Financial Information

Gross margin Gross Profit was $ 16,458,835 for the fiscal year 2006 compared to $13,538,797 in fiscal 2005, which was an increase of $2,920,038 or 22%. Gross margin as a percentage of total revenue was stable at 79% in both 2005 and 2006, which is consistent with the increase in subscriber base and increased needs for additional equipment to accommodate the Canadian growth and U.S. additions.

Selling, General and Administrative Expenses (“ SG&A”)

ESG&A expenses was $11,241,676 for the fiscal year 2006 compared to $9,168,473 in fiscal 2005 which was an increase of $2,073,203 or 23%. Selling expenses increased by $1,644,925 or 27% due primarily to the increase in marketing expenditures required, in an attempt to establish brand recognition in the relatively new US markets. These expenditures in the form of radio, television, print and other media introduced the benefits of the Company’s two-way voice alarm system.

Administrative expenses totaled $3,630,579 for 2006 compared to $3,202,301 in 2005 fiscal year, an increase of $428,278. This increase is primarily due to the increased allowance for doubtful accounts and an increased bad debt expense for uncollectible accounts.

Other expenses

Amortization of Property Plant and Equipment was $1,821,279 for the fiscal year 2006 compared to $2,185,598 in fiscal 2005 a decrease of $364,319 or 17%. This decrease reflects the change in estimates made for rental equipment in 2005 as a result of the Company practice to annually review the carrying value of rental equipment.

Interest expense was $82,072 for the fiscal year 2006 compared to $96,850 in fiscal 2005 a decrease of $14,778 or 15%. The decrease is primarily due to the minimal average borrowing requirements of the Company. AlarmForce obtained a fixed rate term loan to finance the acquisition of property consisting of land and building, and is payable (principal and interest) in monthly installments, with monthly principal repayments of $4,167 bearing an interest rate of 5.58%, which is due March 2016. AlarmForce managed to control the use of debt financing for new growth in subscriber accounts by maintaining a low cost of creation relative to the industry. The Company uses an organic growth model to build the account base as opposed to acquiring existing accounts, and this has proved effective in reducing the debt-to-equity ratio in the Company.

Income taxes

The future tax liability is reduced by future income tax assets resulting from certain opposite timing differences, which result from the accounting deferral and amortization of sales revenue that are immediately recognized in taxable income at the time that the sale is completed. These differences are also expected to reverse in the future.

In addition, certain share issuance costs incurred in 2004 are deductible from taxable income over a period of five years, resulting in timing differences and a future tax asset of approximately $70,410 at the end of 2006. The tax effects of the significant components of temporary differences giving rise to the future tax assets and liabilities are as follows for the years 2004-2006, after restating the prior years for the change in accounting policies in 2005 and 2006: