can elect to redeem
     the Series D Preferred Stock for a premium.

     In accordance with the Stock Repurchase Program authorized by the Board of
     Directors in October 1998, the Company purchased 197,800 shares of its
     Class A Common Stock, during the year ended December 31, 1999. In
     accordance with Florida securities law, the shares were concurrrently
     retired. The treasury shares acquired in connection with the October 1998
     investment by Protection One have also been retired. The excess of the cost
     of the treasury shares over issuance price of the retired shares resulted
     in a charge to accumulated deficit


                                       40
<PAGE>

11.  STOCK OPTIONS

     During 1999, the Company issued options to purchase shares of common stock
     at exercise prices ranging from $0.69 to $0.81 per share, which equals fair
     value on the dates of grant, to various employees and two directors. The
     options are exercisable on a pro rata basis on the anniversary dates of the
     agreements under which they were granted.

     On December 14, 1998, the Company canceled 375,000 of options held by
     certain members of management, other senior employees and directors (the
     "option holders"). Such options had been issued in 1997 and 1998 with
     exercise prices ranging from $1.95 to $3.25 per share. On the same date,
     375,000 new options were issued to the option holders with an exercise
     price of $0.84 per share, being the market price of the Company's stock on
     such date. There were no other changes to the terms of these options.

     The following is a summary of stock option activity for the years ended
     December 31, 1999 and 1998:
<TABLE>
<CAPTION>

                                                           Weighted Average
                                               Option           Exercise
                                               Shares            Price
                                               ------            -----
<S>                                              <C>             <C>
     Outstanding at December 31, 1997            474,720         $2.08
        Granted                                  703,902         $1.77
        Cancelled                               (375,000)        $2.41
                                            ------------
     Outstanding at December 31, 1998            803,622         $1.66
        Granted                                  241,500         $0.73
        Cancelled                                      -             -
                                            ------------
     Outstanding at December 31, 1999          1,045,122         $1.44
                                            ============

     Exercisable at 12/31/98                     369,720         $1.84
                                                 =======
     Exercisable at 12/31/99                     503,833         $1.59
                                                 =======
</TABLE>

     The following table summarizes stock options outstanding and exercisable at
     December 31, 1999:
<TABLE>
<CAPTION>

                                                                               Weighted Average         Weighted
                            Range of         Number of         Number of           Remaining             Average
                            Exercise          Options           Options       Contractual Life in       Exercise
        Description          Price          Outstanding       Exercisable            Years                Price
        -----------         --------        -----------       -----------            -----              --------
<S>  <C>                     <C>              <C>               <C>                    <C>               <C>
     1995 options            $2.00            174,720           174,720                1                 $2.00
     1997 options            $2.50            100,000           100,000                2                 $2.50
     1997 options            $0.84            200,000           120,000                8                 $0.84
     1998 options            $0.84            175,000            50,000                8                 $0.84
     1998 options            $1.73             53,902            10,780                9                 $1.73
     1998 options            $3.25            100,000            33,333                8                 $3.25
     1999 options            $0.81             75,000            15,000               10                 $0.81
     1999 options            $0.69            166,500                 -               10                 $0.69
</TABLE>

                                       41
<PAGE>


     The Company has adopted SFAS No. 123, "Accounting for Stock-Based
     Compensation", which requires the Company, for options issued to employees,
     to either recognize expense for stock based award based on the fair value
     on the date of grant or provide footnote disclosure regarding the impact of
     such charges. The Company continues to account for employee stock options
     pursuant to APB No. 25. Accordingly, the Company does not record
     compensation costs unless the market price exceeds the exercise price on
     the date of the 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 for the years ended December 31, 1999 and 1998 would be as
     follows:
<TABLE>
<CAPTION>

                                                              1999               1998
                                                              ----               ----
<S>                                                       <C>                <C>
     Net loss applicable to common shares:
         As reported                                      $(4,791,690)       $(3,084,678)
         Pro forma for SFAS No. 123                        (5,009,208)        (3,354,476)


     Net loss per common share:
         As reported                                           $(0.52)            $(0.28)
         Pro forma for SFAS No. 123                             (0.55)             (0.30)

</TABLE>

     The weighted average fair value of options granted, estimated on the date
     of grant was $0.73 for the year ended December 31, 1999 and $1.27 for the
     year ended December 31, 1998. The fair value of options granted was
     estimated on the date of grant using the following weighted average
     assumptions:
<TABLE>
<CAPTION>

                                                           Year Ended December 31,
                                                            1999             1998
                                                            ----             ----
<S>                                                          <C>              <C>
     Dividend yield                                          0.00%            0.00%
     Expected stock price volatility                       121.41%          124.44%
     Risk free interest rate                                 6.27%            5.32%
     Expected option life                                 10 years         9.5 years

</TABLE>

12.  401(k) SAVINGS PLAN

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

     The Company matches 10% of the first 4% of each employee's contribution.
     Participants have a choice of several investing options for their
     contributions and have sole direction over the investment of their
     contributions. The Company's contributions to the Plan for the years ended
     December 31, 1999 and 1998 were approximately $15,900 and $7,300,
     respectively.

13.  SEGMENT REPORTING

     Effective January 1, 1998, the Company adopted SFAS 131, "Disclosures About
     Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
     established standards for reporting information about operating segments in
     annual financial statements. It also established standards for related
     disclosures about products and services and geographic areas.


                                       42
<PAGE>

     For the years ended December 31, 1999 and 1998, the Company operated under
     a single reportable segment providing alarm monitoring services, and
     selling and installing alarm systems to residential and commercial
     customers in the United States. Accordingly, no further segment reporting
     beyond the consolidated financial statements is presented.


                                    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, 1999. A
summary of the background and experience of each of these individuals is set
forth following the table. Under the Company's by-laws, directors hold office
for a period of one year, at which time the shareholders elect new directors.
Further, under the Company's by-laws, directors hold office until their
successors are elected and qualified.
<TABLE>
<CAPTION>

   Name                            Age       Position
<S>                                <C>       <C>
   Richard Ginsburg (1)            31        Chief Executive Officer, President, Director
   Harold Ginsburg (1)             66        Chairman of the Board of Directors
   Sheilah Ginsburg (1)            61        Secretary, Treasurer, Director
   Darius G. Nevin                 41        Vice President, Chief Financial Officer, Director
   William Remington               70        Director
   Terry Akins                     53        Chief Operating Officer, Vice President
   Douglas T. Lake                 49        Director
   David Heidecorn                 43        Director
   Joel A. Cohen                   59        Vice President, Director, President of Mutual
   Raymond L. Adams                70        Vice President of Mutual
</TABLE>
 (1)     Harold and Sheilah Ginsburg are married and Richard Ginsburg is their
         son.

Harold Ginsburg

         Mr. 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 many well-known 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. In 1991, 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. Ginsburg does not hold directorships in any other reporting
companies.



                                       43
<PAGE>

Sheilah Ginsburg

         Mrs. Ginsburg was a co-founder of Guardian. She is responsible for the
human resources and certain other 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.

Richard Ginsburg

         Mr. Ginsburg was a co-founder of Guardian and has been a Director of
the Company since its inception. He has been President and Chief Executive
Officer of Guardian since August 1996. He received a Bachelor of Science degree
in communications from the University of Miami. He subsequently served as
Central Station Manager of Guardsman Security from 1987 to 1990. Mr. Ginsburg
then became Operations Manager for Alert Centre, Inc., another security alarm
company, a position he filled from 1990 to 1992.

         Mr. Ginsburg does not hold directorships in any other reporting
companies. Mr. Ginsburg is a director of Paradigm Direct, in which Western
Resources, Inc., the parent company of Protection One, holds a significant
minority ownership position.

Darius G. Nevin

         Mr. 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.

Douglas T. Lake

         Mr. Lake has been a Director of the Company since April 1998. Mr. Lake
is Executive Vice President and Chief Strategic Officer of Western Resources,
Inc., an entity which, through its wholly owned subsidiary, maintains a material
investment in the Company. Mr. Lake is also presently Chairman of the Board of
Protection One, Inc. a publicly-held company. From 1995 to 1998, Mr. Lake was
Senior Managing Director of Investment Banking with Bear Stearns & Company in
New York City. Prior to 1995, he was Managing Director with Dillon Reed &
Company in New York City. Mr. Lake holds a B.A. from Trinity College in
Hartford, Connecticut and an M.B.A. from Amos Tuck School at Dartmouth.

         Mr. Lake also holds a directorship with Oneok, Inc, a publicly-held
company.

                                       44
<PAGE>

William Remington

         Mr. Remington has been a director of the Company since 1996. Mr.
Remington is a Canadian citizen and resident and for the past twenty-one years,
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.

David Heidecorn

         Mr. Heidecorn has been a director since May 1999. Mr. Heidecorn is the
Chief Financial Officer of Catterton Partners, a growth equity fund. Mr.
Heidecorn served as Executive Vice President, Chief Financial Officer and a
director of Alarmguard Holdings, Inc. from 1992 until February 1999 when the
company was sold to Tyco/ADT. From 1986 to 1992, Mr. Heidecorn was employed by
GE Capital Corporation as a Vice President in the Leveraged Finance Group and a
Senior Vice President for the Corporate Finance Group, where he led the
Bankruptcy and Reorganization Finance activity for the Northeast. He received
his B.A. in Economics from Lehigh University and his M.B.A. in Finance from
Columbia University.

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

Terry E. Akins

         Mr. 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.

Joel A. Cohen

         Mr. Cohen is Vice President of the Company and President of Mutual. Mr.
Cohen has served as President of Mutual since March 1989. He holds a B.A. from
Brooklyn College and an M.B.A. from LIU in Brooklyn.

Raymond L. Adams

         Mr. Adams is Vice President of Mutual. He has served as Vice President
of Mutual since January 1991. Mr. Adams holds a B.A. from Syracuse University.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent (10%) of a registered class
of the Company's equity securities, to file with the Securities and Exchange
Commission ("SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and the other equity securities of the Company.
Officers, directors and persons who beneficially own more than ten percent (10%)
of a registered class of the Company's equity securities are required by the


                                       45
<PAGE>

regulations of the SEC to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of these
filings and written representations from the directors and officers, one such
filing was not timely made during the year ended December 31, 1999 by Mr. Harold
Ginsburg, Mr. William Remington and Mrs. Sheilah Ginsburg.

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 executive officers of the
Company.
<TABLE>
<CAPTION>


                                                          Year        Salary            Bonus      Other
                                                          ----        ------            -----      -----
<S>                                                       <C>         <C>       <C>                <C>      <C>
  Richard Ginsburg                                        1999        $128,890  (1)          -     $14,149  (2)
      President and CEO, Director                         1998         100,000               -      12,219
                                                          1997          91,985               -      10,800
  Darius G. Nevin                                         1999         135,000               -      13,492  (2)
      Vice President and Chief Financial Officer,         1998         135,537               -      12,084
      Director                                            1997          25,660  (3)          -         462
  Joel A. Cohen                                           1999         152,305          31,158      10,586  (2)
      Vice President, President and CEO of Mutual,        1998         135,577  (4)          -      10,928
      Director                                            1997               -               -           -
  Terry E. Akins                                          1999         142,500  (5)                 29,390  (2),(6)
      Chief Operating Officer, Vice President             1998         144,808  (5)                 12,559
                                                          1997          96,346                       7,089
</TABLE>

(1)      Mr. Ginsburg's annualized compensation was increased to $175,000 in
         September 1999.
(2)      Included in other annual compensation are auto allowances and payments
         for medical insurance coverage.
(3)      Mr. Nevin joined the Company in October 1997, with the execution of his
         employment agreement. The annualized compensation for 1997 for
         Mr. Nevin was $135,000.
(4)      Mr. Cohen joined the Company in February 1998, with the execution of
         his employment agreement. The annualized compensation for 1998 for
         Mr. Cohen was $150,000.
(5)      Mr. Akins joined the Company in May 1997, with the execution of his
         employment agreement. The annualized compensation for 1999, 1998 and
         1997 for Mr. Akins was $150,000. Mr. Akins took extra vacation
         time in each year for which he was not compensated.
(6)      Included in other annual compensation is amount related to incentive
         plan.

Compensation of Directors


         As compensation for serving as directors, Mssrs. Lake, Heidecorn and
Remington received options to purchase 75,000 shares of Guardian Class A Common
Stock. Mr. Lake received options in 1998 and Mssrs. Heidecorn and Remington
received options in 1999. Mssrs. Remington and Heidecorn receive compensation of
$1,000 for each meeting of the Board of Directors which they attend.


Options/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>

Individual Grants
                              Number of         Percent of Total
                             Securities           Options/SARs
                              Underlying          Granted to         Exercise of
                             Options/SARs         Employees in        SARs Price
           Name                Granted            Fiscal Year         ($/Share)       Expiration Date
           ----                -------           ---------------     -----------      ---------------
<S>                             <C>                  <C>                <C>            <C>
  David Heidecorn               75,000               31.1%              $0.81      May 12, 2009
  William Remington             75,000               31.1%              $0.69      September 13, 2009
</TABLE>


                                       46
<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Management

         The following table sets forth information with respect to the
beneficial ownership as of March 24, 2000 of Class A Common Stock by (i) each
Director of the Company; (ii) the Chief Executive Officer; and (iii) all named
directors and executive officers of the Company as a group. On March 24, 2000,
there were 8,384,441shares of Class A Common Stock issued and outstanding.
<TABLE>
<CAPTION>

                                                                       Amount and Nature of        Percent of
                                                                       ---------------------       ----------
     Name and Address of Beneficial Owner                             Beneficial Ownership (1)      Class (2)
     ------------------------------------                             --------------------          -----
<S>                                                                           <C>                     <C>
     Harold and Sheilah Ginsburg (3), (4)                                     1,857,066               22.1

     Richard Ginsburg (3)                                                       695,996 (5)            8.3

     Darius G. Nevin (3)                                                        172,000 (5)            2.0

     William Remington (3)                                                            -                 *

     Douglas T. Lake (3)                                                         45,000 (6)             *

     Joel A. Cohen (7)                                                          238,009 (8)            2.8

     David Heidecorn (9)                                                         40,000 (10)            *

     All Directors and Executive Officers as a Group (11)                     3,624,840               43.2
          * Represents less than 1% of outstanding Voting Stock.
</TABLE>

     (1) Each director and executive officer has sole voting and investment
         power with respect to the shares beneficially owned.
     (2) For purposes of this table, a person is deemed to have "beneficial
         ownership" of any shares of Class A Common Stock which such person has
         the right to acquire on or within 60 days after March 24, 2000. For
         purposes of computing the percentage of the class of Class A Common
         Stock held by each person named above, any shares which such person has
         or has the right to acquire on or within 60 days after March 24, 2000
         are deemed to be outstanding for such person, but are not deemed to be
         outstanding for the purpose of computing the percentage ownership of
         any other person.
     (3) The address of such shareholder is c/o the Company, 3880 North 28th
         Terrace, Hollywood, Florida 33020-1118.
     (4) The shares of Harold and Sheilah Ginsburg are owned jointly as tenants
         by the entireties.
     (5) Includes 60,000 options which are immediately exercisable.
     (6) Comprised of 45,000 options which are immediately exercisable.
     (7) The address of such shareholder is c/o Mutual Central Alarm Services,
         Inc., 10 West 46th Street, New York, New York, 10036.
     (8) Comprised of 40,000 options which are immediately exercisable.
     (9) The address of such shareholder is c/o 9 Greenwich Office Park,
         Greenwich, Connecticut, 06830.
    (10) Includes 30,000 options which are immediately exercisable.
    (11) Includes Messrs. Harold Ginsburg, Richard Ginsburg, Nevin, Remington,
         Lake, Cohen, Heidecorn, Akins, Adams and Mrs. Ginsburg.

Security Ownership of Certain Beneficial Owners

         The following table sets forth information with respect to the
beneficial ownership as of March 24, 2000 of any person (including any "group")
known by the Company to be the beneficial owner of more than 5% of any class of
stock.

                                       47
<PAGE>
<TABLE>
<CAPTION>

                                                                                Amount and Nature of      Percent of
            Title of Class           Name and Address of Beneficial Owner       Beneficial Ownership (1)  Class (2)(3)
            --------------           ------------------------------------       ------------------------  ------------

<S>                  <C>                          <C>                                     <C>             <C>
     Preferred Stock (4)           Protection One (6)                                     10,725 (7)        100.0

     Class A Common Stock          Harold and Sheilah Ginsburg (8), (9)                1,857,066             22.1

     Class A Common Stock          Richard Ginsburg (8)                                  695,996 (10)         8.2

     Class A Common Stock          Rhonda Ginsburg (8)                                   629,245              7.5

     Class A Common Stock          Estate of Norman Rubin                                501,827              6.0

     Class B Non-Voting Common
     Stock (5)                     Heller (11)                                           634,035              7.0(12)
</TABLE>

       (1) Unless otherwise indicated, the Company believes that each beneficial
           owner listed in the above table has sole voting and investment power
           with respect to the shares beneficially owned.
       (2) For purposes of this table, a person is deemed to have "beneficial
           ownership" of any shares which such person has the right to acquire
           on or within 60 days of March 24, 2000. For purposes of computing the
           percentage of the class held by each person named above, any shares
           which such person has or has the right to acquire on or within 60
           days after March 24, 2000 are deemed to be outstanding for such
           person, but are not deemed to be outstanding for the purpose of
           computing the percentage ownership of any other person.
       (3) On a fully diluted basis as of March 24, 2000, Protection One holds
           27.3%, Harold Ginsburg and Sheilah Ginsburg hold 14.2%, Richard
           Ginsburg holds 5.3%, Rhonda Ginsburg holds 4.8% and Heller holds 4.8%
           of the outstanding securities of the Company.
       (4) Shares of Preferred Stock are not convertible until at least the
           third anniversary of their issuance on October 21, 1998, at a rate of
           one share for 333.3333 shares of Class A Common Stock.
       (5) Class B Common Stock is immediately convertible into Class A Common
           Stock on a share-for-share basis at any time.
       (6) The address for Protection One is 818 S. Kansas Avenue, Topeka,
           Kansas, 66601. Protection One is the sole holder of all of the
           outstanding shares of Preferred Stock.
       (7) The amount includes stock dividends accumulated through March 24,
           2000.
       (8) The address for such shareholder is c/o the Company, 3880 N. 28th
           Terrace, Hollywood, Florida, 33020-1118.
       (9) The shares of Harold and Sheilah Ginsburg are owned jointly as
           tenants by the entireties.
      (10) Includes 60,000 options which are immediately exercisable.
      (11) Heller is the sole holder of all of the outstanding shares of Class B
           Common Stock. The address for Heller is 500 West Monroe Street,
           Chicago, Illinois, 60661.
      (12) Represents the percent of outstanding shares of Common Stock.

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

         The Company leases its corporate headquarters from Guardian
Investments, a Florida partnership owned by Harold and Sheilah Ginsburg, both of
whom are directors, officers and principal shareholders of the Company.

     The corporate headquarters occupies a 12,000 square foot building, which
houses the Company's central monitoring station, offices and warehouse
facilities, located at 3880 North 28 Terrace, Hollywood, Florida 33020. The
telephone number is (954) 926-5200. The lease expires on December 31, 2002, but
has a renewal option for an additional five years under the same terms and
conditions. The annual rent is approximately $105,000, 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 an unaffiliated third party.

                                       48
<PAGE>

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

Exhibits
--------

 3(i)   Articles of Incorporation dated July 7, 1999 incorporated by reference
        to Exhibit 3(i) of the Company's Form 10-QSB filed August 13, 1999.
 3(ii)  Amended and Restated By-Laws of the Company dated March 2, 2000
 3(iii) Articles of Amendment to Articles of Incorporation of Guardian
        International, Inc. as filed with the Florida Secretary of State on
        March 9, 2000.
 4(a)   Specimen Stock Certificate incorporated by reference to Exhibit 4(a)
        of the Company's Form 10-QSB filed August 13, 1999.
10(a)   Amended and Restated Loan and Security Agreement with Heller Financial,
        Inc. dated as of  February 23, 1998, incorporated by reference to
        Exhibit 10(j) of the Company's Form 10-KSB filed March 31, 1998.
10(b)   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(c)   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(d)   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(e)   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(f)   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(g)   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(h)   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(i)   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(j)   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(k)   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(l)   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(m)   Amendment to Registration Rights Agreement dated as of February 23,
        1998, incorporated by reference to Exhibit 10(gg) to the Company's
        Form 10-KSB filed as of March 31, 1998.
10(n)   Stock Subscription Agreement dated as of February 23, 1998, incorporated
        by reference to Exhibit 10(hh) to the Company's Form 10-KSB filed as of
        March 31, 1998.
10(o)   Stock Purchase Agreement dated as of April 27, 1998, incorporated by
        reference to Exhibit 10(a) to the Company's Form 10-QSB filed as of
        August 14, 1998.
10(p)   Employment Agreement with David Weston between Precision and the Company
        dated as of April 27, 1998, incorporated by reference to Exhibit 10(b)
        to the Company's Form 10-QSB filed as of August 14, 1998.
10(q)   Indemnification Agreement between sellers of Precision and the Company
        dated April 27, 1998, incorporated by reference to Exhibit 10(c) to the
        Company's Form 10-QSB filed as of August 14, 1998.
10(r)   Confidentiality, Noncompetition and Nonsolicitation Agreement with Alan
        Dubow

                                       49
<PAGE>

        dated April 27, 1998, incorporated by reference to Exhibit 10(d)
        to the Company's Form 10-QSB filed as of August 14, 1998.
10(s)   Confidentiality, Noncompetition and Nonsolicitation Agreement with
        Richard Clark dated April 27, 1998, incorporated by reference to Exhibit
        10(e) to the Company's Form 10-QSB filed as of August 14, 1998.
10(t)   Confidentiality, Noncompetition and Nonsolicitation Agreement with Jeff
        Chivers dated April 27, 1998, incorporated by reference to Exhibit 10(f)
        to the Company's Form 10-QSB filed as of August 14, 1998.
10(u)   Stock Purchase Agreement dated as of August 13, 1998, incorporated by
        reference to Exhibit 10(a) to the Company's Form 10-QSB filed as of
        November 16, 1998.
10(v)   Escrow Agreement dated as of August 13, 1998, incorporated by reference
        to Exhibit 10(b) to the Company's Form 10-QSB filed as of November 16,
        1998.
10(w)   Employment Agreement between Vincent Monardo and the Company dated
        August 13, 1998, incorporated by reference to Exhibit 10(c) to the
        Company's Form 10-QSB filed as of November 16, 1998.
10(x)   Employment Agreement between Kevin Killea and the Company dated
        August 13, 1998, incorporated by reference to Exhibit 10(d) to the
        Company's Form 10-QSB filed as of November 16, 1998.
10(y)   Employment Agreement between Michael Assenza and the Company dated
        August 13, 1998, incorporated by reference to Exhibit 10(e) to the
        Company's Form 10-QSB filed as of November 16, 1998.
10(z)   Employment Agreement between Paul Ferrara and the Company dated
        August 13, 1998, incorporated by reference to Exhibit 10(f) to the
        Company's Form 10-QSB filed as of November 16, 1998.
10(aa)  1999 Stock Option Plan incorporated by reference to Exhibit A to the
        Company's Schedule 14-A filed as of May 27, 1999.
10(bb)  Severance Agreement between Darius G. Nevin and the Company dated
        January 19, 2000.
10(cc)  Severance Agreement between Richard Ginsburg and the Company dated
        January 19, 2000
10(dd)  Non-Qualified Stock Option Agreement between Douglas T. Lake and the
        Company, effective April 28, 1998.
10(ee)  Non-Qualified Stock Option Agreement between David Heidecorn and the
        Company, effective May 12, 1999.
10(ff)  Non-Qualified Stock Option Agreement between William Remington and the
        Company, effective September 13, 1999.
10(gg)  Stock Option Agreement between Richard Ginsburg and the Company,
        effective October 15, 1997.
10(hh)  Stock Option Agreement between Darius G. Nevin and the Company,
        effective October 15, 1997.
10(ii)  Stock Option Agreement between Joel Cohen and the Company, effective
        February 23, 1998.
10(jj)  Stock Option Agreement between Raymond Adams and the Company, effective
        February 23, 1998.
 21     List of subsidiaries

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

     No reports were filed on Form 8-K during the three months ended December
31, 1999.


                                       50

<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 of Directors                   March 30, 2000
Harold Ginsburg

/s/RICHARD GINSBURG                   Director, President and Chief Executive Officer      March 30, 2000
------------------------------------
RICHARD GINSBURG

/s/DARIUS G. NEVIN                    Director, Vice President and Chief Financial         March 30, 2000
------------------------------------
DARIUS G. NEVIN

/s/SHEILAH GINSBURG                   Director, Secretary and Treasurer                    March 30, 2000
------------------------------------
SHEILAH GINSBURG
</TABLE>




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