Financial Information

President's Message

To Our Shareholders:

We had an excellent year in 2008, breaking the previous record for revenue growth as well as total annual revenue, which climbed to $29 million. Our net income increased by 104% to $2.6 million and earnings per share increased from 11 cents per share in 2007 to 22 cents per share in 2008, an increase of 100%, making this the most successful year in our 20 years of business. With 11,800 net new accounts added to the subscriber account base, the total number of AlarmForce subscribers increased by 15% to 91,000 accounts as at October 31, 2008.

Without a doubt, 2008 was a challenging year for each one of us, as investors and businesses were faced with the steepest decline of our times in financial markets. Despite the events and shocks that gave the year one of the sharpest declines on record, AlarmForce achieved strong results with annual installations of 20,700 subscribers for the year ended October 31, 2008. In our US market, which is spread over the three States of North Carolina, Ohio and Georgia, we continued increasing our account size. Having achieved such results despite a financial crisis that has since spread globally, we are naturally thrilled with the results. Stock prices were sharply affected in 2008, during which even those that were considered the most defensive or safest stocks suffered declines in their share price – not because they reported poor results but because investors simply did not want to own stocks in general. Stock prices thus became disconnected from underlying asset values or private transaction values. In December 2008, we decided to make a normal course issuer bid, having concluded that the purchase of Common Shares would be in the best interest of all shareholders of AlarmForce. Such purchases will increase the proportionate interest of all remaining shareholders and may increase liquidity for shareholders wishing to sell their Common Shares. Under the issuer bid, a maximum number 350,000 shares of AlarmForce may be bought back over the effective period of one year expiring in December, 2009.

Results of Operations

Revenues in 2008 increased to approximately $30 million, which represents a record annual increase of $4.8 million or 19% from the preceding year. Notably, we achieved the increases in revenue and subscriber growth while spending relatively less on the marketing budget. We had announced to our shareholders a year ago that the effect of newer markets would tend to act as a drag on operating results, having recently entered new US markets. Furthermore, we anticipated that this effect would begin to be offset as subscribers added through organic growth increased our monthly recurring monitoring revenues. In 2008, as the accretive effect began to be reflected in results, our EBITDA increased to $7.4 million, up by 56% from 2007. Net income increased by 104% to $2.6 million thus meeting one of our important goals, which is for earnings to outpace revenues.

As a result of our positive operating cash flow, the year-end debt per subscriber decreased to approximately $16 per subscriber account including all bank loans, down from $22 per subscriber in 2007. On a net basis, our Company continues to operate debt-free, differentiating us from other alarm companies.

An important distinguishing feature of our business is that in the alarm industry, many competitors purchase subscriber accounts and capitalize the cost to acquire them. The result tends to be a deceptively higher margin. Unlike these competitors, we write off the majority of our initial cost to create the subscriber account in the first year as a marketing expense. This also provides a tax break, resulting in higher after-tax cash flows relative to peers that purchase subscriber accounts. Therefore EBITDA excluding marketing expenses tends to help comparisons with industry benchmarks. Reflecting the decrease in marketing expenses in 2008, EBITDA excluding marketing expenses increased to $16,230,000, up by 15% from $14,111,000 a year ago.

Finally, the year marked the introduction of our newest service offering. AlarmCare, which is our 24-hour personal emergency response system (PERS), launched mid-year in 2008. As the population ages in North America and the cost of assisted living and nursing care continues to skyrocket, the market for PERS is touted to increase significantly, representing new potential recurring revenues in all our current markets in Canada and the US. The PERS offering was a natural extension of our brand, and with this new service we are aiming to reach not only existing customers, but a potentially larger target population of security-minded baby-boomers heading into retirement. Over the next several years we are aiming to add more PERS subscriber accounts and associated recurring revenues, using our marketing and distribution system to make AlarmCare available as a cost-effective solution to millions of potential subscribers.