Financial Information

10. CONTINGENT LIABILITY

The Company was a defendant in a legal action in 2006 with respect to a claim for fees subsequent to termination of an agreement. This legal action was resolved in December 2007, resulting in the Company re-acquiring the franchise rights in the amount of $55,000.

11. COMMITMENTS

The Company is committed to operating leases for premises, vehicles, and office equipment expiring at various dates up to May, 2012. Future minimum lease payments are as follows:

	Premises	Vehicles	Equipment	Total
	$	$	$	$
2008	35,171	59,205	35,056	129,432
2009	-	29,293	22,988	52,281
2010	-	19,563	21,891	41,454
2011	-	5,602	18,991	24,593
2012	-	-	8,710	8,710
	35,171	113,663	107,636	256,470

12. EARNINGS PER SHARE

he following table sets forth the calculation of the basic earnings and diluted earnings:
2007

	2007	2006
	$	$
Basic earnings available to common shareholders	1,280,172	1,492,336
Weighted average number of common shares outstanding – basic	12,091,856	11,983,870
Basic earnings per share	$0.11	$0.12
Weighted average number of common shares outstanding	12,091,856	11,983,870
Assumed exercise of outstanding dilutive options	190,000	200,000
Shares purchased from proceeds of assumed exercise of options	(137,586)	(155,876)
Weighted average number of common shares outstanding – dilutive	12,144,270	12,027,994
Fully diluted earnings per share	$0.11	$0.12

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.

13. FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt.

(a) Fair value

The carrying value of the Company’s financial instruments consisting of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximates fair value due to their immediate or short-term maturity. The carrying value of the long-term debt approximates fair value as it bears interest at market rate.

(b) Credit risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, accounts receivable and long-term debt.

Cash and cash equivalents are maintained at major financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and therefore bear minimal credit risk.

Credit risk on accounts receivable is minimized as a result of the constant review and evaluation of the account balances. The Company also maintains an allowance for doubtful accounts at an estimated amount, allocating sufficient protection against losses resulting from collecting less than full payments from its receivables.

(c) Interest rate risk

The Company is exposed to fluctuations in interest rates in regard to the revolving term loans, which are on a prime plus basis. The Company has not deemed it necessary to use derivative financial instruments to reduce exposure to interest risk.

(d) Foreign currency risk

The Company is exposed to currency risk due to its US limited partnership, AlarmForce Limited Partnership, and also a certain portion of the Company’s purchases are in US currency, resulting in US dollar-denominated accounts payable. These activities result in exposure to fluctuations in foreign currency rates. At statement date, the Company had net liabilities denominated in U.S. currency of approximately $1,215,000 (2006 - $526,000) as shown below, and a foreign exchange gain resulting from consolidation of $ 214,450. The Company has not deemed it necessary to use derivative financial instruments to reduce exposure to foreign exchange risk.

In US $	2007	2006
	$	$
Accrued liabilities	1,314,000	864,000
Less: cash position	(99,000)	(338,000)
Net US liabilities	1,215,000	526,000