Financial Information

Notes to Consolidated Financial Statements For the years ended Oct 31, 2007 and Oct 31, 2006

1. NATURE OF BUSINESS

AlarmForce Industries Inc., (the “Company”) is a public company whose shares are listed on the Toronto Stock Exchange. The Company provides security alarm monitoring and related services to residential and commercial subscribers throughout Canada and in selected states of the United States of America. The Company is a leading provider of two-way voice alarm systems and monitoring services and was incorporated under the laws of Canada on November 16, 1988.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada.

(a) Basis of Consolidation

These consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and AlarmForce LP, a limited partnership, operating in the U.S.A. Inter-company balances and transactions have been eliminated on consolidation.

(b) Revenue Recognition

i) The Company earns the majority of its revenue from subscribers for monitoring services and equipment. Revenue from monitoring services is recognized over the term of the subscriber agreement as the services are provided. The subscriber agreements are non-cancellable over a three or four year term with automatic annual renewals thereafter.

ii) Revenue and the related costs from the sale of equipment, which consists principally of alarm equipment, are deferred and recognized as revenue over the respective three and four year terms of the subscriber agreement.

iii) Unearned revenue results from subscribers who are billed for monitoring in advance of the period in which such services are provided, on a bi-monthly, quarterly, semi-annual or annual basis. Revenues from monitoring activities are recognized in the year such services are provided. The maximum period for which subscribers are billed in advance is one year.

(c) Inventory

Inventory, consisting principally of alarm equipment and accessories, is valued as follows:

i) For used equipment and accessories, at the lower of the weighted average amortized cost and net realizable value; and

(ii) For new equipment and accessories, at the lower of cost on a first-in, first-out basis and net realizable value.

(d) Cash and Cash Equivalents

Cash and cash equivalents consists of cash and short-term guaranteed investment certificates, which are carried at the lower of cost and market value. These cash equivalents are cashable within a 90-day period from the date of purchase. Below is a breakdown of the cash and cash equivalents:

See accompanying notes to consolidated financial statements.