Financial Information

Letter From the President

AlarmForce Industries Inc. is Canada’s leading installer of Business Security Alarm. Innovative products and a strong commitment to customer satisfaction form the foundation for the company’s strong annual growth since it’s inception in 1988. Today our mission remains to provide technologically advanced, affordable residential alarm systems & home security systems to the residential marketplace while strengthening our operations, expanding our reach and providing value to shareholders.

“A record subscriber account base, record operating efficiency and gross margins, and two share issuances via private placement made 2004 an unqualified success for the company.”

To Our Shareholders:

We are pleased to report to you AlarmForce’s home security system company annual results for the year 2004. A record subscriber account base, record operating efficiency and gross margins, and two share issuances via private placement made 2004 an unqualified success for the company.

We successfully completed two major private placements, the first in December of 2003 and the second in June of 2004. Both offerings were completed on a bought deal financing basis, reinforcing the investor confidence, credibility and recognition in the financial markets given to the company’s strength and standing. The tremendous growth opportunities that lie ahead of us are backed by a solid balance sheet and an outstanding team to implement our business plan.

On the operating front, our wholesale burglar alarm subscriber base growth continues to surge ahead, resulting in a record increase for the year and meeting our expectations. Importantly, through the organic model of account creation, we increased the size of the monitored accounts by 19%. This was accomplished without compromising quality for growth.

Total revenues in 2004 rose to $14,450,129, representing a 21% increase from the preceding year figure, as restated for the change in accounting explained below. The increase in residential security system subscriber accounts, recurring monthly revenues and cash flows were in line with our expectations and targets.

Change In Accounting Policy

New accounting pronouncements emerging in the past year have been reflected in the financial statement figures presented for 2004. Specifically, commencing in 2004 the company retroactively adopted a new accounting policy regarding recognition of certain add-on sales of home security system equipment installed in AlarmForce monitored premises. As a result, the timing of when the sale is recognized in reported revenue has changed from recognition when received at the completion of the sale, to recognition of revenue uniformly over four years. As these sales continue to be recognized in taxable income at the completion of the sale, this gives rise to timing differences in taxation resulting in the recognition of future tax assets related to the differences. The 2003 comparative figures have been restated to give retroactive effect to the change as recommended under the new accounting pronouncements.

Notably, cash flow figures and the subscriber base have not been impacted by the change.