Financial Information

4. SELECTED ANNUAL INFORMATION

The following summary of selected audited financial information is derived from, and should be read in conjunction with, the Company’s audited financial statements, including the notes thereto, for the years ended October 31, 2009, 2008, and 2007:

Annual Information

** Includes building loan and revolving term loans (see Long-term Debt section)
*** Earnings Before Interest Tax Depreciation and Amortization is a key performance indicator in the security industry and should not be interpreted as GAAP earnings.

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED EBITDA

EBITDA is defined as earnings before interest expenses, income taxes, depreciation and amortization. EBITDA is a standard measure used in the security industry to assist in understanding and comparing operating results and is often referred to by our competitors. Management views EBITDA as an important measure of operating performance of the Company. Yet, since it does not have any standardized meaning defined by Canadian GAAP, it may not be considered in isolation of GAAP measures such as net income/loss or cash flows, as a measure of liquidity. Management believes, however, that it is an important measure as it allows the Company to assess its ongoing business without the impact of depreciation or amortization expenses. Since EBITDA is not a defined term under Canadian GAAP, it is unlikely to be comparable to similar measures presented by other issuers.

Most companies in the residential security industry purchase subscriber accounts and capitalize those acquisition costs amortizing them over the term of the subscriber contract. AlarmForce is one of the few companies whose growth is internally generated and therefore the accounting treatment is not directly comparable. AlarmForce’s annual budget for marketing expenditures has increased steadily, reflecting acceleration of new subscriber account creation and due to the discretionary nature of the marketing budget the Company provides the following reconciliation of adjusted EBITDA to GAAP net income figures reported for the years ended October 31, 2009, 2008 and 2007: