Financial Information

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, Plant and Equipment

Building		- 20 years, straight-line basis
Rental equipment		- 10 years, straight-line basis
Computer equipment		- 30%, declining balance basis
Computer software		-30%, declining balance basis
urniture and fixtures		- 20%, declining balance basis
Vehicles		-30%, declining balance basis
Moulding equipment		- 5 years, straight-line basis

(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 monitoring station are capitalized as deferred charges. Amortization is recorded annually on a straight-line basis over 10 years, which represents management’s best estimate of the useful life of the monitoring station.

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, unless such items are fair value, in which case they are translated at the exchange rate in effect at the balance sheet dates. 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. Foreign exchange gains or losses on translations are recognized in the consolidated statements of income.

(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) Capital Structure

The capital structure of the Company consists principally of shareholder’s equity comprised of retained earnings and share capital. The Company’s strategy is to minimize the use of debt financing to fund growth and manage its capital structure in light of economic conditions and the risk characteristics of the underlying assets. The Company’s primary uses of capital are to finance non-cash working capital requirements and capital expenditures, which are currently funded from its internally generated cash flows. The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital. The Company’s objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth and to deploy capital to provide an appropriate return on investment to its shareholders.

(o) Accounting Policy Developments

1) Financial Instruments– Disclosure and Presentation: In December 2006, the CICA issued Section 3862, “Financial Instruments Disclosures,” and Section 3863, “Financial Instruments, Presentation.” These standards provide additional guidance on disclosing risks related to recognized and unrecognized financial instruments and how those risks are managed. This Section applies to interim and annual financial statements of the Company commencing 2008 fiscal year. See note 13 regarding additional disclosure.

2) Capital Disclosures:– CICA issued Handbook Section 1535, Capital Disclosures, which provides standards for disclosures regarding a company’s capital and how it is managed. Enhanced disclosure with respect to the objectives, policies and processes for managing capital and quantitative disclosures about what a company regards as capital is required. These recommendations are effective for fiscal years beginning on or after October 1, 2007 and, therefore, apply to the Company. See note 2 (n) regarding additional disclosure.