Financial Information

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(e) Property, Plant and Equipment

Property, plant and equipment are recorded at cost. When assets are replaced or disposed of, the cost and accumulated depreciation are removed from the accounts and the gains or losses are recognized in the period realized. Repairs and maintenance costs are expensed as incurred. Amortization is provided over the useful lives using the following methods and annual rates:

(f) Long-lived Assets

Long-lived assets, including property, plant and equipment, intangible assets and deferred charges with finite useful lives are amortized over their useful lives. The Company reviews its long-lived assets for impairment on a regular basis or more frequently if events or changes in circumstances indicate that the carrying value exceeds its fair value, as determined by the undiscounted future cash flows expected from the related burglar alarm subscriber accounts. If the sum of the undiscounted future cash flow expected and eventual disposition of assets is less than the carrying amount, it is considered to be impaired. An impairment loss is measured as the amount by which the carrying amount of the group of assets exceeds its fair value. For the year ended October 31, 2007 and 2006, the Company recorded no impairment loss

(g) Intangible Assets

Intangible assets consisting of franchise rights are recorded at the cost at which the Company acquired the rights. Amortization is provided on a straight line basis over their estimated useful lives between 5 and 14 years representing the remaining term of the respective franchise agreement.

(h) Income Taxes

Current income tax expense reflects the estimated income taxes payable for the current year. The Company follows the asset and liability method of accounting for income taxes. Under this method future income taxes are recognized to reflect the temporary differences between the carrying amounts of the assets and liabilities for accounting purposes and the amounts used for tax purposes.

The Company calculates future income taxes using the rates enacted by tax law. The effect of a change in tax rates on future income tax assets and liabilities is included in earnings in the year when the change was enacted. A valuation allowance is provided to the extent that it is more likely than not that the future income tax assets will not be realized.

(i) Deferred Charges

Costs incurred in developing the centralized monitoring station and deferred stock compensation costs are capitalized as deferred charges. Amortization is recorded annually as follows:

(i) Deferred development costs are written off on a straight-line basis over 10 years, which represents management’s best estimate of the useful life of the centralized monitoring station.

(ii) Deferred stock compensation cost is written off over the vesting period of four years.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

j) Earnings Per Share

Basic net income per common share is determined using the weighted-average number of common shares outstanding during the respective year. The treasury stock method is used to compute the dilutive effect of options.

(k) Foreign Currencies

Monetary assets and liabilities of the wholly owned US limited partnership are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate, and current year additions and amortization expenses are translated at the weighted average rate. Revenue and other expenses are also translated at the weighted average rate for the year. Exchange gains or losses on translations are recognized in the consolidated statements of income. For the year ended October 31, 2007, the Company experienced an exchange gain totalling $214,450. The foreign exchange loss for the year ended October 31, 2006 was $40,347.

(l) Use of Estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles (GAAP) requires management to make estimates and assumptions. These estimates and assumptions 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Examples of significant estimates include:

(m) Stock-based Compensation

The Company has a stock option plan for employees and directors, and it uses the fair value method of accounting for all stock option awards. Under this method the Company recognizes a compensation expense based on the fair value of the options on the date of grant, which is determined by using an option-pricing model. The fair value of the options is recognized over the vesting period of the options granted as compensation expense and paid in capital options. The paid-in capital options balance is reduced as the options are exercised and the amount initially recorded for the options in paid-in capital is credited to capital stock. No compensation expense is recorded for stock options awarded and outstanding prior to November 1, 2003.

(n) Accounting Policy Developments in 2007

1) Financial Instruments, comprehensive income, hedges: In January 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Section 1530, Comprehensive Income (“Section 1530”), Handbook Section 3855, Financial Instruments – Recognition and Measurement (“Section 3855”), and Handbook Section 3865, Hedges (“Section 3865”). Section 1530 requires the financial statements to present certain gains and losses outside net income in a new component of shareholders’ equity entitled Comprehensive Income. Section 3855 establishes standards for the recognition and measurement of all financial instruments, provides character-based definition of a derivative, provides criteria to be used to determine when a financial instrument should be recognized and provides criteria to be used to determine when a financial liability is considered to be extinguished. Section 3865 established standards for when and how hedge accounting may be applied. The use of hedge accounting is optional. These standards are effective beginning November 1, 2006.