Financial Information

10. SUBSEQUENT EVENT

In December 2008, the Toronto Stock Exchange accepted the Company’s notice of intention to make a Normal Course Issuer Bid. Under this bid, the Company is entitled to purchase, for cancellation, up to 350,000 common shares which commenced on December 22, 2008 and will terminate on December 21, 2009. The Company made the following purchases:

11. COMMITMENTS

The Company is committed to operating leases for premises, vehicles, and office equipment expiring at various dates up to December 2013. Future minimum lease payments are as follows:

12. EARNINGS PER SHARE

The following table sets forth the calculation of the basic earnings and fully diluted 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.

13. FINANCIAL INSTRUMENTS

Section 3855 requires all financial assets and liabilities to be classified into one of the following five categories: held for trading; held-to-maturity; loans and receivables; available-for-sale financial assets; and other financial liabilities. All financial instruments are measured on the balance sheet at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and recognition of the changes in fair value of financial instruments depends upon their initial classifications:

Held-for-trading financial assets – are measured at fair value with subsequent changes in fair value recognized in current period net income:

Available-for-sale financial assets – are measured at fair value with subsequent gains and losses included in other comprehensive income until the asset is removed from the balance sheets; and

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and long-term debt. The Company measures its cash and cash equivalents as held-for-trading, its accounts receivable as loans and receivables, and its accounts payables and accruals, and long term debt as other financial liabilities.

(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 and accounts receivable.

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 from accounts receivable encompasses the default risk of subscribers and franchisees. Credit risk on accounts receivable is minimized as a result of the constant review and evaluation of subscriber account balances beyond a particular age and credit limit. Franchise account balances are secured by the franchisees’ share of the monitoring. The Company does not believe that there is significant credit risk arising from its subscribers and franchisees, as it does not rely on any one major account. 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 only financial instruments that expose the Company to interest rate risk are its long-term debt. The Company is marginally exposed to fluctuations in interest rates with regards to a long-term debt consisting of a revolving term loan, bearing interest at the bank’s prime plus 0.25% per annum. The Company is sensitive to fluctuations in interest risk such that a 2% increase or decrease in interest rates would result in a respective $19,200 decrease or increase, to the Company’s income before taxes for the year ended October 31, 2008. The Company has not deemed it necessary to use derivative financial instruments to reduce exposure to interest rate risk.

(d) Foreign currency risk

he Company is exposed to currency risk due to its fully integrated US limited partnership. A certain portion of the Company’s purchases are in US currency, resulting in US dollar denominated accounts payable and accrued liabilities. These activities result in exposure to fluctuations in foreign currency rates between the US dollar and the Canadian dollar. The Company’s sensitivity to these foreign currency fluctuations is such that a 10% strengthening or weakening of the US dollar would result in a respective $74,374 decrease or increase to the Company’s income before taxes for the year ended October 31, 2008. At October 31, 2008, the Company had net liabilities denominated in U.S. currency of approximately $1,529,000 (2007 - $1,215,000) as shown below, and a foreign exchange loss resulting from consolidation of $189,273. The Company does not utilize any financial instruments or cash management policies to mitigate the risks arising from changes in foreign currency rates