Financial Information

The company has credit facilities in the aggregate amount of approximately $5,800,000. Loans made under the respective facilities are repayable over various terms, in monthly installments of principal plus interest at the prime rate plus 0.75% per annum, pursuant to individual contract periods. A general assignment of book debts, a general security agreement, and an assignment of the proceeds of a $300,000 life insurance policy have been pledged as collateral.

(i) On December 2, 2003, the company issued 1,000,000 common shares at a share price of $2.50 under a private placement for net proceeds of $2,345,930. On June 29, 2004; the residential security company issued an additional 1,000,000 common shares at a share price of $ $3.25 under a private placement for net proceeds of $3,092,756. Share issue costs of $ 311,334, net of income taxes of $ 176,000 were charged to Share Capital.

(ii) As part of consideration in acquiring franchise rights, the Company issued 28,985 shares at $3.70 per share in 2004. The fair values of the shares were determined at the date of issuance.

The residential alarm Company has established an incentive stock option plan for directors, officers, employees, and consultants of the Company. Options may be granted for a period not exceeding five years vesting 25% on the date of grant and 25% per year thereafter at an option price not less than the market price of the shares at the time the option is granted. The maximum number of common shares which may be set aside for issue under the plan is 1,750,000, provided that, from time to time, such number may be increased subject to approval of the shareholders of the Company. The maximum number of common shares that may be reserved for issuance to any one person under the plan is 5% of the common shares outstanding at the time of the grant, less the number of shares reserved for issuance to such person.

(i) Outstanding options are subject to vesting provisions under which 25% of the total options granted vest immediately at the date of the grant, and a further 25% after each of the first, second and third anniversaries.

(ii) All options have fully vested except for 100,000 options, which will fully vest in 2007. Subsequent to year-end, 60,000 options were exercised as described in note 17.

During the 2005 fiscal year, the security system Company recognized compensation expense of $54,747 (2004- $105,281) for the stock option awards granted in 2004 fiscal year. In 2004, the fair value of options granted was estimated at the date of grant using the Black-Scholes valuation model with the following assumptions: (i) risk-free interest rate of 3.07% (ii) expected option life of 3.5 years, (iii) expected volatility of 35%, and (iv) expected dividend yield of 0%. There were no stock options granted in 2005.