Financial Information

3. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of 2004 and prior years have been restated to reflect the change in accounting policy and an accounting error identified therein.

A. On August 1, 2005, the Company announced a retroactive change to its accounting policy for capitalizing direct-response marketing costs. These costs are now treated as period costs and expensed in the period incurred. Previously, they were deferred and amortized over the term of the subscriber agreement. The change in accounting policy has been adopted retroactively with restatement of prior periods. The results of this change are shown in column “A” of the table.

B. The Company acquired certain subsidiaries that owned franchise rights and, based upon the interpretation of section 3465.37 of the CICA handbook, no provision for future income taxes was previously reflected in the financial statements. Upon review in 2005, the alarm Company determined that a retroactive correction of an accounting error should be made to reflect the future income taxes. As per the same section of the CICA handbook, these franchise rights acquired were grossed up for the future tax liability associated with them, and amortized over the respective useful lives to properly match the future taxes in the appropriate years. The results of the correction are shown in column “B”.

The effect of these changes on the 2004 financial statement balances is as follows:

	Previously reported	Increase (decrease) *		Restated*
		A	B
Balance Sheet
Deferred Revenue	5,915,040	(5,778,219)	-	136,821
Intangible Assets	3,175,803	-	1,598,267	4,774,070
Future Income Taxes	(1,950,000)	2,121,500	(1,598,267)	(1,426,767)
Retained Earnings	4,528,147	(3,656,719)	-	871,428
Income Statement
Amortization
Deferred Charges	2,135,928	(2,125,524)	-	10,404
Intangibles	319,556	-	170,856	490,412
Selling Expenses	1,297,205	3,668,187	-	4,965,302
Future Income Taxes	843,820	(570,277)	(170,856)	102,687
Net Income	1,275,986	(972,386)	-	303,600
Earnings per share
Basic	0.12	(0.09)		0.03
Diluted	0.11	(0.08)		0.03

4. DEFERRED CHARGES

	2005	2004 *
		(Note 3)
Deferred stock compensation	42,112	96,859
Deferred development costs (net of accumulated amortization of $65,545: 2004- $55,953)	30,370	39,962
	72,482	136,821

5. PROPERTIES, PLANT AND EQUIPMENT

	2005	2004
	Cost	Accumulated Amortization	Cost	Accumulated Amortization
	$	$	$	$
Computer equipment	548,457	419,443	525,227	369,129
Computer software	280,831	144,541	226,583	97,756
Furniture and fixtures	275,786	171,123	264,210	146,404
Leasehold improvements	261,391	209,224	255,330	187,482
Moulding equipment	57,386	39,173	57,386	27,695
Revenue equipment	15,050,402	5,237,241	16,038,753	6,716,914
	16,474,253	6,220,745	17,367,489	7,545,380
Net Book Value	$10,253,508		$9,822,109