Financial Information

3. COMPANY OVERVIEW

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

The Company also manufactures a wireless two-way voice controller (the “AlarmVoice System”) that facilitates live two-way voice communication between the subscriber and the Company’s communications center thereby offering immediate response and/or assistance in event of emergencies. The Company is vertically integrated by manufacturing, installing, maintaining and monitoring its subscriber systems. The Company attributes its success to being able to control all aspects of the delivery process to the customer and by focusing and adhering to stringent quality control requirements. The Company has been able to organically grow its subscribers by an average of 15% over the last 3 years.

In 2009, the Company experienced steady and sustainable growth by adding 11,400 net new subscribers for a total ending subscriber account base of 102,400. The Company’s Canadian operations experienced net growth of 6,800 new subscribers, bringing the total Canadian subscribers to 89,000 and the US operations experienced a net growth of 4,600 new subscribers, bringing the total US subscribers to 13,400.

Revenue is primarily generated from monitoring services pursuant to the terms of subscriber contracts and in 2009, monitoring services revenue accounted for 89% of the total revenue. In 2009, total revenues increased to $34,133,361 or a 14% increase from 2008.

The Company continued to improve its cash position in 2009 to $8,315,792 from $5,408,362 in 2008 by maintaining appropriate management over marketing expenditures and equipment production costs. In 2009, the Company was able to fund all capital requirements and all operational growth with internally generated cash flows.

The Company continues to promote its newest service offering under the brand name AlarmCare. AlarmCare is a 24 hour Personal Emergency Response System (“PERS”) that is specifically tailored to the segment of the market consisting of the elderly and those wishing to live independently, requiring medical assistance. The Company continues to aggressively advertise the AlarmCare system in Canada and selected centers in the United States using the same model that has made the security suite of products so successful. As at October 31, 2009, the Company had approximately 2,400 AlarmCare subscribers.

In 2009, the Company commenced development of a new security product that will enable monitoring of the home via remote video access. Designed for the residential mass market, the wireless system will allow live-video streaming over the customer’s broadband connection to a smart phone, allowing the user to view and interact with the home from anywhere in the world. The Company has engaged a software developer to assist in the development of the video application. The Company has completed the initial risk assessment, proof of concept and design phase and is currently in the process of designing the back-end infrastructure to support the video system controller. The Company expects to commence field trials in June 2010 with an expected market release date in September 2010. The Company expects development expenditures to be approximately $750,000.

On January 20, 2010, the Company announced that it planned to further expand its United States operations by establishing regional representation to install and service alarm systems in the city of Minneapolis-Saint Paul as part of the first phase of entering the State of Minnesota. As previously done in North Carolina, Ohio and Georgia, the Company plans to aggressively advertise its security suite of products to the mass market via television, radio and other media. While initial costs will translate into a drag on cash flows in order to build branding, the additional marketing expenditures and capital equipment will be financed from working capital.

The Company expects to continue growing organically by marketing and distributing its unique technology and create awareness through advertising programs across Canada and the United States. The Company has not acquired any monitoring accounts or blocks of accounts from dealers, but has increased its subscriber account base solely through internal account creation. Under its existing programs, the Company believes that it has one of the lowest subscriber acquisition costs in the industry when compared to comparable competitors’ cost to acquire accounts, individually or en bloc.