Financial Information

President's Message

To Our Shareholders:

In 2009, our subscriber base increased by 12%, revenue by 14% and net income by 45%. We entered the year with optimism in the face of the economic uncertainty that continued to plague markets. Industry revenues as a whole were expected to have declined after decades of uninterrupted growth, and the severity of the global crisis was felt by virtually every business. We closed 2009 with gross installations of 22,000, total revenues of over $34 million, and record earnings per share of $0.31. Our results for 2009 are truly inspiring and indicative of the strength that our company has achieved in the marketplace.

AlarmForce’s organic growth model continues to prove very effective in the tough economic climate. The double-digit increases achieved for our subscriber base and EBITDA are remarkable in the industry, since few other companies exceeded low single-digit rates and even fewer with respect to their organic growth.

Our earnings per share of $0.31 in 2009 represents the highest over the 21 years that we have been in business, having increased from $0.11 in 2007 to $0.22 per share in 2008. Driven by increases in operating efficiency and organic growth of new subscribers, earnings continued to grow at a rate higher than revenues in the period.

The total number of AlarmForce subscribers increased to 102,400 accounts at the end of the year, reflecting an increase of 11,400 subscribers or 12% from 2008. The growth in subscribers and monthly recurring revenues was accompanied by an increase in EBITDA to $9.1 million, up by 25% from 2008. Excluding marketing expenses, EBITDA increased from $16 million to $18.1 million, up by 13%. We continue to fund all of our growth in new subscribers from internally generated cash flows, including our recent entry in the state of Minnesota. Together with the overall growth in accounts, the AlarmCare subscriber base of personal emergency response systems (PERS) also expanded in 2009 through advertising programs and customer referrals.

Net cash flows from operating activities decreased by 5% to $6.5 million for 2009, due to increased working capital required to support expansion in the subscriber base. Excluding working capital items, our operating cash flow increased by 30% in 2009. In the fourth quarter, no additional shares were purchased by the Company under the stock buyback issuer bid, which expired in December 2009. After financing and investing activities, total cash increased by $2.9 million. Our growth model and low cost of account creation continues to strengthen our balance sheet and prove our value..

Our future outlook is very exciting for a number of reasons. We are investing substantial resources in our research and development in order to continue innovating and enhancing the benefits of our two-way voice wireless systems. In addition, we are designing new subscriber applications and services for home alarm systems and AlarmCare systems, which will reshape the AlarmForce subscriber experience. Innovation is embedded in our vision to add new recurring revenue sources out of AlarmForce’s traditional brand strength. Furthermore, we believe that users of internet and broadband devices, who will want new security applications at an affordable cost, will become new subscribers of AlarmForce.

Looking ahead to the future of our industry, the emerging new culture of wireless, mobility and broadband is changing the landscape. Our industry continues to migrate to wireless technologies and more enhanced service options. The digital landscape is expected to broaden the market, resulting in exciting opportunities for strong companies. We anticipate that AlarmForce will be able to grow revenues faster with the convergence of the new trends and enabling technologies.

We appreciate the confidence and support of our loyal shareholders and employees, and we will continue to work hard to build on our past success. I am optimistic that the future will provide superior rewards for AlarmForce and its shareholders.

Respectfully submitted on behalf of the Board of Directors.