GUARDIAN INTERNATIONAL INC, 10KSB40, 1997-03-31

GUARDIAN INTERNATIONAL INC
10KSB40, 1997-03-31
DETECTIVE, GUARD & ARMORED CAR SERVICES

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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, 1996

|_| 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 0-28148

GUARDIAN INTERNATIONAL, INC.
(Formerly Everest Security Systems Corporation, formerly Everest
Funding Corporation, formerly Burningham Enterprises, Inc.)
(Exact name of registrant as specified in its charter)

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NEVADA 58-2201633

(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 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant 's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The issuer's revenues for the 1996 fiscal year were $3,620,990.

The aggregate market value of voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold as of March 26,
1997 was $1,998,067.13.

Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ____ No __X__

As of March 31, 1997, there are 6,453,804 shares of Class A Voting
Common Stock and 484,035 shares of Class B Nonvoting Common Stock of the issuer
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The issuer incorporates by reference in the exhibits set forth in Item
13, various documents filed as exhibits to the Company's Form 8-K filed
September 12, 1996, to report the merger of the issuer (then called Everest
Security Systems Corporation, and Guardian International, Inc., then, a private
Florida corporation.

Transitional Small Business Disclosure Format (check 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............................................................ 12
Item 3. Legal Proceedings.................................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders................................ 13

PART II

Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters.............................................................. 13
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation......................................................... 18
Item 7. Financial Statements............................................................... 25
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure......................................................... 39

PART III

Item 9. Directors and Executive Officers of the Registrant................................. 39
Item 10. Executive Compensation............................................................. 41
Item 11. Security Ownership of Certain Beneficial Owners and
Management....................................................................... 42
Item 12. Certain Relationships and Related Transactions..................................... 43
Item 13. Exhibits........................................................................... 43
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INTRODUCTORY NOTE

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

The Company cautions that the factors described above could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which 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. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

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

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY'S SERVICES

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

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

The Company is presently a leading supplier of security monitoring and
high grade monitored security systems in the United States; its primary market
is the southeastern United States. Based on the Company's gross revenues and
number of subscribers for the fiscal year ended December 31, 1996 ("Fiscal Year
1996"), and assuming no significant changes in the data published in SDM'S
(formerly SECURITY DISTRIBUTING & MARKETING MAGAZINE) May 1996 issue's annual
listing of the top security firms in the United States, the Company expects it
will be ranked among the top one hundred (100) security companies in the United
States in SDM'S 1997 annual listing. In addition, according to the 1997 Fact
Book Issue of SECURITY SALES (Vol. 18. No.12, supplement), only 10.1% of all
security companies in the United States generate gross revenues in excess of
$2,500,000. As reflected in the Company's financial statements, set forth in
Item 7, below, the Company's gross revenues for Fiscal Year 1996 were above this
figure, standing at $3,620,990.

The Company consists of three business components: (i) Guardian
International ("Guardian International"), a division involved in monitoring
services, the provision of field repair services for the account base, ongoing
account acquisitions, and dealer funding of monitoring accounts, (ii) Gibraltar
Security Alarm Systems ("Gibraltar"), a division involved in high grade
installations, and (iii) Specialty Devices, Inc. ("SDI"), a wholly owned
subsidiary of the Company involved in providing installation services to third
party security alarm companies, some of which are competitors of the Company.

The Company's revenues consist primarily of recurring payments under
written contracts for the monitoring of security systems. For Fiscal Year 1996
monitoring revenues represented approximately 74% of total revenues. The balance
of the Company's revenues are derived from (i) the sale of enhanced security
systems (approximately 10 % of total revenues), (ii) the provision of local
field repair services (approximately 2% of total revenues), and (iii) the
provision of installation services to third party security alarm companies, some
of which are competitors of the Company (approximately 14% of total revenues).

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MONITORING SERVICES (GUARDIAN INTERNATIONAL)

The Company, through Guardian International, monitors digital signals
arising from burglaries, fires and other events through security systems
installed at subscribers' premises. Most of these signals are received and
processed at the Company's well-equipped central monitoring station located in
Hollywood, Florida. The Company's central monitoring station is listed by
Underwriters Laboratories Inc. ("UL") both as (i) a burglar alarm system central
station and (ii) a protective signaling services central station. This facility
is able to withstand hurricane-force winds and can maintain operations
indefinitely without electrical power using its propane generators.

The Company's central monitoring facility has many security devices,
including closed circuit television ("CCTV"), motion detecting units, high
intensity lighting, and access control. All of the equipment Guardian
International uses to monitor its customers and to protect its facility is
generally the latest enhancement and the majority of the equipment is less than
four years old.

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

Maintenance of the facility's technical functions and equipment is done
internally, with the exception of hardware and software. The hardware and
software for the monitoring facility is handled through outside service
contracts currently at a cost of approximately three thousand dollars ($3,000)
per month.

WHOLESALE MONITORING PROGRAM

Under Guardian International's wholesale monitoring program (the
"Wholesale Monitoring Program") Guardian International monitors subscribers on a
"wholesale" basis for certain third party security alarm companies, some of
which are competitors of Guardian International. This practice is commonly
referred to in the industry as "third party monitoring" or "wholesale"
monitoring. Guardian International provides monitoring services to the customers
of the third party companies, which are generally high-end alarm companies.
Guardian International 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, Guardian International 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
Guardian International 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 on occasion purchased customer accounts
that were being monitored under the Wholesale Monitoring Program. In addition,
the wholesale revenue subsidizes a portion of the operational costs arising from
Guardian International's central monitoring facility.
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The Wholesale Monitoring Program generated revenues of $504,000 and
$338,000 in fiscal years 1996 and 1995, respectively. As of the date of this
Annual Report, the Company had approximately 16,000 wholesale customers. No such
wholesale account represents more than 5% of the Company's total revenues.

HIGH GRADE ALARM SYSTEMS (GIBRALTAR)

The Company also sells high grade and standard alarm systems through
Gibraltar, and provides local field repair services. The Gibraltar business was
acquired through an asset acquisition in the first quarter of 1996 by Guardian
International, Inc. prior to its merger with and into Everest Security Systems
Corporation. (See "History," below.) Gibraltar specializes in commercial
installation, and monitoring and servicing of high grade security and fire
systems. The Company believes that Gibraltar's account base allows the Company
the opportunity to capitalize on the commercial market in the southeastern
United States. As the security alarm industry's main emphasis tends to be on the
low-end residential market, the commercial market is not actively targeted by
many of the Company's competitors.

Gibraltar safeguards a number of businesses--including financial
institutions, drug companies, airlines, industrial complexes, marinas and yacht
clubs--as well as private residences which require state of the art monitoring
systems. The Company's UL-listed central monitoring system gives Gibraltar the
ability to monitor its customers' buildings for burglary, fire and environmental
problems. If an alarm, fire or environmental condition is detected, a signal is
transmitted over telephone and or radio transmission to the Company's central
monitoring station. When the conditions require verification and/or dispatch
action, human operators react as appropriate, in accordance with standard
procedures.

The central monitoring system also monitors opening and closing
schedules for Gibraltar's commercial customers. Commercial customers have the
option of receiving weekly reports reflecting the date, time, action, and
employee name with respect to each opening or closing activity during the
relevant week. The reports can be sent to any location around the world via
facsimile or e-mail.

The Company maintains Gibraltar's image as a stand-alone high-end
organization; specifically, the Company does not actively reveal its affiliation
with Gibraltar in order to maximize the Gibraltar company name, established in
1977. Gibraltar has its own President, Director of Sales and service and
installation teams. Gibraltar's officers are not officers or directors of the
Company.

INSTALLATION SERVICES TO THIRD PARTY ALARM COMPANIES (SDI)

SDI provides installation services to third party security alarm
companies, many of which are competitors of the Company. The Company has
recently significantly downsized SDI, as the Company intends to focus on its
core business of alarm installation, monitoring, and related services for its
own customers.

RECENT DEVELOPMENTS

The Company is presently negotiating a new credit facility ("New Credit
Facility") with its current lender, Heller Financial, Inc. ("Heller" or the
"Senior Lender"). (For information regarding Heller's ownership of certain
shares of Class B Nonvoting Common Stock and its right to receive additional
Class B shares, see Item 5, below.) Under the New Credit Facility, the maximum
credit facility would be increased from $7 million available under the existing

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facility (see Item 6 - "Credit Facility," below) to $15 million, and would be
further increased to $20 million at such time as the Company achieves a Tangible
Net Worth (as defined under the contemplated terms of the New Credit Facility)
of $5,000,000, provided that there have been no defaults under the New Credit
Facility. Credit availability under both the existing facility and the New
Credit Facility is subject to certain "Borrowing Base" limitations (as such term
is defined in the existing credit facility and would be defined under the
contemplated New Credit Facility). There can be no assurances that the Company
will obtain the New Credit Facility or that the Company will achieve a Tangible
Net Worth (as defined) of $5,000,000.

On March 20, 1997, the Company executed a non-binding letter of intent
to purchase certain assets of a privately held Florida corporation (the
"Seller"). The assets to be acquired principally consist of approximately two
thousand two hundred (2,200) customer accounts and contracts, which, in the
aggregate, would increase MRR by approximately $60,000 per month. The Company
will also acquire certain other operating assets of the Seller. The
consideration to be paid by the Company consists of $2.2 million in cash, 50,000
shares of the Company's common stock ("Common Stock"), and options to purchase
an additional 100,000 shares of Common Stock at an exercise price of $2.50 per
share. Pursuant to the terms of the contemplated purchase, if consummated, the
Company would enter into an employment agreement with a majority shareholder of
the Seller for a period of four years; pursuant to such contract, such majority
shareholder of the Seller would provide certain sales, marketing, and consulting
services to the Company at an annual salary of $150,000 plus other benefits. The
letter of intent calls for the parties to reach a definitive asset purchase
agreement by April 10, 1997. If an agreement has not been reached by such date,
the letter of intent will expire by its own terms.

On February 7, 1997, the Company executed a non-binding letter of
intent to effectuate the merger of a privately held Florida based security
company having approximately the same revenues as the Company (the "Target")
with and into a wholly-owned subsidiary of the Company to be incorporated in
Florida for that purpose, which would be the surviving corporation ("Surviving
Corporation"). Under the contemplated transaction, shareholders of the Target
would exchange all of the outstanding stock of the Target, for approximately 6.6
million shares of Common Stock (or 48% on a fully diluted basis). Following the
contemplated merger, the Surviving Corporation would be a wholly-owned
subsidiary of the Company. Under the terms of the letter of intent, the
transaction is subject to, among other things, the satisfactory completion of
due diligence review and the obtaining of certain banking approvals. As of the
date of this Annual Report, the Company has not completed its due diligence
review and the transaction has not been approved by the Senior Lender, whose
approval is required pursuant to the terms of the Company's existing credit
facility. (See Item 6 - "Credit Facility," below.)

HISTORY

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

The Company had no operations and did not acquire any business between
October 1986 and February 1988, at which time the Company changed its name from
Burningham Enterprises to Everest Funding Corporation ("Everest Funding") and
completed a reverse subsidiary merger with Everest Mortgage Corporation ("EMC").
Following that merger, EMC became a wholly-owned subsidiary of the Company. EMC
was in the mortgage origination business, but ceased operations in late 1993.
EMC was subsequently dissolved on July 5, 1995.
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The Company was again inactive between the end of 1993 and June 1995,
at which time the Company underwent a change of control. New directors were
elected to the Company's board (the "Board") and in July 1995, the Board and a
majority of shareholders approved a one for twenty reverse split, effective July
24, 1995. On November 27, 1995, the Company changed its name from Everest
Funding to Everest Security Systems Corporation ("Everest Security") and entered
into the home alarm installation and service business.

On October 9, 1995, the Company entered into a stock purchase agreement
("Stock Purchase Agreement") with Specialty Device Installers, Inc. ("SDI"), a
company incorporated under the laws of the State of Florida in August 1991.
Under the terms of the Stock Purchase Agreement, the Company purchased all of
the shares of SDI in exchange for 100,000 shares of Common Stock. The Stock
Purchase Agreement also required the Company to enter into an employment
contract with Frank Bauer for a term of five years commencing on October 1,
1995, presently at an annual salary of $62,400. Mr. Bauer is still serving as
President of SDI pursuant to the terms of that employment agreement, but he is
neither an officer of the Company nor a member of the Board. SDI provides
installation services to third party security alarm companies, some of which are
competitors of the Company. The Company has recently significantly downsized SDI
in order to focus on its core business of alarm installation, monitoring, and
related services.

On January 15, 1996, the Company formed Federal Alarm Systems, Inc.
("FASI"), a wholly owned subsidiary organized under the laws of the State of
Florida. FASI was established to provide monitoring services for the owners of
burglar alarm systems installed by SDI, and to monitor and service purchased
burglar alarm contracts. FASI is currently inactive.

On August 15, 1996, the Company executed an Agreement and Plan of
Merger with Guardian International, Inc. ("Guardian"), a Florida corporation. On
August 28, 1996, Guardian merged with and into Everest (the "Merger"). 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. The Merger was a
reverse acquisition for accounting purposes, with Guardian deemed the
acquiror. For a further discussion of the accounting treatment of this
transaction and its impact on information contained in the Company's
Consolidated Financial Statements included in Item 7 of this Annual Report,
refer to the first paragraph under the caption "Results of Operations" in Item
6, below.

MARKET OVERVIEW AND TRENDS

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

The security alarm industry is characterized by a high degree of
fragmentation and currently is comprised mostly of a large number of small
providers of alarm systems and services. A survey published by SDM MAGAZINE
(formerly named SECURITY DISTRIBUTING AND MARKETING MAGAZINE) in May 1996
reported that in 1995, based upon information provided by its respondents, the
100 largest
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companies in the alarm industry accounted for approximately 23% of industry
revenues. The Company believes that many smaller alarm service companies,
because of their size, have higher overhead expenses as a percentage of revenues
than the Company and lack access to capital on terms as attractive as those
available to the Company. Moreover, due to a decline in security system
installation prices over the last two years, security alarm companies
participating in market growth are required today to make a substantial
investment in each new subscriber; for example, security alarm companies sell
equipment at below cost or transfer equipment gratuitously in the expectation of
generating future 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. The Company believes
that several factors have spawned an increased demand for residential security
alarm systems in the markets where the Company operates, including increased
crime rates, increased public concern about crime, and the surge of insurance
company discounts to homeowners who purchase alarm systems.

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

Large, consumer-oriented companies in industries facing deregulation,
including long distance and local telephone companies and electric and gas
utilities (e.g. Entergy Corporation, Western Resources, Inc., and Ameritech
Corporation), have demonstrated an increased interest in the security alarm
industry over the last several years. The Company believes telecommunication and
utility companies are interested in offering their customers additional
services, including security services, as a means of enhancing customer loyalty
and reducing future risk of losing customers in a fully competitive environment.
The entrance by such large companies into the security alarm business poses the
threat that such companies will engage in price wars with other companies in the
security alarm industry. Such price wars, if they were to occur, could have a
materially adverse effect on the Company's financial condition.

The increased demand for security systems may also be attributable in
part to the granting by insurance companies of discounts to homeowners who
purchase alarm systems, and such discounts are typically greater when systems
are monitored by a central station. In addition, insurance companies may require
that businesses install an alarm system as a condition of insurance coverage.
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BUSINESS STRATEGY

The Company's strategy for growth has consisted primarily of the
implementation of an aggressive and strategic acquisition plan. Between 1994 and
1996, prior to its merger into the Company, Guardian acquired a combination of
twelve (12) alarm companies and/or portfolios of customer monitoring contracts
from existing alarm companies. The financing for these acquisitions was derived
from a seven million dollar ($7,000,000) credit facility with pre-merger
Guardian's lender, which credit facility is currently the Company's. See Item 6
- - "Credit Facility," below. These acquisitions enabled Guardian to more than
double its annual retail account base in that two-year period.

Management believes that numerous acquisition opportunities continue to
be available, and the Company is pursuing, and intends to continue to pursue,
acquisitions of alarm companies or portfolios of subscriber accounts, some of
which may be significant to the Company's expected future growth. (See "Recent
Developments," above.) Acquisitions of portfolios of accounts thus far has been
achieved primarily through two methods: the "Independent Alarm Acquisition
Program" and the "Dealer Program," both as described below.

Under the Independent Alarm Acquisition Program, the Company acquires
company accounts from independent alarm companies whose territories cover the
southeastern United States. Under this Program, the independent alarm company
solicits sales of the its own alarm systems from residential or commercial
customers, who are also offered the option to enter into an agreement with the
independent alarm company, in the independent alarm company's own name, for the
provision of alarm monitoring and/or repair services, typically for a 60 month
term, although the monitoring period may be shorter. The independent alarm
company then sells the customer contract to the Company for an amount typically
between 25 to 35 times the amount of MRR to be generated by the contract, 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 Dealer Program, the Company has many authorized dealers
("Dealers") whose territories cover the southeastern United States. Most of the
Dealers are independent alarm companies performing under agreements to sell
under the Company name, although in most cases the Dealer is not obligated under
the agreement to sell exclusively for the Company. The Dealers are offered
numerous support services including but not limited to marketing, equipment
discounts, technical expertise and competitive purchase multiples. The Company's
goal is to aid the Dealers in achieving performance goals, which in turn
benefits the Company. Each Dealer solicits sales of the Dealer's own alarm
systems from residential or commercial customers, who also may be offered the
option to enter in an agreement for the provision of alarm monitoring and/or
repair services, typically for 60 month term, although the monitoring period may
be shorter. The Dealer can offer the provision of monitoring services to the
customer under the name of the Company, under the Dealer's own name, or under
any other independent alarm company name. In such cases where the customer
contract for monitoring services is written under the name of the Company, the
Company pays the Dealer a placement fee. In other cases where the customer
contract is written under any providers name other than the Company, the Dealer
sells the contract to the Company. The amount paid by the Company to the Dealer
under either scenario described is typically between 25 to 35 times the amount
of MRR to be generated by the contract, or a proportionately smaller multiple of
MRR if the contract is for less than 60 months. The amount paid to Dealers is
capitalized and amortized over 10 years.
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Under both the Independent Alarm Acquisition Program and the Dealer
Program, the independent alarm company or the Dealer, as the case may be
(collectively referred as the "Contract Seller"), is required to guarantee that
a minimum number of payments (usually between 12 and 18 monthly payments) will
be received by the Company from the customer (the "Minimum Payment Period"), and
that customers will pay any amounts owed within 90 days during such Minimum
Payment Period. If the guaranteed number of payments is not received by the
Company, or if a customer is late in paying any amounts due for a period
exceeding 90 days, the Contract Seller must replace the subscriber contract with
a new contract of equal original duration and MRR. In order to ensure that such
Contract Seller guarantees are met, the Company typically withholds an average
of 10% of the payment made to the Contract Seller at the inception of the
transaction (referred as a "holdback"). After the guarantee period lapses, the
Company will pay the Contract Seller any holdback monies due.

Another source of revenue growth is the Company's internal sales
department. The Company has various retail marketing programs in place intended
to generate additional subscribers. One such program is a customer referral
program pursuant to which new customers are generated by referrals from the
Company's existing and continually increasing customer account base. These
"referral accounts" enable the Company to increase its revenue at a much lower
cost than traditional marketing methods. In addition, the Company is evaluating
its current retail sales and marketing programs, and is considering
significantly increasing its efforts in these areas.

Management is hopeful that significant additional revenue sources will
be generated from the Company's bulk service communities builder projects. The
Company currently has a total of over two thousand seven hundred (2,700) homes
under either seven (7) or ten (10) year master association contracts ("Master
Contracts") with two large development companies. Each Master Contract calls for
Company-installed alarms to be monitored by the central station with one bill
each month to the relevant master homeowners association. Closings on homes
located in these developments began in the first quarter of 1996 and will
continue for the next four (4) years. Guardian's revenue under a Master Contract
increases incrementally with each closing. Management anticipates that upon
completion of the two development projects, the Company will generate over forty
thousand dollars ($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.

EQUIPMENT AND TECHNOLOGY

Prior to its merger with the Company, Guardian, during the first
quarter of 1996, completed hardware and software upgrades to its security
monitoring system. These improvements included the addition of memory to the
Data General/Aviion machines, the Company's redundant file servers, and the
implementation of automation improvements that have increased overall efficiency
and reduced monitoring costs. 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 5.50.14 version, for its
automation, service and billing system. The Company is one of the few companies
in the United States to incorporate integrated MAS fax technology. This gives
the Company the ability to automate numerous aspects of information that were
previously processed manually. In addition, such technological advancements as
the provision of alpha-numeric alarm indications and the use of security
industry-specific software such as MASTrak and MASLink, gives the Company's
off-site locations the ability to process data efficiently with little or no
human interaction.
9

<PAGE>

The Company's central monitoring system currently has the capacity to
monitor up to approximately two hundred thousand (200,000) subscribers with
moderate upgrades to the storage and processor capacity of its existing hardware
system. Moreover, the operating facility would require little or no physical
changes to accommodate such a volume of accounts. (For information regarding the
Company's plans to expand its administrative office space at the central
monitoring facility, see Item 2, below.)

MARKETING

A large portion of the Company's marketing activities have consisted
of referrals and a limited amount of advertising. The Company recognizes the
need for a full blown marketing and sales strategy to maximize its market
penetration as well as to maintain customer service. Consequently, while the
Company expects to continue to rely on customer referrals, management expects
the Company's main marketing focus will be on the expansion of a direct sales
force.

COMPETITION

Competitive conditions vary within each segment of the security
industry. The largest segment is composed of security system dealers. Most of
these companies can be described as having fewer than twenty employees,
averaging one hundred fifty to eight hundred fifty (150- 850) accounts, are
usually under capitalized, are owner-managed and do not have their own central
monitoring stations.

According to a 1995 survey conducted by SDM MAGAZINE (published in May
1996), the one hundred (100) largest companies in the security industry account
for approximately twenty three percent (23%) of the industry's total revenue.
Therefore, the majority of the industry revenue is generated by smaller alarm
service companies.

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

There are a number of larger companies which may have significantly
greater capital and resources than the Company. (See also Item 1 - "Market
Overview and Trends", above, for a discussion of competition from large
companies in other industries). The following chart reflects the size of the
nine largest alarm companies. The information was obtained from the May 1996
issue of SDM MAGAZINE (formerly SECURITY DISTRIBUTING & MARKETING MAGAZINE).

10
<PAGE>

1995 REVENUE
COMPANY (IN MILLIONS) NUMBER OF ACCOUNTS
- ------------------------------- --------------- ------------------
ADT Security $814 1,039,000
Wells Fargo Alarm Services $255 146,000
Security Link from Ameritech $250 344,000
Honeywell $223 190,000
Brinks Home Security $128 378,700
Westinghouse Security Systems $115 266,000
Rollins Protective Services $ 66 120,000
ASH, USA $ 64 33,000
Westec Security $ 62 62,000

GOVERNMENT REGULATION

The Company's operations are subject to federal, state, county and
municipal laws, regulations and licensing requirements. SDI has an unlimited
electrical contractor license as required by the State of Florida. In addition,
the Company believes it has all municipal and city licenses required to operate
in Dade, Broward, and Palm Beach Counties (all in Florida).

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 to date.

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

TRADEMARKS

During fiscal year 1996, the Company filed applications with the United
States Patent and Trademark Office to register the marks Guardian
International(TM) and Gibraltar Security Alarm Systems(TM). The Company believes
that its trademarks are important to the marketing of its security alarm
services and the establishment of a strong identity with its customers. No
assurance can be given that the Company will be able to successfully enforce or
protect its rights to its trademarks in the event that any of them is subject to
third-party infringement.

EMPLOYEES

At December 31, 1996, the Company employed 86 individuals, all of whom
were full-time employees. As a result of the Company's recent downsizing of SDI,
the Company terminated 35 employees during the first quarter of 1997. For
additional information relating to the downsizing of SDI, see the information
under the caption "Installation Services to Third Party Alarm Companies (SDI),"
above. Any future increase in the number of employees will depend upon growth of
the Company's business. (See Item 1 - "Recent Developments," above.)

<PAGE>

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

RESEARCH AND DEVELOPMENT AND ENVIRONMENTAL ISSUES

The Company does not conduct any research and development activity. To
the Company's knowledge, the Company is not presently confronted by any
environmental issues.

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases its corporate headquarters from Guardian
Investments, a Florida partnership owned by Harold and Sheilah Ginsburg, both of
whom are directors, officers, and principal shareholders of the Company. (See
Item 12 -- "Certain Relationships and Related Transactions," below.) The
property, a six thousand (6,000) square foot building which holds the Company's
central monitoring facility, is located at 3880 N. 28 Terrace, Hollywood,
Florida 33020. The telephone number is (954) 926-5200. The lease will expire on
December 31, 1999, but the Company has an option to renew for an additional five
years under the same terms and conditions. The annual rental is approximately
fifty one thousand dollars ($51,000), with annual increases not to exceed three
percent (3%). The terms of the lease are no less favorable to the Company than
those which could be obtained from unaffiliated third parties.

The Company is currently arranging a modification of the lease on its
corporate headquarters to expand its administrative office space by six thousand
(6,000) square feet. The Company expects that the amended lease will be on terms
no less favorable to the Company than under the existing lease, and that the
rent under the amended lease would be increased proportionately to the increased
space.

SDI leases a two thousand five hundred (2,500) square foot
office/warehouse facility located at 823 NW 57th Street, Fort Lauderdale,
Florida 33309. It is a one-year lease which expires in May 1997. The rent is one
thousand five hundred twenty two dollars ($1,522) per month. SDI also has
another one-year lease, expiring in June 1997, for an office at 417 Whooping
Loop, Suite 1745, Altamonte Springs, Florida 32701. The Altamonte Springs office
is one thousand seven hundred fifty (1,750) square feet (together with the lease
on the premises at 823 NW 57th Street in Ft. Lauderdale, the "SDI Leases"). The
rent is seven hundred fifty dollars ($750) per month. Concomitantly with the
downsizing of SDI in the first quarter of 1997, the Company relocated SDI's
entire operations to the Company's headquarters in Hollywood, Florida.
Consequently, the Company does not intend to renew either of the SDI Leases.

OWNERSHIP OF REAL ESTATE

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

ITEM 3. LEGAL PROCEEDINGS

Each of the Company and SDI experiences routine litigation in the
normal conduct of its business. Neither the Company nor SDI believes that any
such pending litigation will have, individually or in the aggregate, a material
adverse effect on its respective business or financial condition.

<PAGE>

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

No matters were submitted to a vote of security holders, through proxy
or otherwise, during the fourth quarter ended December 31, 1996. As set forth in
the Company's Definitive Information Statement on Form 14C filed with the SEC on
November 14, 1996 (the "Definitive Form 14C"), Richard, Harold, Sheilah and
Rhonda Ginsburg (the "Ginsburgs"), who owned or controlled sixty-two percent
(62%) of the outstanding shares of Common Stock as of September 10, 1996,
approved by written consent approved in November 1996, the filing of amendments
to the Company's Certificate of Incorporation (i) to change the name of the
Company to Guardian International, Inc. and (ii) to authorize two new classes of
Common Stock, Class A Voting Common Stock and Class B Nonvoting Common Stock and
establish the relative rights, powers and limitations of the Class A and Class B
Common Stock. (See Exhibit ___ hereto.)

PART II

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

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

To the best of the Company's knowledge, there are presently ten (10)
market-makers. A public trading market for the Common Stock having the
characteristics of depth, liquidity and orderliness, depends on the existence of
market-makers as well as the presence of willing buyers and sellers. There can
be no assurance that these market-makers will continue to make a market for the
Common Stock. If the market-makers discontinue making a market for the Company,
the Common Stock would possess virtually no liquidity.

The following table sets forth the high and low closing prices of the
Common Stock for the fiscal periods indicated below, as reported by the National
Quotation Bureau during such periods. The prices reflect inter-dealer prices
without retail mark-up, mark-down, quotation, or commission. The figures do not
necessarily represent actual transactions.
13

<PAGE>

1995
First Quarter $.011 $.01
Second Quarter $.06 $.05
Third Quarter $2 9/16* $1/2*
Fourth Quarter $3 $2

1996
First Quarter $3 9/16 $3
Second Quarter $4 7/8 $3 1/4
Third Quarter $5 $4 1/8
Fourth Quarter $2 1/2 $1 3/4

* Following a 1-for-20 reverse split of the Company's Common
Stock, effective July 24, 1995.

The Company is presently authorized to issue one hundred million
(100,000,000) shares of Class A Common Stock, $0.001 par value per share, of
which six million four hundred fifty three thousand eight hundred four
(6,453,804) shares are issued and outstanding as of the date of this filing. The
Company is authorized to issue 484,035 shares of Class B Common Stock, $0.001
par value per share, of which 484,035 shares are issued and outstanding as of
the date of this filing.

Pursuant to the terms of the agreement and plan of merger by and among
the Company, Guardian, and Guardian's principal shareholders (the "Merger
Agreement"), the shareholders of Guardian prior to its merger into the Company
are entitled to receive an additional one million (1,000,000) million shares of
Common Stock, presently held in escrow by the Company's counsel, Navon, Kopelman
& O'Donnell, P.A., as escrow agent ("Escrow Agent"). Specifically, pursuant to
Section 9.2 of the Merger Agreement, in order to secure the obligation of G.M.
Capital Partners, Ltd. ("G.M. Capital") to raise an additional $7,000,000 in
equity capital, International Treasury and Investments, Ltd., a British Virgin
Islands corporation and an affiliate of G.M. Capital, pledged one million shares
of Common Stock (the "Pledged Shares") to the shareholders of the pre-merged
Guardian (the "Pre-Merger Guardian Shareholders"). Further, pursuant to the
terms of Section 9.2, the Escrow Agent was authorized to deliver the Pledged
Shares to the Pre-Merger Guardian Shareholders if the additional capital was not
deposited with the Company within 60 days of the closing date of the Merger (the
"Outside Date"). The additional capital was not deposited on or prior to the
Outside Date, and, therefore, the Pre-Merger Guardian Shareholders, which
include the Company's principal shareholders at present, are entitled to receive
the Pledged Shares proportionately to their ownership in the pre-merged
Guardian. As of the date of this filing, the shares are being held for the
benefit of the Pre-Merger Guardian Shareholders by the Escrow Agent.

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

Pursuant to the terms of an agreement entered into among the Pre-Merger
Guardian Shareholders and Heller, as a result of G.M. Capital's failure to raise
the additional $7,000,000 in equity capital the Pre-Merger Guardian Shareholders
are required to transfer one hundred and fifty thousand (150,000) shares of
Class B Nonvoting Common Stock to Heller. In order to fulfill this commitment,
an

<PAGE>

amendment to the Company's Articles of Incorporation will be required to
authorize additional shares of Class B Nonvoting Common Stock.

DIVIDENDS

The Company has not declared any cash dividends since its inception,
and does not anticipate paying such dividends in the foreseeable future. The
Company plans to retain any future earnings for use in the Company's business.
In addition to the self-imposed restriction on the payment of dividends
resulting from the Company's own policies, the payment of dividends is currently
restricted pursuant to the terms of the existing credit facility with Heller,
and is likely to remain subject to such restriction for the foreseeable future.
For additional information regarding the Heller credit facility, see information
under the caption "Credit Facility," in Item 6, below.

Assuming the restrictions on dividends under the credit facility (or
under the New Credit Facility) do not prohibit it, the payment of any future
dividends rests within the discretion of the Board, subject to the conditions
then existing, including the Company's earnings, capital requirements, financial
condition, and other relevant factors.

TRANSFER AGENT

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

RECENT SALES OF UNREGISTERED SECURITIES

On June 7, 1995, the Company issued twenty million (20,000,000) shares
of Common Stock for one hundred thousand (100,000) shares of J.A. Industries,
Inc. valued at One Hundred Thousand Dollars ($100,000). The shares were issued
in reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended. The shares were issued in a private
placement to International Treasury & Investments Ltd.

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

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

On July 5, 1995, the Company issued 3,975,000 shares of Common Stock to
three individuals (or entities owned or controlled by such individuals) for par
value. Two of the individuals were officers and directors of the Company. The
issuance was exempt from registration in accordance with Rule 701 of the
Securities Act of 1933. The shares were issued as compensation for services
rendered or to be rendered.
15

<PAGE>

AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
--------- ----------------- ------------- ----
<C> <C> <C> <C>
427968 B.C. Ltd. (1) 7/5/95 1,325,000 (prior to 1:20 $1,325
reverse split)

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

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

In October 1995, the Company issued 500,000 shares of Common Stock at
$2.00 per share. The issuance was exempt from registration pursuant to Rule 504
of Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). These shares were issued in a private placement to accredited
investors.

<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
--------- ----------------- ------------- ----
<C> <C> <C> <C>
427968 B.C. Ltd. 10/13/95 50,000 $100,000
427968 B.C. Ltd. 10/17/95 10,000 $20,000
Royal Bank of Scotland (3) 10/30/95 100,000 $200,000
Anne Huber 10/31/95 15,000 $30,000
Rodney Adler 12/04/95 100,000 $200,000
Tiger Eye Investments 12/15/95 75,000 $150,000
[Cayman] Ltd. (4)

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

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

In November 1995, the Company issued one hundred thousand (100,000)
shares of Common Stock at $0.01 per share to Frank Bauer in accordance with the
terms of the purchase agreement of SDI. These shares were issued in reliance
upon the exemption from registration afforded by Section 4(2) of the Securities
Act.

- ----------------------
(1) 427968 B.C. Ltd. is controlled by J.A. Michie.
(2) Knight Financial Ltd. is controlled by Robert Knight.
(3) Royal Bank of Scotland purchased shares for clients of the bank,
identities unknown.
(4) Tiger Eye Investments (Cayman) Ltd. is owned by Campbell Nominees, Ltd.
(5) International Treasury & Investments is owned by Warwyck Nominees,
Ltd., identity unknown, and an affiliate of G.M. Capital Partners, Ltd.
(6) Langara Capital Foundation is owned by Linchenstein Trust, administered
by J.A. Michie.
16
<PAGE>

AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
--------- ----------------- ------------- -------------

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

On March 12, 1996, the Company issued thirty thousand (30,000) shares
of Common Stock to employees and directors of the Company as payment for their
services. The issuance was exempt from registration under Section 4(2) of the
Securities Act.

<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
--------- ----------------- ------------- -------------
<S> <C> <C> <C>
Frank Bauer 3/12/96 10,000 $100
Gary Liscio 3/12/96 5,000 $ 50
Harvey Doischen 3/12/96 5,000 $ 50
Karl Gelbard 3/12/96 10,000 $100
</TABLE>

On August 14, 1996, the Company issued a total of one million
(1,000,000) shares of Common Stock at $3.50 per share to the following
institutions. The issuance was exempt from registration under Regulation S
promulgated under the Securities Act.

AGGREGATE
NUMBER OF CONSIDERATION
PURCHASER DATE OF PURCHASES COMMON SHARES PAID
--------- ----------------- ------------- -------------
<S> <C> <C> <C>
Bank of Austria
(Switzerland) 8/14/96 15,000 $52,500

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

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

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

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

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

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

Swiss Bank Corp. 8/14/96 110,000 $385,000
</TABLE>
17

<PAGE>

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

NUMBER OF
PURCHASER DATE OF PURCHASES COMMON SHARES
--------- ----------------- -------------

Harold Ginsburg 10/04/96 903,533
Rhonda Ginsburg 10/04/96 629,245
Richard Ginsburg 10/04/96 629,246
Sheilah Ginsburg 10/04/96 903,533
Robert and Nancy Kasky 10/04/96 161,345

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

OVERVIEW

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

Alarm monitoring revenues generate a significantly higher gross margin
than do the other services provided by the Company. During Fiscal Year 1996,
installation and service revenues generated only negligible gross margins.
Management believes, however, that such installation and service activity is
necessary for the generation and retention of alarm monitoring subscribers.
18

<PAGE>

All direct external costs associated with purchases of subscriber
accounts (primarily through the Independent Alarm Acquisition Program and Dealer
Program) are capitalized and amortized over 10 years on a straight-line basis.
In contrast, the Company's costs related to the sales, marketing and
installation of new alarm monitoring systems generated by the Company's internal
sales force are generally expensed in the period in which incurred. In cases
where the Company maintains ownership of the equipment, however, the costs of
such equipment is capitalized to property and equipment and amortized over seven
years. To date, the Company has not had a large internal sales force, and the
number of subscriber accounts generated internally during fiscal 1996 was not
material. In the future, if the Company expands its internal sales operations,
as anticipated, the accounting treatment for such internally generated revenues
would result in higher operating expenses in the period such revenues are
generated, but lower amortization expenses as a percentage of revenues.

Subscriber attrition has a direct impact on the Company's results of
operations, since it affects both the Company's revenues and its amortization
expense. Attrition can be measured in terms of canceled subscriber accounts and
the resulting decreased monitoring revenue. Net attrition for a given period of
time is defined as the number of accounts disconnecting service during the
period in question, net of any replacement of such subscriber by means of Dealer
or independent company replacement during the guarantee period, or by other
account replacement methods employed by the Company; these methods might
include, for example, the solicitation of monitoring contracts from new
occupants (where attrition is attributable to customer relocation). Net
subscriber attrition of the Company's own customers during fiscal years 1996 and
1995 was less than 10%.

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

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

RESULTS OF OPERATIONS

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

19
<PAGE>

The results for the fiscal year ended December 31, 1995 include the accounts and
activity strictly of Guardian.

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

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
Revenues:

Monitoring 74.2 87.3
Installation and service 25.8 12.7
------- -------
100.0 100.0
Total revenues

Operating expenses (as a percentage of revenues):

Monitoring 13.8 27.3
Installation and service 25.6 12.7
General and administrative 40.0 53.0
------- -------
79.4 93.0

Income before interest expense,
amortization, and depreciation

(as a percentage of revenues) 20.6 7.0

Interest expense (as a percentage of revenues) 15.5 13.4
Amortization of customer contracts (as a
percentage of revenues) 16.0 8.0
Depreciation and amortization (as a percentage
of revenues) 5.4 10.4
------- ------
36.9 31.8
------- ------
Net loss (as a percentage of revenues) (16.3) (24.8)
======= ======

FISCAL 1996 COMPARED TO FISCAL 1995

Total revenues for the fiscal year ended December 31, 1996 ("Fiscal
Year 1996") increased 231% to $3.6 million, from $1.1 million for the fiscal
year ended December 31,1995 ("Fiscal Year 1995"). Monitoring revenues increased
by 182% to $2.7 million during Fiscal Year 1996, from $953,000 during Fiscal
Year 1995. Installation and service revenues increased by 571% to $935,000
during Fiscal Year 1996, compared to $139,000 during Fiscal Year 1995. Total
retail subscribers numbered approximately 7,900 at December 31, 1996, compared
to approximately 4,000 at December 31, 1995, a net increase of 98%. The increase
in revenues and number of subscribers from Fiscal Year 1995 to Fiscal Year 1996
is primarily attributable to the Company's ongoing Independent

<PAGE>

Alarm Acquisition Program and Dealer Program, and the acquisition during the
first quarter of Fiscal Year 1996 of Gibraltar, which added approximately 1,250
retail subscribers and continues to add new accounts through Gibraltar's
internal sales force. Additionally, during Fiscal Year 1996 SDI provided
approximately $520,000 in installation and service revenue subsequent to the
merger of Guardian and Everest.

Operating expenses for Fiscal Year 1996 increased 183% to $2.9 million,
from $1.0 million during Fiscal Year 1995. Monitoring expenses increased 67% to
$499,000 during Fiscal Year 1996, compared to $298,000 during Fiscal Year 1995.
The increase in monitoring costs from Fiscal Year 1995 to Fiscal Year 1996 was a
result of the significant increase in monitoring revenues and number of
subscriber accounts (see previous paragraph). As a percentage of monitoring
revenues, however, monitoring expenses decreased to 19% in Fiscal Year 1996,
compared to 31% in Fiscal Year 1995. The decrease in monitoring expenses as a
percentage of monitoring revenue is attributable to the Company's
state-of-the-art monitoring facility, which currently is configured to monitor
up to approximately 50,000 subscribers, and up to 200,000 subscribers with
moderate upgrades. Though the ongoing costs of monitoring will increase as the
number of subscriber accounts increase, such costs will not increase
proportionately to the increase in MRR. The Company expects monitoring costs to
continue to decrease as a percentage of monitoring revenue until such time as
the central monitoring facility is at or near capacity. Installation and service
costs for Fiscal Year 1996 increased by 569% to $926,000, compared to $139,000
during Fiscal Year 1995. Included in installation and service costs during
Fiscal Year 1996 is approximately $398,000 incurred by SDI subsequent to the
merger of Guardian and Everest. The increase in total installation and service
costs from Fiscal Year 1995 to Fiscal Year 1996 were the result of a similar
percentage increase in related revenues from Fiscal Year 1995 to Fiscal Year
1996 (see previous paragraph). As a percentage of installation and service
revenue, such costs were 99% in both Fiscal Year 1996 and Fiscal Year 1995. The
Company does not now generate, nor does it anticipate generating in the future,
any appreciable margins or profits from installation and service activity, but
such activity is necessary to the generation and retention of alarm monitoring
subscribers.

General and administrative ("G&A") costs increased by 151% to $l.5
million in Fiscal Year 1996, compared to $579,000 during Fiscal Year 1995.
Included in G&A costs during Fiscal Year 1996 is approximately $246,000 incurred
by SDI subsequent to the merger of Guardian and Everest. The increase in G&A
costs from Fiscal Year 1995 to Fiscal Year 1996 is related primarily to the
Company's growth in revenue, resulting in an increase in the Company's overhead
cost structure. Additionally, there were certain nonrecurring costs incurred in
connection with the merger of Guardian and Everest. As a percentage of total
revenues, G&A decreased to 40% in Fiscal Year 1996 compared to 53% in Fiscal
Year 1995. As with monitoring costs, discussed above, the Company does not
anticipate a proportionate increase in G&A as a percentage of revenues as
subscriber revenue hopefully increases in the future.

Interest expense increased 283% to $561,000 during Fiscal Year 1996,
compared to $146,000 during Fiscal Year 1995. The increase in interest expense
was the result of additional debt incurred primarily in connection with the cost
of acquiring subscriber accounts. The total number of retail subscriber accounts
increased from approximately 4,000 as of December 31, 1995 to approximately
7,900 as of December 31, 1996. The majority of such subscriber acquisition
costs, amounting to $3.3 million, were financed by Heller. Total borrowings
under the Heller credit facility increased from $1.9 million as of December 31,
1995 to $5.0 million as of December 31, 1996. As of March 26, 1997, the Company
has $5,360,697 of borrowings under the Heller credit facility.

Amortization of customer contracts increased 558% to $578,000 during
Fiscal Year 1996, compared to $88,000 during Fiscal Year 1995. The increase in
such costs from 1995 to 1996 resulted from the increase in the amount of
capitalized customer contracts, which increased from a net balance of
21

<PAGE>

$2.1 million at December 31, 1995 to $5.1 million at December 31, 1996. The
amortization of such costs is over 10 years, unless a contract is canceled and
not replaced by the corresponding independent alarm company or Dealer, or
otherwise, in which case the remaining unamortized balance is written off
(charged to amortization expense). Included in such amortization costs are
$138,000 and $0 for Fiscal Year 1996 and Fiscal Year 1995, respectively,
relating to customer attrition, discussed in "Overview", above.

Depreciation and amortization increased by 73% to $196,000 during
Fiscal Year 1996, compared to $113,000 during Fiscal Year 1995. Such costs
include depreciation of property and equipment (the gross balance of which
increased from $422,000 at December 31, 1995 to $785,000 at December 31, 1996 as
a result of the Company's continued expansion activities and the merger of
Guardian and Everest, which resulted in additional property and equipment being
acquired), amortization of goodwill recorded in connection with the merger of
Guardian and Everest (such gross amount totaling $1.2 million which is being
amortized over 10 years), and amortization of certain other intangible assets.

Net loss increased by 118% to $590,000 during Fiscal Year 1996,
compared to $270,000 during Fiscal Year 1995.

CREDIT FACILITY

On November 16, 1994, Guardian, prior to its merger into the Company,
entered into a $7,000,000 Loan and Security Agreement with Heller primarily for
the purpose of borrowing funds to acquire customer accounts (the "Credit
Facility"). Borrowings under the Credit Facility bear interest at 3% above the
prime rate, and the Company is required to pay a funding fee of 1% of any
amounts borrowed. The loan is collateralized by the Company's assets and secured
by the personal guaranties of Harold and Sheilah Ginsburg, both of whom are
directors, officers, and principal shareholders of the Company. The Credit
Facility has a maturity date of November 30, 1999. Credit availability under
both the Credit Facility and the New Credit Facility is subject to certain
"Borrowing Base" limitations (as such term is defined in the Credit Facility and
would be defined under the contemplated New Credit Facility).

The Company must renew with Heller, on an annual basis, its ability to
draw against any remaining unfunded portion of the Credit Facility. Heller's
current commitment to fund expires on December 31, 1997. As discussed in Item 1,
under the caption "New Developments," the Company is currently renegotiating the
Credit Facility with Heller to increase the maximum credit availability to $15
million. The maximum credit availability under the New Credit Facility would be
further increased to $20 million at such time as the Company achieves a Tangible
Net Worth (as defined under the contemplated terms of the New Credit Facility)
of $5 million, provided that there have been no defaults. There can be no
assurances, however, that the Company will successfully renegotiate the credit
facility, or that the Company will achieve a Tangible Net Worth (as defined) of
$5 million.

The 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. At December 31,
1996 and 1995, the Company did not comply with certain conditions of the Credit
Facility for which waivers were obtained from Heller (See Exhibits 10(k) and
10(l) hereto.)

Borrowings under the Credit Facility amounted to $5.0 million as of
December 31, 1996, and to $5,360,697 as of March 26, 1997.

For information regarding Heller's ownership of certain shares of Class
B Nonvoting Common Stock and its right to receive additional Class B shares see
Item 5, above.

LIQUIDITY AND CAPITAL RESOURCES

As discussed in various portions of this Annual Report , the surviving
Company is the result of a merger of the predecessor Guardian International,
Inc. ("Guardian") with Everest Security Systems Corporation ("Everest"), which
occurred on August 28, 1996. Everest
22

<PAGE>

conducted a private placement in August 1996 under Regulation S promulgated
under the Securities Act of 1933 of 1,000,000 shares of Common Stock for $3.50
per share. Everest received proceeds of approximately $3.0 million net of
related costs of the private placement. Subsequent to the merger of Guardian and
Everest, approximately $1.8 million was paid to Harold Ginsburg, a former
shareholder of Guardian, in repayment of certain loans to the pre-merged
Guardian and as a return of capital, and approximately $1.2 million remained
within the Company for working capital purposes.

During fiscal 1994 the pre-merged Guardian entered into a $7 million
credit facility with Heller, with a maturity date of November 30, 1999. (See
"Credit Facility," immediately above.) The Credit Facility is used primarily for
acquisitions of customer subscriber accounts. Borrowings under the Credit
Facility amounted to $5.0 million as of December 31, 1996, and to $5,360,697 as
of March 26, 1997. The Company's continued plan of growth through acquisitions
of subscriber accounts is contingent upon its ability to borrow under the Heller
credit facility. The Company believes it has an excellent relationship with
Heller, and is presently negotiating an increase in the facility to $15 million,
and, subject to the Company's achieving a Tangible Net Worth (as defined under
the contemplated terms of the New Credit Facility of $5 million, would be
further increased to $20 million. (See "Recent Developments" in Item 1 of this
Annual Report.)

At December 31, 1996, the Company had working capital of $841,000, and
a current ratio of 2.1 to 1, compared to a working capital deficit of $136,000
and current ratio of .56 to 1 at December 31, 1995. Net cash flow provided by
(used in) operating activities during Fiscal Year 1996 and Fiscal Year 1995 was
$213,000 and ($178,000), respectively. The Company incurred a net loss of
$590,000 during Fiscal Year 1996, compared to a net loss of $270,000 during
Fiscal Year 1995; however, included in such losses was depreciation and
amortization totaling $773,000 during Fiscal Year 1996, compared to $201,000
during Fiscal Year 1995. Net cash used in investing activities was $359,000
during Fiscal Year 1996, comprised primarily of acquisition of customer accounts
of $3.3 million offset by $3.2 million of cash received in the merger of
Guardian and Everest (such amount coming from the net proceeds from the
Regulation S common stock offering as described above). Net cash used in
investing activities was $1.7 million during Fiscal Year 1995, comprised
primarily of acquisition of customer contracts. Net cash provided by financing
activities was $1.2 million during Fiscal Year 1996. The primary items included
in such financing activities during Fiscal Year 1996 were net proceeds from
Heller of $3.1 million, offset by a payment to Harold Ginsburg, a former
majority shareholder of Guardian (and presently a principal shareholder of the
Company)in repayment of loans to pre-merger Guardian and as a return of capital
of $1.8 million. Net cash provided by financing activities during Fiscal Year
1995 was $1.9 million, comprised primarily of net proceeds from Heller. For the
various reasons specified, the Company's cash balance amounted to $1.0 million
at December 31, 1996, compared to $14,000 at December 31, 1995.

The Company does not currently have any significant commitments for
capital outlays. As discussed in Item 1. - "Recent Developments," however, the
Company has entered into a nonbinding letter of intent to merge with another
company of similar size. If the merger occurs, the Company will assume an
estimated $4.3 million, in debt, consisting primarily of a bank loan due in
December 1997. The Company is discussing with Heller the possible prepayment of
the bank loan by borrowing the necessary funds under its existing credit
facility with Heller should the merger transaction occur. In addition, the
Company estimates it would incur technical and operational costs of
approximately $300,000 and professional and other related fees of approximately
$125,000 to effectuate the merger.

Also as discussed in Item 1. - "Recent Developments," the Company has
executed a nonbinding letter of intent to acquire the assets of another company.
If the Company proceeds with the contemplated asset purchase, it would incur
approximately $2.2 million in additional debt, to fund the cash portion of the
consideration that would be paid to the seller.

23
<PAGE>

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.
24
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

GUARDIAN INTERNATIONAL, INC.

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995

TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
25

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
GUARDIAN INTERNATIONAL, INC.:

We have audited the accompanying consolidated balance sheets of GUARDIAN
INTERNATIONAL, INC. and subsidiary ("the Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GUARDIAN INTERNATIONAL, INC.
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

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

McKEAN, PAUL, CHRYCY, FLETCHER & CO.

March 15, 1997
26

GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
---- ----

<S> <C> <C>
Assets

Current assets:

Cash and cash equivalents $1,037,861 $ 14,263

Accounts receivable, net of allowance for doubtful accounts of
$166,315 and $15,000 in 1996 and 1995, respectively 569,180 146,285

Other 20,736 12,443
---------- ----------
Total current assets 1,627,777 172,991
---------- ----------

Property and equipment, net 484,859 209,947

Customer accounts, net 5,124,449 2,075,671

Intangible assets, net 1,718,377 65,053

Deposits and other assets 26,517 110,104
---------- ----------

Total assets $8,981,979 $2,633,766
========== ==========

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable and accrued expenses $ 578,592 $ 185,067
Unearned revenue 123,961 60,880
Current portion of long term obligations 84,004 63,251
---------- ----------
Total current liabilities 786,557 309,198
---------- ----------
Long term obligations, less current portion 5,079,832 2,137,852

Shareholders' equity:

Class A voting common stock, $.001 par value, 100,000,000 shares
authorized, 6,453,804 shares issued and outstanding in 1996 and
3,226,902 shares issued and outstanding in 1995 6,454 3,227

Class B non voting common stock, $.001 par value, 484,035 shares
authorized, 484,035 issued and outstanding in 1996 and 0 shares
issued and outstanding in 1995 484 -

Additional paid-in capital 4,777,772 1,060,903

Accumulated deficit (1,467,762) (877,414)

Stock subscriptions receivable (201,358) -
---------- ----------

3,115,590 186,716
---------- ----------
Total liabilities and shareholders' equity $8,981,979 $2,633,766
========== ==========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
27

GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

For the Year Ended
December 31,

1996 1995
---- ----
<S> <C> <C>
Revenues:

Monitoring $2,685,734 $ 953,034
Installation and service 935,256 139,474
---------- ----------
3,620,990 1,092,508
---------- ----------

Operating expenses:

Monitoring 498,929 298,126
Installation and service 926,319 138,584
General and administrative 1,452,120 579,051
---------- ----------
2,877,368 1,015,761
---------- ----------

Operating income before interest expense, amortization and
depreciation 743,622 76,747

Interest expense, amortization and depreciation:

Interest expense 560,680 146,331
Amortization of customer contracts 577,611 87,783
Depreciation and amortization 195,679 113,016
---------- ----------
1,333,970 347,130
---------- ----------

Net loss $ (590,348) $ (270,383)
========== ==========

Loss per share $ (0.13) $ (0.08)
========== ==========

Average number of shares outstanding 4,418,366 3,226,902
========== ==========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
28

GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

COMMON STOCK COMMON STOCK ADDITIONAL STOCK
CLASS A CLASS B PAID IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLES TOTAL
------ ------ ------ ------ ---------- ----------- ------------ -----
<C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ...... 3,226,902 $3,227 -- $ -- $1,060,903 $ (607,031) $ -- $ 457,099

Net loss for period ........... -- -- -- -- -- (270,383) -- (270,383)
--------- ------ ------- ------ ---------- ------------ --------- ----------
Balance, December 31, 1995 ...... 3,226,902 3,227 -- -- 1,060,903 (877,414) -- 186,716

Issuance of stock in connection
with Everest acquisition .... 3,226,902 3,227 4,962,429 -- (201,358) 4,764,298

Distribution to shareholder ... -- -- -- -- (1,667,838) -- -- (1,667,838)

Issuance of stock to financial
institution ................. -- -- 484,035 484 422,278 -- -- 422,762

Net loss for period ........... -- -- -- -- -- (590,348) -- (590,348)
--------- ------ ------ ----- ---------- ----------- --------- ----------
Balance, December 31, 1996 ...... 6,453,804 $6,454 484,035 $ 484 $4,777,772 $(1,467,762) $(201,358) $3,115,590
========= ====== ======= ===== ========== =========== ========= ==========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
29
<PAGE>
<TABLE>
<CAPTION>

GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (590,348) $ (270,383)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 195,679 113,016
Amortization of customer accounts 577,611 87,783
Amortization of deferred financing costs 14,092 -
Provision for doubtful accounts 124,015 23,815

Changes in assets and liabilities:
Accounts receivable (349,874) (88,653)
Intangibles and other assets 57,327 (90,585)
Accounts payable and accrued liabilities 121,064 (1,027)
Unearned revenue 63,081 48,018
----------- ----------
Net cash provided by (used in) operating activities 212,647 (178,016)
----------- ----------

Cash flows from investing activities:
Purchase of fixed assets (237,731) (34,636)
Acquisition of customer accounts (3,274,389) (1,650,334)
Cash acquired in acquisition 3,153,330 -
---------- ----------
Net cash used in investing activities (358,790) (1,684,970)
----------- ----------
Cash flows from financing activities:
Payments of long term obligations (2,022,467) (356,945)
Proceeds from line of credit 5,054,690 2,001,539
Distribution to shareholder (1,667,838) -
(Payment of) proceeds from shareholder loans (194,644) 218,644
----------- ----------
Net cash provided by financing activities 1,169,741 1,863,238
----------- ----------

Net change in cash and cash equivalents 1,023,598 252

Cash and cash equivalents, beginning of period 14,263 14,011
----------- ----------
Cash and cash equivalents, end of period $1,037,861 $ 14,263
=========== ==========
Noncash investing and financing activities:
Financed acquisition of property $ 100,537 $ 14,362
=========== ==========
Issuance of Class B common stock $ 422,761 $ -
=========== ==========
Value of Everest net assets acquired :

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

Supplemental disclosures:
Interest paid $ 540,933 $ 128,281
=========== ==========
Income taxes paid $ - $ -
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
30

<PAGE>

GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

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

DESCRIPTION OF BUSINESS
The Company operates a central monitoring alarm station and sells and
installs alarm systems for residential and commercial customers in Florida.

REVENUE RECOGNITION
Revenues are recognized when installation of security alarm systems has
been performed and when monitoring services are provided. Customers are
billed for monitoring services primarily on a monthly or quarterly basis in
advance of the period in which such services are provided. Unearned
revenues result from billings in advance of performance of monitoring.
Costs of providing installations, including inventory, are charged to
income in the period when the installation occurs, except in cases where
the Company maintains ownership of the equipment installed, in which case
the Company capitalizes the cost of the equipment to property and equipment
and amortizes the amount over a seven year period. Losses on contracts for
which future costs are anticipated to exceed revenues are recognized in the
period such losses are identified. Contracts for monitoring services are
generally for an initial non-cancelable term of five years with automatic
renewal on an annual basis thereafter unless terminated by either party. A
substantial number of contracts are on an automatic renewal basis.

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

CUSTOMER ACCOUNTS AND INTANGIBLE ASSETS
Customer accounts acquired from alarm dealers are reflected at cost. The
cost of acquired accounts in an acquisition is based on the estimated fair
value at the date of acquisition. Substantially all costs associated with
purchasing an alarm account are capitalized and included in "Customer
accounts, net" in the accompanying consolidated balance sheets. Costs
related to marketing and installation of systems for internally generated
customer accounts are expensed as incurred. Customer accounts that are
capitalized are amortized on a straight-line basis over a 10 year period.
It is the Company's policy to perform monthly evaluations of acquired
customer account attrition and, if necessary, adjust the remaining useful
lives. The Company periodically estimates future cash flows from customer
accounts. Because expected cash flows have exceeded the unamortized cost of
customer accounts the Company has not recorded an impairment loss.

Intangible assets are recorded at cost and amortized over their estimated
useful lives. The carrying value of intangible assets is periodically
reviewed and impairments are recognized when expected operating cash flows
derived from such intangibles is less than their carrying value.
31

<PAGE>

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided on the straight-line method. The estimated useful
lives for property and equipment range from five to seven years, and the
estimated useful lives for leasehold improvements is thirty-one and
one-half years.

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

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

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

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.

LOSS PER SHARE
Primary loss per share is computed by dividing the net loss by the total of
the weighted average number of shares outstanding. Common stock equivalents
have not been considered in calculating loss per share because their effect
would be anti-dilutive.

2. ACQUISITIONS

On August 28, 1996, Everest Security Systems Corporation ("Everest" or
"the predecessor company") acquired all of the outstanding common stock of
Guardian International, Inc. ("Guardian"), a non public company, by issuing,
3,226,902 shares of Everest. In addition, the merger specified that $1,750,000
shall be paid to the principal shareholder of Guardian as consideration for
consummating the transaction, as a return of capital (including repayment of
remaining shareholder loans of $82,162 at the merger date). The transaction has
been accounted for under the purchase method of accounting as a reverse
acquisition with Guardian being deemed the acquirer. The name of the surviving
entity was changed from Everest to Guardian. The consolidated balance sheet at
December 31, 1996 includes the consolidated balance sheet of the surviving
entity and its wholly owned subsidiary; the consolidated statements of
operations and cash flows include Guardian's operations for the twelve month
period ended December 31, 1996 and include the wholly owned subsidiary acquired
by Guardian from the merger date (August 28, 1996) through December 31, 1996.
The financial statements in 1995 include the accounts and activity strictly of
Guardian.

<PAGE>

In addition, the Company issued 484,035 shares of Class B non voting common
stock to a financial institution as consideration for their consent to the
merger and to amending certain covenants of the loan agreement. Also, in
accordance with the terms of an agreement among the Guardian shareholders
and the financial institution, the financial institution is entitled
to receive an additional 150,000 shares of Class B non voting common stock.

Unaudited pro forma results of operations giving effect to the acquisition
at the beginning of the periods are reflected below.

UNAUDITED
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995
---- ----
Revenues, net $4,497,340 $2,312,790
Net loss $1,065,830 $ 722,180
Loss per share $ 0.17 $ 0.15
Weighted average number of shares outstanding 6,373,059 4,702,544

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

Pro forma shares outstanding represent the number of shares of common stock
outstanding after giving retroactive effect to the 3,226,902 shares issued
in connection with the merger.

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

3. CUSTOMER ACCOUNTS

The following is an analysis of the changes in acquired customer accounts
for the years ended December 31, 1996 and 1995.

1996 1995
---- ----

Balance, beginning of year $2,075,671 $ 513,120

Purchase of customer accounts 3,274,389 1,650,334
Customer accounts acquired in merger 352,000 -
Amortization of customer accounts (577,611) (87,783)
----------- -----------

Balance, end of year $5,124,449 $2,075,671
========== ===========

In conjunction with certain purchases of customer accounts, the Company
withholds a portion of the price as a credit to offset qualifying attrition
of the acquired customer accounts and for purchase price settlements of
assets acquired and liabilities assumed. The Company withheld $92,949 and
$102,484 at December 31, 1996 and 1995, respectively, in connection with
the acquisition of customer accounts which is included in "Accounts payable
and accrued expenses" in the consolidated balance sheets.
33
<PAGE>

4. PROPERTY AND EQUIPMENT

Property and equipment, net, consist of the following at December 31, 1996
and 1995:

1996 1995
---- ----
Property and equipment, at cost:

Station equipment $504,973 $287,055
Vehicles, furniture and office equipment 147,244 31,859
Leasehold improvements 133,025 103,217
------- --------
785,242 422,131

Accumulated depreciation and amortization (300,383) (212,184)
-------- --------

$484,859 $209,947
======== ========
5. INTANGIBLE ASSETS

Intangible assets, net, consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>

AMORTIZATION
PERIOD 1996 1995
------ ---- ----
<S> <C> <C> <C>
Intangibles, at cost:
Excess of acquisition cost over net
assets acquired 10 years $ 1,223,000 $ -
Deferred financing costs 3 years 422,761 -
Covenant not to compete, organization
costs and other Various 215,429 118,072
----------- --------
1,861,190 118,072
Less accumulated amortization ( 142,813) (53,029)
----------- --------
$ 1,718,377 $ 65,043
=========== ========
</TABLE>

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

Deferred financing costs were incurred as a result of issuing to a
financial institution 484,035 shares of Class B non voting common stock in
connection with the merger of Guardian and Everest as described in Note 2.
The amortization of such costs is charged to interest expense over the life
of the related indebtedness.

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at December
31, 1996 and 1995:

1996 1995
---- ----
Trade accounts payable $357,219 $ 54,173
Contract holdbacks 92,949 102,484
Accrued payroll and related taxes 56,223 -
Other 72,201 28,410
-------- --------
$578,592 $185,067
======== ========

<PAGE>

7. LONG TERM OBLIGATIONS

Long term obligations consist of the following at December 31, 1996 and
1995:

1996 1995
---- ----
Credit facility with financial institution $4,968,571 $1,895,299
Note payable to shareholders - 194,644
Equipment notes payable and other 195,265 111,160
---------- ----------
5,163,836 2,201,103

Less current portion (84,004) (63,251)
--------- ----------

$5,079,832 $2,137,852
========== ==========

The Company has a $7 million credit facility with a financial institution
for the purpose of borrowing funds to acquire customer alarm accounts.
Borrowings under the agreement ($4,968,571 and $1,895,299 at December 31,
1996 and 1995, respectively) bear interest at 3% above prime (8.50% and
8.25% at December 31, 1996 and 1995, respectively). The credit facility is
collateralized by substantially all of the Company's assets. The credit
facility has a maturity date of November 30, 1999. The Company must renew
with the lender, on an annual basis, the ability to draw against any
remaining unfunded portion. The lender's current commitment to fund expires
on December 31, 1997. The principal shareholders of the Company have
personally guaranteed $700,000 of the credit facility and pledged their
stock in the Company as collateral. The agreement contains certain
conditions including, but not limited to, restrictions related to
indebtedness, net worth and distribution payments to shareholders other
than $1,750,000 which was paid to a shareholder in September 1996. At
December 31, 1996 and 1995, the Company did not comply with certain
conditions of the agreement, for which waivers were obtained from the
lender.

8. RELATED PARTY TRANSACTIONS

LEASED FACILITIES

The Company leases its monitoring facilities from an affiliate which is
owned by the principal shareholders of the Company at an annual rental of
approximately $51,000 (plus annual increases not to exceed 3%) through
December 31, 1999 with an option to renew for an additional 5 years under
the same terms.

9. INCOME TAXES

At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $903,000 which begin to expire
in 2010. These net operating loss carry forwards will be subject to
significant annual limitations on utilization in future years as a result
of the merger and related change in ownership control of the Company.
35
<PAGE>

The components of deferred tax assets and liabilities at December 31, 1996
are as follows:

1996
--------
Deferred tax (liabilities) assets
Allowance for doubtful accounts - current $ 64,863
Difference in amortization of customer contracts (222,931)
Net operating loss carryforwards 231,702
Other 54,925
--------
128,559
Less valuation allowance (128,559)
--------
Net deferred tax (liabilities) assets $ -
========

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

10. SHAREHOLDERS' EQUITY

(a) Class A Common Stock

The Company has authorized the issuance of up to 100,000,000 shares of
Class A common stock with a par value of $.001 each. At December 31, 1996
and 1995 there were 6,453,804 and 3,226,902 shares, respectively, of Class
A common stock issued and outstanding. See Note 2.

(b) Class B Non Voting Common Stock

The Company has authorized the issuance of 484,035 shares of Class B non
voting common stock with a par value of $.001 each. At December 31, 1996
and 1995 there were 484,035 and 0 shares, respectively, of Class B non
voting common stock issued and outstanding. The shares are convertible into
Class A common stock at any time at the holder's election. See Note 2 and
Note 5.

In December 1995, the Company, through Everest (see Note 2) issued 285,000
shares of Class A common stock at $2 per share ($570,000 in the aggregate)
to certain parties. The proceeds from the sale of the common stock were
evidenced by 8% stock subscription notes receivable due in January 1996 and
collateralized by the common stock. As of December 31, 1996 there remains
an outstanding balance of $201,358 under the notes receivable. The amount
has been reflected as "Stock subscriptions receivable" and a reduction of
shareholders' equity in the accompanying consolidated balance sheet.
Management is in the process of attempting to collect the outstanding
amounts.
36
<PAGE>

11. STOCK OPTIONS

The Company, through Everest (see Note 2), has issued stock options to
various key employees to purchase 100,000 and 10,000 shares of common stock
at $2 and $3 per share, respectively, and issued options to purchase 74,720
shares at $2 per share to an investment banker. As of December 31, 1996,
none of the options have been exercised, and all options expire on December
31, 2000.

The Company has adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS No. 123") for its
stock-based employee compensation through disclosure only as set forth
below:

UNAUDITED
---------
For the Year Ended
December 31,
1996 1995
---- ----
Pro forma net loss:

As reported $1,065,830 $722,180
Pro forma for SFAS No. 123 $1,083,730 $951,064

Pro forma net loss per share:

As reported $ 0.17 $ 0.15
Pro forma for SFAS No. 123 $ 0.17 $ 0.20

12. PENDING ACQUISITIONS

In February 1997, the Company executed a non-binding Letter of Intent to
merge the Company with a large privately held Florida based security
company. Under the transaction, all of the outstanding stock of the
privately held company, a Florida corporation, will be exchanged for
approximately 6.6 million shares (or 48% on a fully diluted basis) of
common stock of the Company. The Company would form a separate, wholly
owned subsidiary ("Guardian Sub") in connection with the contemplated
merger. The large privately held Florida-based company would merge with and
into Guardian Sub, which would be the surviving corporation. Under the
Letter of Intent, the transaction is subject to, among other things, due
diligence review and the approval of the Company's Senior Lender.

In March 1997, the Company executed a non-binding letter of intent to
purchase certain assets of a privately held Florida Corporation (the
"Seller"). The assets to be acquired consist primarily of approximately two
thousand two hundred (2,200) customer accounts and contracts, which, in the
aggregate, will increase monthly revenue by about $60,000 per month.
Certain other operating assets will also be acquired. The purchase price
shall be $2.2 million in cash, 50,000 shares of common stock, and options
to purchase a certain amount of additional shares of common stock at a
defined price. The majority shareholder of the Seller will enter into an
employment agreement for a period of four years to provide certain sales
and marketing duties. The letter of intent calls for the parties to reach a
definitive asset purchase agreement by April 10, 1997, at which time if no
agreement is reached, the letter of intent will expire.
37

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

BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND CHARGED TO OTHER DEDUCTIONS END OF
YEAR EXPENSES ACCOUNTS (A) (B) YEAR
------------ ---------- ---------------- ---------- ----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from assets for
doubtful accounts $15,000 $124,015 $27,300 $ - $166,315
======= ======== ======= ======== ========

YEAR ENDED DECEMBER 31, 1995
Allowances deducted from assets for
doubtful accounts $ 5,000 $ 10,000 $ - $ - $ 15,000
======= ======== ======= ======== ========
</TABLE>

(A) Allowance of subsidiary acquired in merger.

(B) Results from write-offs of accounts receivable.
38
<PAGE>

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

On August 29, 1996, the Company dismissed Semple & Cooper, P.L.C. ("Semple
& Cooper") as its independent auditors. The Board approved at a meeting on
August 29, 1996 McKean, Paul, Chrycy, Fletcher & Co. ("McKean, Paul") as the
Company's independent auditors for the fiscal year ended December 31, 1996.
McKean, Paul served as Guardian's independent auditors for the two fiscal years
preceding its merger with the Company.

The reports of Semple & Cooper on the Company's financial statements for
both of the past two fiscal years did not contain an adverse opinion nor a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles.

In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1994 and December 31, 1995,
respectively, and in the subsequent interim period preceding Semple & Cooper's
dismissal, there were no disagreements on any matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which if not resolved to the satisfaction of Semple & Cooper would have caused
Semple & Cooper to make references to the matter in their report.

The Company requested and received from Semple & Cooper a letter addressed
to the SEC stating that it agrees with the statements set forth above, in
connection with the filing Company's Form 8-K, filed with the SEC on September
9, 1996 (the "Form 8-K"), which Form 8-K contains the same disclosures as are
made in this Item 8. A copy of that letter, dated September 6, 1996, was filed
as Exhibit 16.1 to the Form 8-K.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of December 31, 1996. A
summary of the background and experience of each of these individuals is set
forth following the table.

NAME AGE POSITION

Richard Ginsburg (1) 28 CEO, President, Director

Sheilah Ginsburg (1) 58 Secretary/Treasurer, Director

Rhonda Ginsburg (1) 32 Vice President

Harold Ginsburg (1) 63 Chairman

Robert K. Norris 39 Senior Executive Vice President,
Chief Financial Officer

(1) Richard Ginsburg and Rhonda Ginsburg are siblings and are the children of
Harold and Sheilah Ginsburg.
39

<PAGE>

RICHARD GINSBURG

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

Mr. Richard Ginsburg has not had a directorship with any other reporting
company.

HAROLD GINSBURG

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

Mr. Harold Ginsburg has not had a directorship with any other reporting
company in over twenty years.

SHEILAH GINSBURG

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

Mrs. Ginsburg has not held a directorship position with any other reporting
company.

RHONDA GINSBURG

Ms. Rhonda Ginsburg presently holds a sales management position with NBC
Television (a subsidiary of General Electric), and has been employed in that
capacity since 1993. Between 1991 and 1993, she held a sales position at Sunbeam
Television in Miami, Florida. Ms. Ginsburg holds a Masters of Science from Barry
University and a Bachelor of Arts from the University of Miami.

Ms. Ginsburg has not held a directorship position with any other reporting
company.
40

<PAGE>

ROBERT K. NORRIS

Mr. Robert K. Norris is a Certified Public Accountant in the State of
Florida and received his accounting degree from Florida International University
in 1982. Before joining the Company as its Chief Financial Officer in January
1997, Mr. Norris was Vice President-Finance of International Airline Support
Group, Inc., a publicly held company, from 1994 to 1996. From 1988 to 1993 Mr.
Norris was the Senior Director of Finance and Controller for Niagara
Corporation, a publicly held company.

Mr. Norris has not held a directorship position with any other reporting
company.

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 and/or
directors of the Company.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
------------------- -----------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OPTIONS/SAR'S (#)
--------------------------- ---- ---------- ----- -----------------
<S> <C> <C> <C> <C>
Richard Ginsburg, President 1996 $29,042 $0 0
and CEO, Director 1995 24,911 0 0
Harold Ginsburg, Chairman 1996 18,464 0 0
1995 0 0 0
Sheilah Ginsburg, Secretary / 1996 18,000 0 0
Treasurer, Director 1995 19,900 0 0
Robert K. Norris, Chief (2) 1996 0 0 0
Financial Officer 1995 0 0 0
</TABLE>

(1) The 1996 compensation set forth for each of Richard, Harold and Sheilah
Ginsburg represents only the amounts paid between September 1, 1996 and
December 31, 1996. The annual compensation for each of Richard, Harold and
Sheilah Ginsburg is $90,000, $60,000, and $53,000, respectively. Harold
Ginsburg's compensation consists of consulting fees paid by the Company
under the Consulting Agreement filed as Exhibit 10(d) hereto.

(2) Mr. Norris did not become employed by the Company until January 1997.

OTHER COMPENSATION

In addition to the compensation set forth in the Summary Compensation
table, above, the Company makes payments of approximately $622 and $600 per
month under leases for the automobiles used by Harold Ginsburg and Richard
Ginsburg, respectively.

The Company also pays health insurance premiums of approximately $600 per month
per individual to provide health care coverage to each of Richard Ginsburg,
Harold Ginsburg, Sheilah Ginsburg and Robert Norris.

<PAGE>

AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTIONS/SAR VALUE

NAME NUMBER OF UNEXERCISED OPTIONS AT
---- FY-END
EXERCISABLE/UNEXERCISABLE
-------------------------

Richard Ginsburg 0/0
Harold Ginsburg 0/0
Sheilah Ginsburg 0/0
Robert K. Norris 0/0
Rhonda Ginsburg 0/0

COMPENSATION OF DIRECTORS

Richard Ginsburg, Harold Ginsburg, and Sheilah Ginsburg are the sole
directors of the Company, none of whom receive any additional compensation to
act in such capacity.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1996 by the executive
officers and directors of the Company. The percentages shown include both the
Class A voting Common Stock and the Class B convertible nonvoting Common Stock.
All shares shown are Class A voting Common Stock unless otherwise indicated.

SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OF IDENTITY GROUP (1) OWNED(5) SHARES(5)
- ---------------------------------------------- ------------ --------------
Richard Ginsburg(2)(4) 629,246 9.07%
Harold Ginsburg(2)(3)(4) 903,533 13.02
Sheilah Ginsburg(2)(4) 903,533 13.02
Rhonda Ginsburg(2)(4) 629,245 9.07
Robert K. Norris 0 0.00

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

(2) Richard Ginsburg and Rhonda Ginsburg are siblings and are the children of
Harold and Sheilah Ginsburg.

(3) At the time of the merger of Guardian into the Company, Harold Ginsburg
received an irrevocable voting proxy from International Treasury &
Investments, Ltd. ("ITI") to vote 1,000,000 shares of Common Stock owned at
the time by ITI for a period of two (2) years commencing on August 28,
1996. When these shares are counted towards Mr. Ginsburg's beneficial
ownership, he has the power to vote 1,988,533 shares of the Common Stock.
These shares, which were pledged by ITI to the Pre-Merged Guardian
Shareholders pursuant to the terms of the Merger Agreement, and are
available to be transferred to the Pre-Merger Guardian Shareholders as a
result of a default by G.M. Capital. These shares are presently held by
an escrow agent for the benefit of the Pre-Merged Guardian Shareholders, as
discussed in "Item 5," above.
42

<PAGE>

(4) Pursuant to an agreement between certain shareholders of the Company and
the Ginsburgs, for a period of two years which commenced on August 28,
1996, the Ginsburgs have voting control over approximately an additional
230,000 shares of Common Stock, representing approximately 4% of the
6,453,804 shares of Common Stock outstanding.

(5) The number of shares and percentages reflected in this table do not include
the additional 1,000,000 shares of Common Stock to which the pre-merger
Guardian shareholders are entitled, as described in note 3, immediately
above.

The following table sets forth certain information regarding each person
known to the Company other than the executive officers and directors of the
Company (similar information regarding executive officers and directors is shown
in the above table) who may be considered a beneficial owner of more than 5% of
the outstanding shares of the Common Stock as of December 31, 1996. The
percentages shown include both the Class A Voting Common Stock and the Class B
Nonvoting Convertible Common Stock. All shares shown are Class A voting Common

Stock unless otherwise indicated.

SHARES
BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER OF IDENTITY GROUP OWNED OUTSTANDING SHARES
- ------------------------------------------ ----- ------------------
<S> <C> <C>
Heller Financial, Inc. (1) 484,035 6.98%
Royal Bank of Scotland 400,000 5.77
</TABLE>

(1) The shares owned by Heller Financial, Inc. ("Heller") are Class B, are
nonvoting and convertible at the option of the holder into an equal number
of Class A Voting Shares, provided that any such conversion will not result
in a violation of any applicable law, regulation, or other restriction.
Heller is also entitled to receive an additional 150,000 shares of Class B
Nonvoting Common Stock pursuant to an agreement with the pre-merger
Guardian shareholders. See Item 5, above.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases its corporate headquarters from Guardian
Investment, a Florida [CONFIRM] partnership owned by Harold and Sheilah
Ginsburg, both of whom are directors, officers, and principal shareholders of
the Company. The property, a six thousand (6,000) square foot building which
holds the Company's central monitoring facility, is located at 3880 N. 28
Terrace, Hollywood, Florida 33020. The telephone number is (954) 926-5200. The
lease will expire on December 31, 1999, but the Company has an option to renew
for an additional five years under the same terms and conditions. The annual
rental is approximately fifty one thousand dollars ($51,000), with annual
increases not to exceed three percent (3%). The terms of the lease are no less
favorable to the Company than those which could be obtained from unaffiliated
third parties.

For a discussion of certain stock issuances and transfer to certain
affiliates of the Company, see Item 5.

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

3(i) Articles of Incorporation dated October 30, 1986 incorporated by
reference to the Company's Form 10-SB filed May 6, 1996

3(i)(a) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10-SB filed May 6, 1996
43

<PAGE>

3(i)(b) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10-SB filed May 6, 1996

3(i)(c) Amendment to the Articles of Incorporation incorporated by
reference to the Company's Form 10-SB/A filed January 24, 1997

3(ii) Amended Bylaws of the Company

3(ii)(a) Directors' Consent Dated August 15, 1996 adopting Amendment to the
Bylaws

4 Specimen Stock Certificate incorporated by reference to the
Company's Form 10-SB filed June 18, 1996

9 Lock-up Agreement dated August 15, 1996 Among the Company,
International Treasury and Investments, Ltd., Steven Sanders,
Knight Financial Corporation and Frank Bauer.

10(a) Share Purchase Agreement dated October 9, 1995 between Security
Device Installers, Inc. and Everest Security Systems Corporation
incorporated by reference to the Company's Form 10-SB filed May 6,
1996

10(b) Amendment to October 9, 1995 Share Purchase Agreement incorporated
by reference to the Company's Form 10-SB filed May 6, 1996

10(b)(1) Employment Agreement between Security Device Installers, Inc. and
Frank Bauer incorporated by reference to the Company's Form
10-SB/A filed January 24, 1997

10(d) Consulting Agreement between Harold Ginsburg and the Company
incorporated by reference to the Company's Form 10-SB/A filed
January 24, 1997

10(e) Executive Employment Agreement between Richard Ginsburg and the
Company

10(f) Employee Stock Option Agreement with G.M. Capital Partners, Ltd.
incorporated by reference to the Company's Form 10-SB/A filed
January 24, 1997

10(g) Employee Stock Option Agreement with Frank Bauer incorporated by
reference to the Form 10- SB filed May 6, 1996 incorporated by
reference to the Company's Form 10-SB/A filed January 24, 1997

10(h) Loan and Security Agreement between Heller Financial, Inc. and
Guardian International, Inc. and exhibits thereto incorporated by
reference to the Company's Form 10-SB/A filed January 24, 1997

10(j) Modification Agreement with Heller Financial, Inc. incorporated by
reference to the Company's Form 10-SB/A filed January 24, 1997

10(k) Waiver letter from Heller Financial, Inc. dated March 11, 1997

10(l) Waiver letter from Heller Financial, Inc. dated March 26, 1997

<PAGE>

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

16 Letter dated September 6, 1996 from Semple & Cooper, P.L.C., the
Company's former certifying accountant, incorporated by reference
to the Company's Form 8-K filed September 12, 1996

21 Specialty Device Installers, Inc. and Federal Alarm Systems, Inc.,
companies duly incorporated under the laws of the State of Florida,
are wholly-owned subsidiaries of the Company

27 Financial data Schedule

28 Guardian International, Inc. Incentive Stock Option Plan
Incorporated by reference to the Form 10-SB filed May 6, 1996

The Company did not file any reports on Form 8-K during the last
quarter of the period covered by this Annual Report.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the 31st of
March, 1997.

GUARDIAN INTERNATIONAL, INC.

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

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE

/S/ HAROLD GINSBURG Chairman of the Board March 31, 1997
- -------------------
Harold Ginsburg

/S/ RICHARD GINSBURG Director, President March 31, 1997
- -------------------- and Chief Executive Officer
Richard Ginsburg (Principal Executive Officer)

/S/ SHEILAH GINSBURG Director, Secretary and Treasurer March 31, 1997
- --------------------
Sheilah Ginsburg

/S/ ROBERT K. NORRIS Chief Financial Officer and March 31, 1997
- -------------------- Senior Executive Vice President
Robert K. Norris (Principal Financial and
Accounting Officer)

46
<PAGE>

INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ----

3(ii) Amended Bylaws of the Company

3(ii)(a) Directors' Consent Dated August 15, 1996 adopting
Amendment to the Bylaws

9 Lock-up Agreement dated August 15, 1996 Among the
Company, International Treasury and Investments,
Ltd., Steven Sanders, Knight Financial Corporation
and Frank Bauer

10(e) Executive Employment Agreement between Richard Ginsburg
and the Company

10(k) Waiver letter from Heller Financial, Inc. dated
March 11, 1997

10(l) Waiver letter from Heller Financial, Inc. dated
March 26, 1997

21 Specialty Device Installers, Inc. and Federal Alarm
Systems, Inc., companies duly incorporated under the
laws of the State of Florida, are wholly-owned
subsidiaries of the Company

27 Financial Data Schedule

EXHIBIT 3(ii)

AMENDED BY-LAWS

GUARDIAN INTERNATIONAL, INC.,
a Nevada Corporation

ARTICLE I - OFFICES

The principal office of the corporation in the State of Nevada shall be
located in the City of Las Vegas, County of Clark. The corporation may have such
other offices, either within or without the State of incorporation as the board
of directors may designate or as the business of the corporation may from time
to time require.

ARTICLE II - STOCKHOLDERS

1. ANNUAL MEETING.

The annual meeting of the stockholders shall be held on the 15th
day of April in each year, beginning with the year 1996 at the hour 2 o'clock
P.M., for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.

2. SPECIAL MEETINGS.

Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than fifty per cent of all the outstanding shares of the corporation
entitled to vote at the meeting.

3. PLACE OF MEETING.

The directors may designate any place, either within or without
the State unless otherwise prescribed by statute, as the place of meeting for
any annual meeting or for any special meeting called by the directors. A waiver
of notice signed by all stockholders entitled to vote at a meeting may designate
any place, either within or without the state unless otherwise prescribed

By-Laws 1

<PAGE>

by statute, as the place for holding such meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation.

4. NOTICE OF MEETING.

Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than two days nor more than
thirty days before the date of the meeting, either personally or by mail, by or
at the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.

5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.

For the purpose of determining stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, ten days. If the stock transfer
books shall be closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the directors may fix in advance a date as the record date
for any such determination of stockholders, such date in any case to be not more
than thirty days and, in case of a meeting of stockholders, not less than ten
days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.

6. VOTING LISTS.

The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, at least five days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
five days prior to such meeting, shall be kept on file at the principal office
of the corporation and shall be subject to inspection by any stockholder at any
time during usual

By-Laws 2

<PAGE>

business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any stockholder
during the whole time of the meeting. The original stock transfer book shall be
prima facie evidence as to who are the stockholders entitled to examine such
list or transfer books or to vote at the meeting of stockholders.

7. QUORUM.

At any meeting of stockholders fifty-one percent of the
outstanding shares of the corporation entitl4ed to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of stockholders. If less
than said number of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.

8. PROXIES.

At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the corporation before or
at the time of the meeting.

9. VOTING.

Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.

10. ORDER OF BUSINESS.

The order of business at all meetings of the stockholders, shall
be as follows:

1. Roll Call.

2. Proof of notice of meeting or waiver of notice.

3. Reading of minutes of preceding meeting.

By-Laws 3

<PAGE>

4. Reports of Officers.

5. Reports of Committees.

6. Election of Directors.

7. Unfinished Business.

8. New Business.

11. INFORMAL ACTION BY STOCKHOLDERS.

Unless otherwise provided by law, any action required to be taken
at a meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall e signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.

ARTICLE III - BOARD OF DIRECTORS

1. GENERAL POWERS.

The business and affairs of the corporation shall be managed by
its board of directors. The directors shall in all cases act as a board, and
they may adopt such rules and regulations for the conduct of their meetings and
the management of the corporation, as they may deem proper, not inconsistent
with these by-laws and the laws of this State.

2. NUMBER, TENURE AND QUALIFICATIONS.

The number of directors of the corporation shall be three. Each
director shall hold office until the next annual meeting of stockholders and
until his successor shall have been elected and qualified.

3. REGULAR MEETINGS.

A regular meeting of the directors, shall be held without other
notice than this by-law immediately after, and at the same place as, the annual
meeting of stockholders. The directors may provide, by resolution, the time and
place for the holder of additional regular meetings without other notice than
such resolution.

By-Laws 4

<PAGE>

4. SPECIAL MEETINGS.

Special meetings of the directors may be called by or at the
request of the president or any two directors. The person or persons authorized
to call special meetings of the directors may fix the place for holding any
special meeting of the directors called by them.

5. NOTICE.

Notice of any special meeting shall be given at least two days
previously thereto by written notice delivered business address. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.

6. QUORUM.

At any meeting of the directors two directors shall constitute a
quorum for the transaction of business, but if less than said number is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.

7. MANNER OF ACTING.

The act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the directors.

8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.

Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the board for any reason except
the removal of directors without cause may be filled by a vote of a majority of
the directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.

9. REMOVAL OF DIRECTORS.

Any or all of the directors may be removed for cause by vote of
the stockholders or by action of the board. Directors may be removed without
cause only by vote of the stockholders.

By-Laws 5

<PAGE>

10. RESIGNATION.

A director may resign at any time by giving written notice to the
board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.

11. COMPENSATION.

No compensation shall be paid to directors, as such, for their
services, but by resolution of the board a fixed sum and expenses for actual
attendance at each regular or special meeting of the board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
thereof.

12. PRESUMPTION OF ASSENT.

A director of the corporation who is present at a meeting of the
directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who vote in favor of such
action.

13. EXECUTIVE AND OTHER COMMITTEES.

The board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of three or more
directors. Each such committee shall serve at the pleasure of the board.

ARTICLE IV - OFFICERS

1. NUMBER.

The officers of the corporation shall be a president, a
vice-president, a secretary and a treasurer, each of whom shall be elected by
the directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the directors.

By-Laws 6

<PAGE>

2. ELECTION AND TERM OF OFFICE.

The officers of the corporation to be elected by the directors
shall be elected annually at the first meeting of the directors held after each
annual meeting of the stockholders. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.

3. REMOVAL.

Any officer or agent elected or appointed by the directors may be
removed by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.

4. VACANCIES.

A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.

5. PRESIDENT.

The president shall be the principal executive officer of the
corporation and, subject to the control of the directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of the
directors. He may sign, with the secretary or any other proper officer of the
corporation thereunto authorized by the directors, certificates for shares of
the corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.

6. VICE-PRESIDENT.

In the absence of the president or in event of his death,
inability or refusal to act, the vice-president shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. The vice-President shall perform such
other duties as from time to time may be assigned to him by the President or by
the directors.

By-Laws 7

<PAGE>

7. SECRETARY.

The secretary shall keep the minutes of the stockholders' and of
the directors' meetings in one or more books provided for that purpose, see that
all notices are duly given in accordance with the provisions of these by-laws or
as required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the directors.

8. TREASURER.

If required by the directors, the treasurer shall give a bond for
the faithful discharge of his duties in such sum and with such surety or
sureties as the directors shall determine, he shall have charge and custody of
and be responsible for all funds and securities of the corporation; receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.

9. SALARIES.

The salaries of the officers shall be fixed from time to time by
the directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.

ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS

1. CONTRACTS.

The directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.

2. LOANS.

No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.

By-Laws 8

<PAGE>
3. CHECKS, DRAFTS, ETC.

All checks, drafts or other orders for the payment of money, notes
or other evidences of indebtedness issued in the name of the corporation, shall
be signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by resolution of the
directors.

4. DEPOSITS.

All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the directors may select.

ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER

1. CERTIFICATES FOR SHARES.

Certificates representing shares of the corporation shall be in
such form as shall be determined by the directors. Such certificates shall be
signed by the president and by the secretary or by such other officers
authorized by law and by the directors. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
stockholders, the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefore upon such terms and indemnity to
the corporation as the directors may prescribe.

2. TRANSFERS OF SHARES.

(a) Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.

(b) The corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof, and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
on the part of any other person, whether or not it shall have express or other
notice thereof, except as expressly provided by the laws of this state.

By-Laws 9

<PAGE>

ARTICLE VII - FISCAL YEAR

The fiscal year of the corporation shall begin on the 1st day of
January in each year.

ARTICLE VIII - DIVIDENDS

The directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.

ARTICLE IX - SEAL

The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal".

ARTICLE X - WAIVER OF NOTICE

Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.

ARTICLE XI - AMENDMENTS

These by-laws may be altered, amended or repealed and new by-laws may
be adopted by a vote of the stockholders representing a majority of all the
shares issued and outstanding, at any annual stockholders' meeting or at any
special stockholders' meeting when the proposed amendment has been set out in
the notice of such meeting.

By-Laws 10

EXHIBIT 3(ii)(a)

CORPORATE ACTION BY
ALL THE DIRECTORS OF
GUARDIAN INTERNATIONAL, INC.

The undersigned, being all the Directors of Guardian International,
Inc., a Nevada corporation ("Corporation"), do hereby waive all formal
requirements, including the necessity of holding a formal or informal meeting,
and any requirements for notice; and do hereby consent in writing to the
adoption of the following resolutions, taking said action in lieu of a meeting
of the Board of Directors in accordance with the corporation laws of the State
of Nevada.

AMENDMENT TO BYLAWS

WHEREAS, the Corporation entered into that certain Agreement and Plan
of Merger dated August l5, 1996 ("Merger Agreement"), whereby Guardian
International, Inc., a Florida corporation, merged into Everest Security Systems
Corporation, a Nevada corporation ("Everest"), which corporation changed its
name to "Guardian International, Inc." pursuant to the Merger Agreement; and

WHEREAS, Section 1.4 of the Merger Agreement provides that the bylaws
of Everest shall be the bylaws of the Corporation, except that such bylaws shall
be amended to the extent necessary to effectuate the transactions contemplated
by the Merger Agreement; and

WHEREAS, Article XI of the bylaws of Everest requires the vote of a
majority of the stockholders of the Corporation to amend the bylaws, and

WHEREAS, a majority of the stockholders of the Corporation have
approved all the terms and conditions of the Merger Agreement at a meeting of
the stockholders of the Corporation held on July 5, 1996, and therefore have
approved the amendment to the bylaws to the extent necessary to effectuate the
transactions contemplated by the Merger Agreement.

NOW, THEREFORE, BE IT RESOLVED, that the bylaws of the Corporation are
hereby amended to reflect that the name of the Corporation shall be "Guardian
International, Inc."

BE IT FURTHER Resolved, that Section 2 of Article III of the
Corporation's bylaws is hereby amended to provide that the number of directors
of the Corporation shall be three.

<PAGE>

IN WITNESS WHEREOF, the undersigned, being all the Directors of this
Corporation, have hereunto set their hands for the purposes herein expressed.

Dated as of August 15, 1996.

DIRECTORS:

/s/ HAROLD GINSBURG
- -----------------------------
Harold Ginsburg

/s/ RICHARD GINSBURG
- -----------------------------
Richard Ginsburg

/s/ SHEILAH GINSBURG
- -----------------------------
Sheilah Ginsburg

EXHIBIT 9

LOCK-UP AGREEMENT

THIS LOCK-UP AGREEMENT ("Agreement") is made and entered this 15 day of
August, 1996, by and among GUARDIAN INTERNATIONAL, INC., a Nevada corporation
("Surviving Corporation"), INTERNATIONAL TREASURY AND INVESTMENTS, LTD., a
British Virgin Islands corporation ("ITI"), STEVEN A. SANDERS ("Sanders"),
KNIGHT FINANCIAL CORPORATION ("Knight") and FRANK BAUER ("Bauer") (ITI, Sanders,
Knight and Bauer are sometimes hereinafter referred to individually as
"Shareholder" and collectively as the "Shareholders").

W I T N E S S E T H:

WHEREAS, Everest Security Systems Corporation, a Nevada corporation
("Everest"), and Guardian International, Inc., a Florida corporation
("Guardian"), entered into that certain Agreement and Plan of Merger dated
August 15, 1996 ("Merger Agreement"), essentially providing that Guardian will
merge into Everest but the name of the entity shall be changed to "Guardian
International, Inc."; and

WHEREAS, each of ITI, Sanders, Knight and Bauer is the record owner of
1,085,000, 66,250, 66,250, and 110,000, respectively, shares of the common
stock, $.001 par value ("Stock"), of the Surviving Corporation (f/k/a Everest
Security Systems Corporation); and

WHEREAS, as a material inducement for Guardian to consummate the
transactions contemplated by the Merger Agreement, each of the Shareholders have
agreed to restrict the transferability of seventy percent (70%) of their
respective Stock ("Restricted Shares'), as more particularly set forth herein;

NOW, THEREFORE, in consideration of Ten Dollars ($10) and other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

1. The foregoing recitals are true and correct and are hereby
incorporated into this Agreement by this reference. Certain capitalized terms
used herein shall have the same meaning ascribed to them in the Merger
Agreement, unless the context herein requires otherwise.

2. Each of the Shareholders hereby represents and warrants that (i)
he/she/it has the full right, power and authority to enter into this Agreement
to restrict the transferability and salability of its Restricted Shares as
provided herein; (ii) except as set forth on EXHIBIT "A" attached hereto and
made a part hereof, it owns its Restricted Shares free and clear of any and all
liens, claims, charges and encumbrances; and (iii) except as set forth on
EXHIBIT "B" attached hereto and made a part hereof, compliance with the terms
and conditions of this Agreement will

<PAGE>

not conflict with, result in a breach of, or constitute a default under any
instrument or violate any law to which any of the Shareholders is a party or
bound by.

3. Each Shareholder, its successors, assigns, heirs and personal
representatives, hereby agrees that it will not offer, sell, transfer, assign,
mortgage, pledge, hypothecate or in any manner dispose of its Restricted Shares,
unless and until the shares of the Surviving Corporation received by the former
Guardian shareholders pursuant to the Merger Agreement become freely
transferable, without any restrictions whatsoever, under the Securities Act of
1933, as amended and the rules and regulations promulgated thereunder.

4. Each Shareholder hereby consents and agrees, simultaneous with the
execution of this Agreement, to deliver the certificates representing the
Restricted Shares to the Surviving Corporation, and the Surviving Corporation
shall endorse on the face of each such certificate a legend reading
substantially as follows:

Any sale, assignment, transfer, pledge or other disposition of the
shares of stock represented by this certificate is restricted by and
subject to the terms and provisions of a Lock-Up Agreement, dated as of
the 15th day of August, 1996. A copy of said Lock-Up Agreement is on
file with the Secretary of the Surviving Corporation. By acceptance of
this certificate, the holder hereof agrees to be bound by the terms of
said Lock-Up Agreement.

In addition, the Surviving Corporation shall make its transfer agent aware of
the terms and provisions of this Agreement and shall place stop transfer orders
with such transfer agent against the future transfer of the Restricted Shares in
accordance with the terms and provisions set forth herein.

5. (a) This Agreement sets forth all the promises, covenants,
agreements, conditions and understanding between the parties hereto, and
supersedes all prior and contemporaneous agreements, understandings, inducements
or conditions, expressed or implied, oral or written, to the extent such
agreements relate in any way to the subject matter hereof, except as herein
contained.

(b) This Agreement shall be binding upon the parties hereto, their
heirs, administrators, successors and assigns.

(c) The parties hereby irrevocably agree that no attempted
amendment, modification, termination, discharge or change (collectively,
"Amendment") of this Agreement hall be valid and effective, unless the parties
shall unanimously agree in writing to such Amendment.

(d) No waiver of any provision of this Agreement shall be effective
unless it is in writing and signed by the party against whom it is asserted, and
any such written waiver shall

<PAGE>

only be applicable to the specific instance to which it relates and shall not be
deemed to be a continuing or future waiver.

(e) All pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the party or parties,
or their personal representatives, successors and assigns may require.

(f) This Agreement and any amendments may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

(g) This Agreement shall be construed in accordance with the laws of
the State of Florida and any proceeding arising between the parties in any
manner pertaining or to this Agreement shall, to the extent permitted by law, be
held in Broward County, Florida.

(h) The parties hereto will execute and deliver such further
instruments and do such further acts and things as may be reasonably required to
carry out the intent and purposes of this Agreement.

(i) This Agreement is intended to be performed in accordance with,
and only to the extent permitted by, all applicable laws, ordinances, rules and
regulations of the jurisdiction in which the parties do business. If any
provision of this Agreement, or the application thereof to any person or
circumstance shall, for any reason or to any extent, be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.

(j) If any party hereto is required to engage in litigation against
any other party hereto, either as plaintiff or as defendant, in order to enforce
or defend any of its or his rights under this Agreement, and such litigation
results in a final judgment in favor of such party ("Prevailing Party"), then
the party or parties against whom said final judgment is obtained shall
reimburse the Prevailing Party for all direct, indirect or incidental expenses
incurred by the Prevailing Party in so enforcing or defending its or his rights
hereunder, including, but not limited to, all attorneys' fees and court costs
and other expenses incurred throughout all negotiations, trials or appeals
undertaken in order to enforce the Prevailing Party's rights hereunder.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
upon day and year first set forth above.

SIGNED, SEALED AND DELIVERED SURVIVING CORPORATION:
IN THE PRESENCE OF
GUARDIAN INTERNATIONAL, INC., a
Nevada corporation

/s/ MARILYN G. OLMSTED By: /s/ RICHARD GINSBURG
- -------------------------------- ---------------------------
Print Name: Marilyn G. Olmsted Name: Richard Ginsburg
--------------------- -------------------------
Title: Vice President
------------------------
/s/ DAVID KAHAN
- --------------------------------
PRINT NAME: David Kahan
---------------------

ITI:

INTERNATIONAL TREASURY AND
INVESTMENTS, LTD., a British Virgin
Islands corporation

/s/ MICHAEL W. MACEY By: /s/ SUSAN F. MACEY
- -------------------------------- ---------------------------
PRINT NAME: Michael W. Macey Name: Susan F. Macey
--------------------- -------------------------
Title: Company Secretary
------------------------
- --------------------------------
PRINT NAME:
---------------------
SANDERS:

/s/ MARILYN G. OLMSTED /s/ STEVEN A. SANDERS
- -------------------------------- ------------------------------
PRINT NAME: Marilyn G. Olmsted STEVEN A. SANDERS
---------------------

/s/ DAVID KAHAN
- --------------------------------
PRINT NAME: David Kahan
---------------------
KNIGHT:

/s/ MARILYN G. OLMSTED /s/ ROBERT KNIGHT
- -------------------------------- ------------------------------
PRINT NAME: Marilyn G. Olmsted ROBERT KNIGHT, PRESIDENT
---------------------

/s/ DAVID KAHAN
- --------------------------------
PRINT NAME: David Kahan
---------------------

<PAGE>

BAUER:

/s/ MARILYN G. OLMSTED /s/ FRANK BAUER
- -------------------------------- ------------------------------
FRANK BAUER

PRINT NAME: MARILYN G. OLMSTED
----------------------

/s/ DAVID KAHAN
- ---------------------------------
PRINT NAME: David Kahan
----------------------

<PAGE>

EXHIBIT "A"

<PAGE>

EXHIBIT "B"

EXHIBIT 10(e)

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement ("Agreement") is made and effective this 15
day of August, 1996, by and between Guardian International, Inc. ("Company") and
Richard Ginsburg ("Executive").

NOW, THEREFORE, the parties hereto agree as follows:

1. EMPLOYMENT.

Company hereby agrees to initially employ Executive as its President of the
Company and Executive hereby accepts such employment in accordance with the
terms of this Agreement and the terms of employment applicable to regular
employees of Company. In the event of any conflict or ambiguity between the
terms of this Agreement and terms of employment applicable to regular employees,
the terms of this Agreement shall control.

2. DUTIES OF EXECUTIVE.

The duties of Executive shall include the performance of all of the duties
typical of the office held by Executive as described in the bylaws of Company
and such other duties and projects as may be assigned by a superior officer of
Company, if any, or the board of directors of the Company. Executive shall
devote his entire productive time, ability and attention to the business of
Company and shall perform all duties in a professional, ethical and businesslike
manner. Executive will not, during the term of this Agreement, directly or
indirectly engage in any other business, either as an employee, employer,
consultant, principal, officer, director, advisor, or in any other capacity,
either with or without compensation, without the prior written consent of the
Company.

3. COMPENSATION.

Executive will be paid compensation during this Agreement as follows:

A. A base salary of ninety thousand ($90,000) per year, payable in installments
according to Company's regular payroll schedule. The base salary shall be
adjusted at the end of each year of employment at the discretion of the board of
directors and said salary shall not be reduced below the initial base salary.

4. BENEFITS.

A. VACATION. Executive shall be entitled to fourteen (14) paid vacation days
each year.

B. SICK LEAVE. Executive shall be entitled to sick leave and emergency leave
according to the regular policies and procedures of Company. Additional sick
leave or emergency leave over and above paid leave provided by Company, if any,
shall be unpaid and shall be granted at the discretion of the board of
directors.

<PAGE>

C. PENSION AND PROFIT SHARING PLANS. Executive shall be entitled to participate
in any pension or profit sharing plan or other type of plan adopted by Company
for the benefit of its officers and/or regular employees.

D. EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement for all
reasonable expenses, including travel and entertainment, incurred by Executive
in the performance of Executive's duties. Executive will maintain records and
written receipts as required by Company policy and reasonably requested by the
board of directors to substantiate such expenses.

E. AUTOMOBILE. Company will provide to Executive the use of an automobile of
Executive's choice at a monthly installment or lease payment. Company agrees to
replace the automobile with a new one at Executive's request no more often than
once every two years. Company will pay all automobile operating expenses
incurred by Executive in the performance of an Executive's company duties.
Company will procure and maintain in force an automobile liability policy for
the automobile with coverage, including Executive, in the minimum amount of
$1,000,000 combined single limit on bodily injury and property damage.

5. TERM AND TERMINATION.

A. The Initial Term of this Agreement shall commence on AUGUST 15, 1996 and it
shall continue in effect for a period of Five (5) years. Thereafter, the
Agreement shall be renewed upon the mutual agreement of Executive and Company.
This Agreement and Executive's employment may be terminated at Company's
discretion during the Initial Term, provided that Company shall pay to Executive
an amount equal to payment at Executive's base salary rate for the remaining
period of Initial Term.

B. In the event that Executive is in breach of any material obligation owed
Company in this Agreement, habitually neglects the duties to be performed under
this Agreement, engages in any conduct which is dishonest, damages the
reputation or standing of the Company, or is convicted of any criminal act or
engages in any act of moral turpitude, then Company may terminate this Agreement
upon five (5) days notice to Executive. In event of termination of the agreement
pursuant to this subsection, Executive shall be paid only at the then applicable
base salary rate up to and including the date of termination. Executive shall
not be paid any incentive salary payments or other compensation, prorated or
otherwise.

C. In the event Company is acquired, or is the non-surviving party in a merger,
or sells all or substantially all of its assets, this Agreement shall not be
terminated and Company guarantees that the transferee or surviving company is
bound by the provisions of this Agreement.

D. In the event Executive terminates this agreement or is subject to termination
under paragraph B. above, and because executive has had access to information
pertaining to the business of the Company which may be secret and confidential,
including the names, addresses and other data pertaining to customers and
employees, and formulas, the Executive agrees that, effective upon the date of
this Agreement, and for a period of two (2) years from the date of termination
from this Agreement, he will not, in or with respect to any geographical area
where the Company does

<PAGE>

business, directly or indirectly, be financially interested in, or represent or
render any advice or services to, any other business which is competitive with
that of the Company, nor remove from the Company's premises either originals or
copies in any form of the names, addresses or telephone numbers of any customers
or employees of the Company or any other confidential or proprietary
information; provided, however, that the foregoing restriction shall not
preclude the Executive from the ownership of less than two (2%) percent of the
voting securities of any company whose securities are traded on a national
securities exchange or in the over the counter market, even if its business
competes with that of the Company. Further, the Executive agrees that, in the
event he shall violate any of the restrictions of this Section, Company will be
without adequate remedy at law and will therefore be entitled to enforce such
restrictions by temporary or permanent injunctive or mandatory relief obtained
in action or proceeding instituted in any court of competent jurisdiction
without the necessity of proving damage without prejudice to any other remedies
it may have at law or in equity.

6. NOTICES.

Any notice required by this Agreement or given in connection with it, shall be
in writing and shall be given to the appropriate party by personal delivery or
by certified mail, postage prepaid, or recognized overnight delivery services;

If to Company:

Guardian International, Inc.
3880 N. 28 Terrace
Hollywood, FL
33020-1118

If to Executive:

Mr. Richard Ginsburg
P.O. Box 800207
Miami, FL
33280-0207

7. FINAL AGREEMENT.

This Agreement terminates and supersedes all prior understandings or agreements
on the subject matter hereof. This Agreement may be modified only by a further
writing that is duly executed by both parties.

8. GOVERNING LAW.

This Agreement shall be construed and enforced in accordance with the laws of
the state of Florida.

<PAGE>

9. HEADINGS.

Headings used in this Agreement are provided for convenience only and shall not
be used to construe meaning or intent.

10. NO ASSIGNMENT.

Neither this Agreement nor any or interest in this Agreement may be assigned by
Executive without the prior express written approval of Company, which may be
withheld by Company at Company's absolute discretion.

11. SEVERABILITY.

If any term of this Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, then this Agreement, including all of the remaining
terms, will remain in full force and effect as if such invalid or unenforceable
term had never been included.

12. ARBITRATION.

The parties agree that they will use their best efforts to amicably resolve any
dispute arising out of or relating to this Agreement. Any controversy, claim or
dispute that cannot be so resolved shall be settled by final binding arbitration
in accordance with the rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator or arbitrators may be entered
in any court having jurisdiction thereof. Any such arbitration shall be
conducted in Florida, or such other place as may be mutually agreed upon by the
parties. Within fifteen (15) days after the commencement of the arbitration,
each party shall select one person to act as arbitrator, and the two arbitrators
so selected shall select a third arbitrator within ten (10) days of their
appointment. The prevailing party shall be entitled to costs plus expenses,
including attorney fees, associated with arbitration.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

Guardian International Inc., A Nevada Corporation

By: /s/ HAROLD GINSBURG
------------------------
Authorized Signature

/s/ RICHARD GINSBURG
- ---------------------------
Richard Ginsburg

EXHIBIT 10(k)

GUARDIAN INTERNATIONAL

March 11, 1997

Mr. Doug Barnard
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661

Dear Doug:

We have determined during the course of our year-end audit that currently we do
not comply with certain of the covenants in our Loan and Security Agreement as
follows:

1. Section 5.1(A)(2) - the Company has not provided a calculation of
collections from contracts pledged to Lender and the application of funds
as required by Section 2.4, all certified true and correct by the President
or Chief Financial Officer of borrower, subject to normal recurring
adjustment in accordance with GAAP.
2. Section 5.1(B) - the Company did not submit to lender quarterly financials,
nor have any such quarterly financials been reviewed by independent
certified public accountants selected by Borrower. The Company has,
however, submitted monthly financial statements during each month of fiscal
1996, as well as audited financial statements for the eight months ended
August 31, 1996 and Form 10-Q for the nine months ended September 30, 1996.
3. Section 5.1(D) - the Company did not submit to Lender Compliance
Certificates.
4. Section 5.1(H) - the Company did not submit to Lender a management report.
The Company has, however, kept Heller informed of all material business
transactions occurring during the year.
5. Section 5.1(F) - the Company did not submit to Lender Projections for the
forthcoming Fiscal Year. However, we intend to submit Projections in
connection with the new credit facility currently being negotiated.

<PAGE>

Mr. Doug Barnard
March 11, 1997
Page 2

We respectfully request that you waive the compliance requirements for the above
stated Sections by signing the acknowledgment below and returning it to me.

Sincerely,

Robert K. Norris
Chief Financial Officer

Signature: /s/ DOUGLAS BARNARD
-----------------------
Douglas Barnard

Heller Financial, Inc.

Title: Portfolio Manager
---------------------------

Date: March 21, 1997
---------------------------

EXHIBIT 10(l)

HELLER FINANCIAL

March 26, 1997

Guardian International
3880 North 28 Terrace
Hollywood, Florida 33020-1118

Attention: Mr. Robert K. Norris

Dear Mr. Norris:

We refer to that certain Loan and Security Agreement dated as of November 16,
1994 (as amended, the "Loan Agreement") between Heller Financial, Inc.
("Heller") and Guardian International, Inc. ("Guardian"). Capitalized words and
phrases not otherwise defined in this letter will be used with the same meanings
given such terms in the Loan Agreement.

Section 6 of the Loan Agreement requires Guardian to maintain at all times a
Tangible Net Worth of not less than $1,450,000. For Guardian's fiscal year
ending December 31, 1996, Guardian's Tangible Net Worth was less than the
required amount. Guardian's failure to maintain its Tangible Net Worth at the
required level would permit Heller, under the terms of the Loan Agreement, to
declare an Event of Default and to accelerate all of the Obligations due to
Heller under the terms of the Loan Agreement. Guardian has requested that Heller
waive Guardian's non-compliance with the Tangible Net Worth test set forth in
the Loan Agreement for Guardian's 1996 fiscal year only. Heller is prepared to
accede to Guardian's request.

Therefore, this letter is to advise Guardian that for Guardian's 1996 fiscal
year only, Heller waives Guardian's non-compliance with the Tangible Net Worth
test set forth in the Loan Agreement. Nothing herein shall be construed by
Guardian as a continuing waiver of the Tangible Net Worth test set forth in the
Loan Agreement or as a continuing waiver of any other term or condition set
forth in the Loan Agreement. Except as expressly modified by the terms of this
limited waiver, the Loan Agreement remains in full force and effect.

<PAGE>

In an unrelated matter, it has come to Heller's attention that at the time of
the Second Modification, the Revolving Loan Commitment Termination Date was not
extended beyond November 30, 1996. It was Heller's intention at that time
(evidenced by the fact that from and after November 30, 1996 Heller has
continued to make advances to Guardian under the Revolving Loan) to extend the
Revolving Loan Commitment Termination Date to a later date. By its signature
below, Heller acknowledges and agrees that the Revolving Loan Commitment
Termination Date is December 31, 1997 effective as of the effective date of the
Second Modification. By its signature below, Guardian acknowledges and agrees
that the Revolving Loan Commitment Termination Date is December 31, 1997.

Please indicate your agreement with the foregoing by signing and dating a copy
of this letter in the space provided below and return a fully executed copy via
overnight courier to my attention at the address provided above.

Sincerely,

Heller Financial, Inc.

By:/s/ ROBERT J. DENNIS
----------------------------
Robert J. Dennis

Title: EXECUTIVE VICE PRESIDENT
-------------------------

Acknowledged and Agreed this 26 day of March 1997.

Guardian International, Inc.

By:/s/ RICHARD GINSBURG
-------------------------
Ricahrd Ginsburg

Title: PRESIDENT/CEO
----------------------

SUBSIDIARIES OF THE COMPANY

Specialty Device Installers, Inc.
Federal Alarm Systems, Inc.

<ARTICLE> 5

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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 735,495
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