Financial Information

6. SUMMARY OF QUARTERLY RESULTS

The following table sets out selected financial information for the Company for the eight most recently completed quarters up to October 31, 2009, prepared in accordance with Canadian GAAP and expressed in Canadian currency:

* inclusive of Personal Emergency Response subscribers

7. DISCUSSION OF FOURTH QUARTER 2009

In the fourth quarter of fiscal 2009, total revenues amounted to approximately $8.9 million up by 11% from the 2008 corresponding quarter.

Income before taxes in the fourth quarter amounted to $1,064,316. This increase again reflects the consistent growth in the subscriber account base. Operating results for the fourth quarter were impacted by the same factors as the full year, which mainly consists of rapid growth plans of the Company, tight controls over cost of sales and prudent management of marketing expenditures.

8. LIQUIDITY AND CAPITAL RESOURCES

As at October 31, 2009, the Company had cash and cash equivalents of $8,315,792 and unused credit facilities of approximately $5,400,000 available for future operating and capital requirements.

As at October 31, 2009, the Company’s assets totalled $33,072,558, of which the majority represented revenue generating capital assets including tangible and intangible assets. The outstanding debt at October 31, 2009 consisted of a $825,002 fixed rate term loan for purchase of the property acquired in March 2006, and revolving demand loan of $354,166 under credit facilities that are available to be used by the Company to finance the growth in the subscriber base.

The cash flows from operations and financing activities, and cash flows used in financing and investing activities for fiscal 2009 and the comparative fiscal 2008 are summarized below:

Cash flow from operations dropped marginally as the Company is funding all its activities through internally generated cash flows, which includes costs associated with its new product development for remote video access (see “Company Overview” for further information). The Company will see a further drain on its cash flows as added costs are incurred in the upcoming fiscal 2010. Furthermore, AlarmForce is planning to fund the expansion into Minnesota from cash flows generated internally through operations and will not seek any debt financing. The Company is expected to generate sufficient cash flows to sustain the Company’s planned growth in the short and long-term.

The cash flow from financing activities increased due to the exercise of 130,000 stock options in the third quarter of 2009 at a purchase price of $491,400. The Company also purchased shares for cancellation pursuant to the normal course issuer bid entered by the Company in December 2008. During fiscal 2009, the Company purchased and cancelled a total of 37,130 common shares at an aggregate cost of $144,540. The Company did not enter into any new loan agreements in 2009.

The Company expects to continue investing significantly in growth of the subscriber base, through marketing programs and in the installation of new security systems as well as the AlarmCare systems in subscriber homes. Security systems are installed under three-year contracts, which are automatically renewable annually and the AlarmCare subscribers do not sign a fixed period contract. The Company manufactures the equipment for both the security systems and the AlarmCare systems that it installs and the manufacturing process involves purchasing various key components from foreign and domestic manufacturers, and utilizing local subcontractors in certain phases of the manufacturing process.

The Company’s assembly operations are housed in Toronto. The Company also manufactures AlarmPlus telephone line-cut technology that is available exclusively to alarm subscribers of AlarmForce, which is the only alarm company that manufactures and installs AlarmPlus.

The existing cash reserves, cash from operations and credit facilities are believed to be adequate to finance new product development growth as well as operating requirements in the foreseeable future. Debt and equity components for the years 2007-2009 are summarized below.

Long-term debt

The following are the details of the above loans:

1. Fixed rate term loan in the amount of $1,000,000 was acquired in 2006 to finance the acquisition of property consisting of land and building. The loan is repayable (principal and interest) in monthly repayments of $4,167 bearing an interest rate of 5.58% per annum. The loan is due March 2016.

2. Revolving demand loan in the amount of $1,000,000 was acquired in March 2007 to finance the purchase of franchise rights. The loan is repayable (principal and interest) in monthly instalments of $20,833 over a period of 48 months at a bank rate of prime rate plus 0.25% per annum. The prime rate was 2.25% as at October 31, 2009. A general assignment of book debts, a general security agreement, and an assignment of the proceeds of a $300,000 life insurance policy have been pledged as collateral.

The Company has total credit facilities in the amount of approximately $5,800,000, of which $5,400,000 is available (2008 - $5,200,000). The Company is in compliance with all bank loan covenants as at October 31, 2009.

The Company plans to repay the fixed rate term loan and the demand loan in full in fiscal 2010.

Commitments and contractual obligations

The Company is committed to operating leases for premises and equipment expiring at various dates up to January 2015. Approximate future minimum payments are as follows: