CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended April 30, 2011

To Our Shareholders:

Record Results

It gives me great pleasure to report that AlarmForce closed the second quarter of 2011 with total revenues of $20 million, marking a record six month period in its 23 years of business. Total subscribers increased to 119,600 accounts as at April 30, 2011, which reflects an 11% annual increase in the net subscriber growth.

As a result of continued growth in our subscriber base and recurring monthly revenues, Net Income increased from $2.2 million to $2.5 million for the six month period, which is a 13% increase. Net income per share increased to $0.21, up from $0.18 per share in the comparative period for 2010, which is a 17% increase.

While both revenues and net earnings posted double-digit rates of growth, the increase in our net income continued to outpace revenues. Three month total revenues for the second quarter increased to $10.1 million, up by 10% from $9.2 million a year ago, and up from $9.9 million in the immediately preceding quarter, achieving a record for quarterly results.

EBITDA increased from $5.4 million to $5.6 million for the six months, a 4% increase. This figure, a key measure used in the security industry to compare operating results, includes marketing expenses which results in a charge to expense during the period, thus reducing the reported figure. Excluding marketing expenses, EBITDA increased from $9.5 million to $10.3 million for the six month period, a 9% increase. The Company’s monthly recurring subscriber revenues represented approximately 91% of total revenues in the period. As a result of the increases in recurring revenues from subscribers, cash flows from operations increased from $3.1 million to $3.5 for the six months, an increase of 13% per annum. Together with this increase, all marketing programs are continuing to be funded entirely from operating cash flows with no debt on the balance sheet.

AlarmForce’s entry into the state of Florida, which was announced in the news release dated April 14th, has added a significant new market to our footprint. Our systems are now being installed in new subscriber homes in the areas of Tampa-St. Petersburg, Sarasota and Orlando. We plan to expand further in new markets within Florida over the course of the next twelve months. We are very confident that the entry into Florida and the continuing expansion in brand awareness in our current markets will add significant growth to the subscriber base.

AlarmForce VideoRelay

We are very excited about the progress to date that we have seen on the development of AlarmForce VideoRelay, our application-based remote video system. The field testing process has produced very positive results, and as a result we are planning to announce, in the fourth quarter of this year, a confirmed start date for advertising and installations.

We believe that the market response to our VideoRelay technology will complement our traditional alarm business and will open up even larger markets to our subscriber services. These markets include homeowners who already have an AlarmForce or a competitor’s system but want an added layer of security, and also those who do not want a traditional burglar alarm but who want the peace of mind that comes with being in touch with their home at all times. There are also customers who will initially install only the video system but may in future want to bundle it with our two way-voice alarm. With this in mind, we believe that our advertising costs per new subscriber will be reduced over time, as a result of the launch of VideoRelay.

All development costs for VideoRelay have been funded entirely from operating cash flows, and we continue to move forward with zero debt on our balance sheet. In addition to the alarm subscriber revenues, our results reflect increases in AlarmCare subscriber accounts, resulting in additional recurring monthly revenues from subscribers of personal emergency response systems or PERS.

In closing, I would like to thank our investors, employees and Directors for their continuing support and confidence in our company.

Respectfully submitted on behalf of the Board of Directors

UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT APRIL 30, 2011
(With comparative figures for the fiscal year ended Oct. 31, 2010)

	April 30, 2011	October 31, 2010
	$	$
ASSETS
Current
Cash and cash equivalents	7,144,468	5,510,396
Short-term investments	4,052,180	4,052,180
Accounts receivable	498,001	397,963
Inventory	3,600,264	4,103,028
Prepaid expenses and other assets	126,259	64,112
	15,421,172	14,127,679
Future income taxes	1,390,000	1,090,000
Property, plant & equipment (note 4)	19,756,571	19,763,810
Intangible assets	1,415,628	1,606,062
	37,983,371	37,983,371
LIABILITIES
Current
Accounts payable and accrued liabilities	2,839,468	4,023,525
Unearned revenue	840,276	849,688
Income taxes payable	86,411	118,791
	3,766,155	4,992,004
Deferred revenue	3,067,950	2,997,663
	6,834,105	7,989,667
SHAREHOLDERS’ EQUITY
Share capital (note 5)	12,817,084	12,817,084
Contributed surplus	166,501	153,901
Retained earnings	18,165,681	15,626,899
	31,149,266	28,597,884
	37,983,371	36,587,551

See accompanying notes to unaudited consolidated financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME FOR SIX MONTHS ENDED APRIL 30,2011
(With comparative figures for the six months ended April 30, 2010)

	Three months ended		Six months ended
	$	$	$	$
	Apr. 30, 2011	Apr. 30, 2010	Apr. 30, 2011	Apr. 30, 2010
Revenues	10,099,220	9,154,703	20,033,170	18,171,438
Cost of sales	2,556,758	2,064,856	4,760,755	4,118,417
Gross profit	7,542,462	7,089,847	15,272,415	14,053,021
Expenses
Selling	3,014,451	2,578,715	5,764,842	5,173,522
General and administrative	2,297,596	1,920,480	3,918,746	3,455,811
Amortization:
Property, plant & equipment	921,156	902,573	1,885,559	1,677,220
Intangible assets	95,217	196,538	190,434	424,891
Interest	–	66	–	11,852
Foreign exchange loss/(gain)	(30,234)	11,683	(46,742)	21,390
	6,298,186	5,610,055	11,712,839	10,764,686
Income before income taxes	1,244,276	1,479,792	3,559,576	3,288,335
Income taxes (note 6)	295,355	433,419	1,020,794	1,044,428
Net income and comprehensive income for the period	948,921	1,046,373	2,538,782	2,243,907
Basic earnings per share (note 7)	0.08	0.09	0.21	0.18
Diluted earnings per share (note 7)	0.08	0.09	0.21	0.18

See accompanying notes to unaudited consolidated financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF RETAINED EARNINGS AND ACCUMULATED OTHER COMPREHENSIVE INCOME FOR SIX MONTHS ENDED APRIL 30, 2011
(With comparative figures for the six months ended April 30, 2010)

	Three months ended		Six months ended
	Apr. 30, 2011	Apr. 30, 2010	Apr. 30, 2011	Apr. 30, 2010
	$	$	$	$
Retained earnings, beginning of period	17,216,760	12,042,330	15,626,899	10,844,796
Net income and comprehensive income for the period	948,921	1,046,373	2,538,782	2,243,907
Retained earnings, end of Period	18,165,681	13,088,703	18,165,681	13,088,703

See accompanying notes to unaudited consolidated financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR SIX MONTHS ENDED APRIL 30, 2011
(With comparative figures for six months ended April 30, 2010)

	Three months ended		Six months ended
	$	$	$	$
	Apr. 30, 2011	Apr. 30, 2010	Apr. 30, 2011	Apr. 30, 2010
OPERATING ACTIVITIES
Net income for the period	948,921	1,046,373	2,538,782	2,243,907
Adjustments: Amortization:
Property, plant & equipment	921,156	902,573	1,885,559	1,677,220
Intangible assets	95,217	196,538	190,434	424,891
Stock-based compensation	6,300	8,400	12,600	16,800
Future income taxes	(157,500)	(107,500)	(300,000)	(180,000)
	1,814,094	2,046,384	4,327,375	4,182,818
Change in non-cash components of working capital:
Accounts receivable	26,971	42,769	(100,038)	(46,315)
Inventory	(39,530)	(543,317)	502,764	44,259
Prepaid expenses and other assets	44,067	28,816	(62,147)	(30,019)
Accounts payable and accrued liabilities	64,853	377,911	(1,184,057)	(284,811)
Unearned revenue	(3,687)	(3,266)	(9,412)	(14,695)
Income taxes	(114,012)	(52,654)	(32,380)	(617,782)
Deferred revenue	26,217	(68,322)	70,287	(113,470)
	4,879	(218,063)	(814,983)	(1,062,833)
	1,818,973	1,828,321	3,512,392	3,119,985
INVESTING ACTIVITIES Additions to property, plant & equipment	(782,589)	(902,845)	(1,878,320)	(2,041,459)
	(782,589)	(902,845)	(1,878,320)	(2,041,459)
FINANCING ACTIVITIES
Repayment of fixed rate term loan	–	–	–	(825,000)
Repayment of revolving demand loan	–	–	–	(354,168)
Proceeds from issue of share capital	–	23,750	–	23,750
	–	23,750	–	(1,155,418)
Change in cash and cash equivalents	1,036,384	949,226	1,634,072	(76,892)
Cash and cash equivalents, beginning of the period	6,108,084	7,289,674	5,510,396	8,315,792
Cash and cash equivalents, end or period	7,144,468	8,238,900	7,144,468	8,238,900
Cash and cash equivalents for the Company are as follows:
Cash	5,980,218	4,538,743	5,980,218	4,538,743
Cash equivalents	1,164,250	3,700,157	1,164,250	3,700,157
	7,144,468	8,238,900	7,144,468	8,238,900
Supplemental cash flow information:
Interest paid	–	66	–	11,852
Income taxes paid	586,248	210,357	1,372,496	1,458,244

See accompanying notes to unaudited consolidated financial statements.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2011
(Unaudited)

1. BASIS OF PRESENTATION

AlarmForce Industries Inc. (the “Company” or “AlarmForce”) is a Canadian company whose core business is to provide security alarm and personal emergency response monitoring and related services to subscribers throughout Canada and selected centers across the United States of America (“US”). AlarmForce is a public company whose shares are listed on the Toronto Stock Exchange under the ticker symbol “AF”. The Company is a provider of two-way voice security systems in Canada and was incorporated in Ontario under the laws of Canada on November 16, 1988.

The management of the Company has prepared these interim consolidated financial statements in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). Disclosure of the interim financial statements does not conform in all respects to the requirements of GAAP for annual statements. The notes presented in these interim financial statements include only significant events and transactions and do not include all matters normally disclosed in the Company’s audited annual financial statements. These interim financial statements have not been audited or reviewed by the Company’s independent auditors. These statements follow the same accounting policies and methods as the most recent annual audited financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2010.

In the opinion of management, all adjustments considered necessary for fair presentation have been included in these interim consolidated financial statements. Operating results for the six months ended April 30, 2011, are not necessarily indicative of the results that may be expected for the year ending October 31, 2011.

2. ACCOUNTING POLICY DEVELOPMENTS

(i) International Financial Reporting Standards (IFRS): In 2006, Canada’s Accounting Standards Board (“AcSB”) published a new strategic plan of converging Canadian generally accepted accounting principles for publicly accountable enterprises with IFRS. In 2008, the AcSB confirmed that IFRS will be mandatory in Canada for profit-oriented publicly accountable entities for fiscal periods beginning on or after January 1, 2011. The Company will be required to report using these converged standards with its first annual financial statements being for the year ending October 31, 2012, along with the comparative period for 2011. Commencing in the first quarter of fiscal 2012, the Company will prepare and publish unaudited consolidated financial information in accordance with IFRS with comparative figures for 2011. The Company has developed its plan and has completed preliminary identification and assessment of the accounting and reporting differences between existing Canadian GAAP and IFRS. Evaluation of accounting policies and their differences are in progress, however, at this time, the full impact of adopting IFRS is not reasonably estimable or determinable.

(ii) Business Combinations: Section 1582, “Business Combinations”, will be applicable to business combinations for which the acquisition date is on or after the Company’s fiscal years beginning January 1, 2011. Early adoption is permitted. This Section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.

(iii) Consolidated Financial Statements: Section 1601, “Consolidated Financial Statemens” will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. This Section establishes standards for the preparation of consolidated financial statements. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements..

(iv) Non-Controlling Interests: Section 1602, “Non-controlling Interests” will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. This Section establishes standards for accounting for non controlling interests in a subsidiary in consolidated financial statements subsequent to a business combination. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.

(v) Multiple deliverable revenue arrangements: In December 2009, the Canadian Institute of Chartered Accountants issued EIC-175, Multiple Deliverable Revenue Arrangements, which replaces EIC-142, Revenue Arrangements with Multiple Deliverables. This abstract addresses some aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This new standard will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements.

3. CAPITAL STRUCTURE

The capital structure of the Company consists principally of shareholders’ equity comprised of retained earnings and share capital. The Company’s strategy is to minimize the use of debt financing to fund growth and manage its capital structure in light of economic conditions and the risk characteristics of the underlying assets. The Company’s primary uses of capital are to finance non-cash working capital requirements and capital expenditures, which are currently funded from its internally generated cash flows. The Company is not subject to any externally imposed capital requirements.

The Company’s objectives when managing capital are:

(i) to ensure sufficient liquidity to pursue its strategy of organic growth;

(ii) to maintain compliance with debt covenants; and

(iii) to deploy a strong and efficient capital base to provide an appropriate return on investment to shareholders and maintain investor, creditor and market confidence.

Relevant factors impacting the Company’s capital structure are as follows:

	April 30, 2011	October 31, 2010
	$	$
Cash and cash equivalents and short-term investments	11,196,648	9,562,576
Total debt	-	-
Share capital	12,817,084	12,817,084
Contributed surplus	166,501	153,901
Retained earnings	18,165,681	15,626,899
Total equity	31,149,266	28,597,884
Debt/Equity ratio	-	-

The Company manages its capital structure and makes adjustments in light of economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust the capital structure, the Company may consider the purchase of shares for cancellation, the issuance of new shares, or new debt.

The Company’s banking facilities are subject to covenants which require the Company to maintain a debt to net worth ratio and a debt servicing coverage ratio. As at April 30, 2011, the Company was in compliance with these covenants and based on the current business plans and economic conditions, the Company is not aware of any condition or event that would give rise to non-compliance of these covenants.

4. PROPERTY, PLANT AND EQUIPMENT

	April 30, 2011		October 31, 2010
	Cost $	Accumulated Amortization $	Cost $	Accumulated Amortization $
Land	600,000	-	600,000	-
Building	3,170,775	605,159	3,133,989	526,810
Rental equipment	29,078,951	13,103,139	27,589,594	11,601,336
Computer equipment	1,017,100	795,721	985,127	762,297
Computer software	548,966	383,878	505,709	362,378
Furniture & fixtures	552,209	341,150	504,488	323,002
Vehicles	44,076	26,459	44,076	23,350
	35,012,077	15,255,506	33,362,983	13,599,173
Net Book Value	19,756,571		19,763,810

5. SHARE CAPITAL

The Company is authorized to issue an unlimited number of common shares.

The changes in the issued common shares of the Company during the six months ended April 30, 2011 are as follows:

	Number of Shares	Value $
Balance, October 31, 2009 For cash pursuant to option plan	12,226,658 10,000	12,769,584 47,500
Balance, October 31, 2010 Issued during the period ended April 30, 2011: For cash pursuant to stock option plan	12,236,658 Nil	12,817,084 -
Balance, April 30, 2011	12,236,658	12,817,084

Stock Option Plan

The Company has an incentive stock option plan in place for its directors, officers and employees. Options may be granted for a period not exceeding five years at an option price not less than the market price of the shares at the time the option is granted. The maximum number of common shares which may be set aside for issuance under the plan is 2,250,000, provided that, from time to time, such number may be increased subject to approval of the shareholders of the Company. The maximum number of common shares that may be reserved for issuance to any one person under the plan is 5% of the common shares outstanding at the time of the grant, less the number of shares reserved for issuance to such person. The changes in the outstanding stock options of the Company during the six months ended April 30, 2011 are as follows:

	Number of Options	April 30/11 Weighted average exercise price	Number of Options	October 31, 2010 Weighted average exercise price
		$		$
Balance, beginning of period	70,000	4.75	100,000	4.75
Granted	25,000	10.25	Nil	–
Exercised	Nil	-	(10,000)	4.75
Cancelled	Nil	-	(20,000)	4.75
Balance, end of period (i)	95,000	6.20	70,000	4.75
Less options not vested (ii)	(80,000)	-	(60,000)	-
Exercisable, end of period	15,000		10,000

(i) Outstanding options are subject to vesting provisions of which 20% of the total options granted vest immediately at the date of the grant, and a further 20% on the anniversary over the next four years.

(ii) 80,000 options have not yet vested and will be fully vested in 2016.

The contractual life and exercise price of the options outstanding and options exercisable as at April 30, 2011 are as follows:

Number of options outstanding	Remaining contractual life (years)	Exercise price $	Number of options exercisable
25,000	5	10.25	5,000
70,000	3.25	4.75	10,000

6. INCOME TAXES

	April 30, 2011 $	April 30, 2010 $
Current income tax Future income tax	1,320,794 (300,000)	1,224,428 (180,000)
	1,020,794	1,044,428

7. EARNINGS PER SHARE

The following table sets forth the calculation of the basic and fully diluted earnings per share:

	April 30, 2011		April 30, 2010
Basic earnings available to common shareholders	$	2,538,782	$	2,243,907
Weighted average number of common shares outstanding – basic	12,236,658		12,229,006
Basic earnings per share	$	0.21	$	0.18
Weighted average number of common shares outstanding	12,236,658		12,229,006
Assumed exercise of outstanding dilutive options Shares purchased from proceeds of assumed exercise of options	70,000 (35,985)		80,000 (51,421)
Weighted average number of common shares outstanding – dilutive	12,270,673		12,257,585
Diluted earnings per share	$	0.21	$	0.21

8. FINANCIAL INSTRUMENTS

All financial assets and liabilities are classified into one of the following five categories: held for trading; held-to-maturity; loans and receivables; available-for-sale financial assets; and other financial liabilities. All financial instruments are measured on the balance sheet at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and recognition of the changes in fair value of financial instruments depends upon their initial classifications:

Held-for-trading financial assets -are measured at fair value with subsequent changes in fair value recognized in current period net income.

Held-to-maturity assets, loans and receivables and other financial liabilities – are initially measured at fair value and subsequently measured at amortized cost with changes recognized in current period net income.

Available-for-sale financial assets – are measured at fair value with subsequent gains and losses included in other comprehensive income until the asset is removed from the balance sheets.

Like all other businesses, the Company is exposed to risks that arise from its use of financial instruments. The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, and long-term debt. The Company measures its cash and cash equivalents and short-term investments as held-for-trading, its accounts receivable as loans and receivables, and its accounts payables and accrued liabilities, and long-term debt as other financial liabilities. The nature of these instruments and the Company’s operations expose the Company to credit, interest rate and foreign currency risks.

Management’s objectives are to protect the Company against material economic exposures and certain financial risks including credit risk, liquidity risk, interest rate risk and foreign exchange risk.

(a) Fair value

The carrying value of the Company’s financial instruments consisting of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their immediate or short-term maturity.

(b) Credit risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company’s maximum exposure to credit risk is represented by the carrying amounts reported on the balance sheet.

The Company reduces this risk by maintaining its cash and cash equivalents and short-term investments at reputable financial institutions, from which management believes the risk of loss to be remote. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand.

Credit risk from accounts receivable encompasses the default risk of subscribers and franchisees. Such credit risk on accounts receivable is minimized as a result of the constant review and evaluation of subscriber account balances beyond a particular age and credit limit. Franchise account balances are secured by the franchisees’ share of the monitoring. The Company does not believe that there is significant credit risk arising from its subscribers and franchisees, as it does not rely on any one major account. The Company establishes an allowance for doubtful accounts by examining such factors as the number of overdue days of the subscriber’s balance outstanding as well as the subscriber’s collection history. The Company believes that its allowance for doubtful accounts is sufficient protection against losses resulting from collecting less than full payments from its receivables. Since the Company has a large and diversified subscriber base dispersed throughout its market in Canada and the US, there is no significant concentration of credit risk. The following table provides further details on the Company’s accounts receivable balances:

	April 30, 2011 $	October 30, 2010 $
Subscriber accounts receivable Allowance for doubtful accounts	746,503 (299,291)	691,359 (306,579)
Other accounts receivable	447,212 50,789)	384,780 13,183
	498,001	397,963

(c) Interest rate risk

Changes in market interest rates will cause fluctuations in the future cash flows from short-term investments. As at April 30, 2011, the Company did not carry any long-term debt, thereby mitigating the Company’s exposure to interest rate risk. While the Company does have credit facilities which it can draw upon if required, the Company did not draw upon them at any time in the six months ended April 30, 2011 or the corresponding period in 2010, thereby maintaining the Company’s objective of minimizing exposure to such risk. At the present time, the Company does not intend to increase borrowings and therefore does not require the use of derivative financial instruments to reduce future exposure to interest rate risk.

(d) Foreign currency risk

The Company is exposed to foreign currency risk due to its fully integrated US limited partnership. Due to the relatively small size of the partnership, the risk arising from foreign exchange fluctuations is not significant enough to warrant entering a hedge to mitigate the risk. The Company’s sensitivity to these foreign currency fluctuations is such that a 10% strengthening or weakening of the US dollar would result in a respective $58,907 increase or decrease to the Company’s income before taxes for the six months ended April 30, 2011.

A certain portion of the Company’s purchases are in US currency, resulting in US dollar denominated accounts payable and accrued liabilities. These activities result in exposure to fluctuations in foreign currency rates between the US dollar and the Canadian dollar. Due to their short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant. The Company manages its exposure to foreign currency fluctuations by spreading its US dollar denominated purchases evenly throughout the period. The Company does not deem it necessary to utilize any financial instruments or cash management policies to mitigate the risks arising from changes in foreign currency rates. Management closely monitors the foreign exchange rates and will consider a hedging option if the need arises.

(e) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s objective is to ensure sufficient cash flows exist to meet its short and long-term obligations. It also manages liquidity risk through the management of its capital structure (see note 3). Management consistently monitors actual and projected cash flows to maintain its liquidity surplus as well as cash flow requirements according to the needs of the Company and its subsidiary. As at April 30, 2011, the Company had unused credit facilities in the amount of $5,800,000. The Company currently has no long-term debt obligations. Management believes its unused credit facilities, along with its cash flow position, will provide sufficient liquidity to manage its obligations and support working capital requirements. The following table shows the Company’s position of liquidity and debt obligations:

	April 30, 2011 $
Accounts payable and accrued liabilities	2,839,468
Cash and cash equivalents and short-term investments	11,196,648

9.SEGMENTED INFORMATION

The Company operates primarily in one industry segment, which is security monitoring, and related services. The Company has operations in North America, specifically in Canada and the US. By geographical areas of the Company, the following table outlines revenue for the six months ended April 30, 2011 and April 30, 2010 and capital assets as at April 30, 2011 and October 31, 2010:

	Canada		United States		Total
Revenues	$	$	$	$	$	$
	April 30, 2011	April 30, 2010	April 30, 2011	April 30, 2010	April 30, 2011	April 30, 2010
	16,793,753	15,572,598	3,239,416	2,598,840	20,033,170	18,171,438
Plant, property & equipment Intangible assets	April 30, 2011	October 31, 2010	April 30, 2011	October 31, 2010	April 30, 2011	October 31, 2010
	15,983,295	16,290,924	3,773,276	3,472,886	19,756,571	19,763,810
	1,415,629	1,606,062	-	-	1,415,628	1,606,062

MANAGEMENT’S DISCUSSION AND ANALYSIS

1. INTRODUCTION

The following Management’s Discussion and Analysis, of operating results and financial position for the six months ended April 30, 2011 is supplementary to, and should be read in conjunction with the interim consolidated financial statements for the quarter, which have not been audited or reviewed by AlarmForce Industries Inc.’s (the “Company” or “AlarmForce”) independent auditors. Management’s Discussion and Analysis (“MD&A”) is intended to help readers understand the dynamics of our business and the key factors underlying our financial results. The interim consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in Canada and all amounts, unless otherwise indicated, are expressed in Canadian dollars. Disclosures in the interim statements do not conform in all respects to GAAP for annual statements. These statements follow the same accounting policies and methods as the most recent audited annual statements and should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2010. The audited consolidated financial statements and Management’s Discussion and Analysis for the year ended October 31, 2010 were reviewed and approved by the Company’s Audit Committee and the Board of Directors.

Operating results for the six months ended April 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending October 31, 2011. The following discussion is comprised of significant updates since management’s discussion and analysis reported for the year ended October 31, 2010.

2. FORWARD–LOOKING STATEMENTS

Certain statements contained herein including (without limitations) financial and business prospects and financial outlooks, may be forward-looking statements which reflect management’s current expectations regarding future plans and intentions, growth, results of operations, performance and business prospects and opportunities. Words such as “may”, “will”, “should”, “could”, “anticipate”, “believe,” “expect, “intend”, “plan”, “potential”, “continue” and similar expressions have been used to identify these forward-looking statements. These statements reflect management’s current views with respect to future events or conditions, including prospective results of operations, financial position, and predictions of future actions, plans or strategies. Certain material factors and assumptions were applied in drawing our conclusions and making these forward looking statements. By their nature, those statements reflect management’s current views, beliefs and assumptions and are subject to certain risks and uncertainties, known and unknown, including, without limitation:

• technological change;
• development of new products;
• proper performance of alarm equipment;
• the reliability of our payroll processing services;
• the protection and privacy of personal information which we hold;
• the risks associated with credit;
• the exchange rate of the U.S. currency fluctuations;
• changes in accounting policies and estimates;
• changes in consumer preferences, customer demand for our alarm products and services and our ability to maintain customer relationships;
• disruption to manufacturing and distribution activities due to labour disruptions, bad weather, natural disasters and other unforeseen adverse events;
• recruitment and hiring of competent personnel
• our inability to maintain or renew existing product sourcing arrangements; and
• the discontinuation by our suppliers of certain technologies or the exiting by one of our suppliers from the electronic securities systems market.

The above (and other) factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by these forward-looking statements. See “Risks and Uncertainties” below. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying our projections or forward-looking statements prove incorrect, our actual results may vary materially from those described in this MD&A as intended, planned, anticipated, believed, estimated or expected. We do not intend and do not assume any obligation to update these forward-looking statements whether as a result of new information, plans, events or otherwise, unless required by law.

3. COMPANY OVERVIEW

AlarmForce Industries Inc. (the “Company” or “AlarmForce”) is a Canadian company whose core business is to provide security alarm monitoring, personal emergency response monitoring and related services to subscribers throughout Canada and selected centers across the United States of America (“US”). AlarmForce is a public company whose shares are listed on the Toronto Stock Exchange under the ticker symbol “AF”. The Company is one of the leading providers of two-way voice security systems and was incorporated under the laws of Canada on November 16, 1988. The Company also manufactures a proprietary wireless two-way voice controller (the “AlarmVoice System”) that facilitates live two-way voice communication between the subscriber and the Company’s monitoring station thereby offering immediate response and/or assistance in the event of emergencies.

AlarmForce is vertically integrated by manufacturing, installing, servicing and monitoring 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.

In the first six months of fiscal 2011, AlarmForce added 6,100 net new subscribers for a total ending subscriber account base of 119,600. In Canada, the Company experienced net growth of 4,300 subscribers bringing the total Canadian subscribers to 99,800 and in the US, the Company experienced net growth of 1,800 subscribers bringing the total US subscribers to 19,800, as at April 30, 2011. The second quarter experienced a total net increase in subscriber base of 2,900, of which 1,900 came from the Canadian operations and 1,000 from the US operations.

Revenue is primarily generated from monitoring services pursuant to the terms of subscriber agreements and in the first six months of 2011, revenue from monitoring services accounted for 91% of the total revenue. In the first six months of fiscal 2011, total gross revenues increased by 10% to $20,033,170 compared to $18,171,438 in the corresponding period of fiscal 2010. In the second quarter of 2011, revenue in the Canadian operations grew by $8,480,753 reflecting an increase of 8% and revenue in the US operations grew by $1,618,466 , an increase of 22% over the corresponding three months of 2010.

In the first half of fiscal 2011, net income grew by $294,875 or 13% to $2,538,782 from the corresponding period of fiscal 2010. The second quarter net income totaled $948,921 compared to $1,046,373 in the corresponding quarter of 2010. Basic and diluted Earnings Per Share (“EPS”) increased by 15% to $0.21 in the first six months of 2011 from $0.18 in the corresponding period of 2010. The second quarter EPS was $0.08 compared to $0.09 in the comparative quarter of 2010.

Our cash flow from operations in the first six months of 2011 increased to $3,512,392 from $3,119,985 or 13% compared to the corresponding period in 2010. The second quarter cash flow from operations totaled $1,818,973 reflecting a marginal 1% decrease from $1,828,321 in the comparative quarter of 2010. Cash outlays from investing activities due to additions to property, plant and equipment totaled $1,878,320 for the six months of 2011 as compared to $2,041,459 in the corresponding period in 2010. The Company’s cash position remains consistently strong, showing 30% growth to $7,144,468 when compared to $5,510,396 as at October 31, 2010. The strong cash position is a reflection of the Company’s consistent subscriber and revenue growth, paired with nil long-term debt and management’s conservative and cautious approach toward marketing expenditures and equipment purchases. AlarmForce expects to continue to fund all capital requirements and growth from working capital.

The Company has completed the final phase of development of a video security product that will enable monitoring of the home via remote video access. Designed for the residential mass market, the application-based video system, will allow live-video streaming over the customer’s broadband connection to any smart phone, allowing the user to view and interact with the home. The Company expects to complete its field trials over the next few months and announce a confirmed launch date in the fourth quarter of 2011. We expect to use the same marketing campaign that has made the AlarmForce suite of products so successful.

AlarmForce continues to promote its Personal Emergency Response System (“PERS”) offering under the brand name AlarmCare. The AlarmCare system is specifically tailored to the segment of the market consisting of the elderly and those wishing to live independently but requiring medical assistance. In the event of an emergency, vital medical information maintained by the monitoring station is relayed to the responding authorities. The Company continues to aggressively advertise the AlarmCare system in Canada and as at April 30, 2011, the Company had approximately 5,200 AlarmCare subscribers.

On April 14, 2011, the Company announced plans to expand its US operations by establishing regional representation to install and service alarm systems in the city of Tampa-St.Petersburg, Sarasota and Orlando, as part of its first phase of entering the state of Florida. As previously done in North Carolina, Ohio, Georgia and Minnesota, the Company plans to aggressively advertise its suite of products to the mass market via television, radio and other media. While initial marketing costs will be a drag on cash flows in order to build brand recognition, marketing expenses and capital equipment requirements will be completely financed from working capital.

The Company expects to continue growing organically across Canada and the US by marketing and distributing its unique technology and creating awareness through advertising programs. The Company does not expect to acquire any monitoring accounts or blocks of accounts from dealers, but to increase its subscriber account base solely through internal account creation. Under its existing programs, the Company believes it is able to create a new account at a lower cost than its competitors’ cost to acquire accounts.

4. 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. 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. The Company, however, utilizes these measures in making operating decisions and assessing its performance. Management believes 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 agreement. 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, and due to its discretionary nature, the Company provides the following reconciliation of adjusted EBITDA to GAAP net income figures reported for the six months ended April 30, 2011 and the comparative six months of 2010:

	April, 2011 $	April, 2010 $
Net income	2,538,782	2,243,907
Add: income taxes	1,020,794	1,044,428
Income before income taxes	3,559,576	3,288,335
Amortization of property, plant and equipment	1,885,559	1,677,220
Amortization of intangible assets	190,434	424,891
Interest expense	–	11,852
EBITDA	5,635,569	5,402,298
Add: marketing expenditures	4,697,416	4,092,744
Adjusted EBITDA	10,332,985	9,495,042

5. REVIEW OF OPERATIONS: SIX MONTHS ENDED APRIL 30, 2011

Revenues

In the first six months of fiscal 2011, total gross revenues grew by 10% to $20,033,170 compared to $18,171,438 in the corresponding period of 2010. This is comprised of revenues from the Canadian operations of $16,793,753 and revenues from the US operation of $3,239,417. The Canadian operations, in the second quarter of 2011, experienced growth of $8,480,753 which reflects an increase of 8% compared to the corresponding quarter of 2010 and revenue in the US operations grew by $1,618,466 reflecting an increase of 22%. Revenue generated from monitoring services pursuant to the terms of subscriber agreements accounted for 91% of total revenue as at April 30, 2011. Revenue growth is derived from recurring monthly monitoring revenue generated from the growing subscriber account base. The Company expects revenue to continue growing at a steady rate in Canada and more rapidly in the US, as it continues to grow its base of subscriber accounts.

Cost of sales

Cost of sales consists of costs to purchase or manufacture security products, costs related to the servicing of existing subscribers and costs related to the central station operation including salaries and telecommunication costs. In the first six months of fiscal 2011, cost of sales grew by $642,338 or 16% to $4,760,755 compared to $4,118,417 in the corresponding period of 2010. Other than general wage augmentations, the increase is primarily due to additional staffing requirements for field support personnel to support the expansion into the new market of Minnesota and maintaining appropriate staffing levels in the call centers due to expansion in the subscriber base of accounts. Costs related to the manufacturing and purchase of security products increased by 30% or $213,000, costs related to servicing existing customers increased by 10% or $269,000 and costs related to central station, most of which is labour, increased by 24% or $159,000. The Company continuously evaluates staffing requirements of field support services and monitoring station personnel.

The Company is vertically integrated as it manufactures, installs, monitors and services its proprietary systems. The suites of products facilitate live two-way voice communication with the central station thereby offering immediate response and/or assistance in the event of an emergency.

Gross profit

In the first six months of fiscal 2011, gross profit totaled $15,272,415 reflecting an increase of $1,219,394 or 9% when compared to $14,053,021 in the corresponding six months of 2010. The second quarter of 2011 experienced growth in gross profit of $452,615 or 6% to $7,542,462 from $7,089,847 in the corresponding quarter of 2010.

Gross profit margin as a percentage of revenue in the second quarter of fiscal 2011 decreased to 75% from 77% in the corresponding quarter of fiscal 2010. Gross profit margin for the first half of 2011 also decreased to 76% from 77% in the comparative period of 2010. The Company expects gross profit margins to decrease marginally by fiscal year end with the planned expansion into the state of Florida and the launch of the video product.

Selling, General and Administrative Expenses (“SG&A”)

In the first six months of fiscal 2011, selling expenses totaled $5,764,842 reflecting an increase of $591,320 or 11% when compared to $5,173,522 in the corresponding period of fiscal 2010. In the second quarter of 2011 selling expenses grew by $3,014,451 when compared to $2,578,715 in the comparative quarter of 2010, reflecting a 17% increase. Of total selling expenses, 81% are derived from advertising costs in the form of television, radio, print and other media. Advertising expenses, in the first six months of fiscal 2011 were $4,697,416 an increase of $604,672 or 15% compared to $4,092,744 in the corresponding period of 2010. This increase primarily reflects additional advertising costs incurred to establish brand recognition in the new market of Minnesota, which commenced in April 2010. Selling expenses not related to advertising, consisting of marketing salaries and other costs, remained stable with a marginal decrease of $13,352 in the first six months of 2011. This is the direct result of management maintaining tight controls over other selling expenses.

The Company intends to continue building brand recognition in the US and reinforce branding in Canada. These advertising expenditures in the form of radio, television, print and other media introduce the unique benefits of the Company’s products and services. In fiscal 2011, management does not expect to increase marketing expenditures in the established markets in Canada and the US. However, as the Company enters new markets or launches new products, resources will be allocated to an aggressive advertising campaign in order to establish brand recognition. In fiscal 2011, management expects total marketing expenditures to increase with the expected launch of the security video product.

General and administrative expenses consist of administrative salaries, telecommunication costs, new product development costs, consulting fees and other administrative related expenses. In the first six months of fiscal 2011, general and administrative expenses totaled $3,918,746 resulting in an increase of $462,935 or 13% when compared to $3,455,811 in the corresponding period of fiscal 2010. The second quarter general and administrative expenses totaled $2,297,596 an increase of $377,116 or 20% from $1,920,480 in the corresponding quarter of 2010. Other than general wage increases and fulfilling staffing requirements, the Company incurred expenditures related to the development of the video security product (as discussed in “Company Overview”) with costs totaling $323,535 for the six months ended April 30, 2011.

Other expenses

Amortization of property, plant and equipment in the first six months of fiscal 2011 was $1,885,559 reflecting an increase of $208,339 or 12% when compared to $1,677,220 in the corresponding period of fiscal 2010. In the second quarter, amortization of property, plant and equipment remained stable at $921,156 reflecting a marginal increase of $18,583 or 2% from $902,573 in the corresponding quarter of 2010. Fluctuations in amortization of property, plant and equipment reflect additions made to the rental equipment from the net new subscribers added in the first six months of fiscal 2011. Rental equipment refers to equipment installed at a subscriber’s location that remains the property of the Company. The equipment is capitalized under rental equipment and is expected to have a useful life which is longer than the term of the customer agreement.

The Company has not obtained any new loans to date in fiscal 2011. The Company uses an organic growth model to build the account base as opposed to growth by acquisition. This has proved effective in reducing the Company’s debt to equity ratio.

Foreign exchange loss

The Company is exposed to currency risk due to its US operations. Also, a certain portion of the Company’s purchases are in US currency, resulting in US dollar-denominated accounts payable. These activities result in exposure to fluctuations in foreign currency rates as the Company adjusts its foreign exchange translation rate periodically. In the first half of fiscal 2011, the Company experienced a foreign exchange gain of $46,742. The Company has not deemed it necessary to utilize any financial instruments or cash management policies to mitigate risk.

Income taxes

Future income tax assets result from timing differences, which stem from the accounting deferral and amortization of sales revenue that are immediately recognized in taxable income at the time the sale is completed. These differences are expected to reverse in the future.

The Company conducts research and development activities, which may be eligible for Investment Tax Credits and accounts for them when there is reasonable assurance that they will be received.

Operating results by business segment

The Company operates primarily in one industry segment, which is monitoring, and related services. The Company has operations in North America, specifically in Canada and selected centers in the United States. The following table outlines revenue and capital assets based on the geographic areas of the Company for the periods specified:

	Canada		United States		Total
Revenues	$	$	$	$	$	$
	April 30, 2011	April 30, 2010	April 30, 2011	April 30, 2010	April 30, 2011	April 30, 2010
	16,793,753	15,572,598	3,239,416	2,598,840	20,033,170	18,171,438
Property, plant and equipment Intangible assets	April 30, 2011	October 31, 2010	April 30, 2011	October 31, 2010	April 30, 2011	October 31, 2010
	15,983,295	16,290,924	3,773,276	3,472,886	19,756,571	19,763,810
	1,415,629	1,606,062	-	-	1,415,628	1,606,062

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 April 30, 2011, prepared in accordance with Canadian GAAP and expressed in Canadian currency:

	April 2011	January 2011	October 2010
Canadian subscribers US subscribers	1,900 1,000	2,400 800	1,900 1,000
Total net growth in subscribers	2,900	3,200	2,900
OPERATIONS:
	$	$	$
Total revenue	10,099,220	9,933,950	9,553,949
Income before taxes	1,244,276	2,315,300	1,832,177
Net income	948,921	1,589,861	1,176,619
Basic earnings per share	0.08	0.13	0.10
Fully diluted earnings per share	0.08	0.13	0.10
FINANCIAL POSITION:
Total assets	37,983,371	37,054,779	36,587,551
Shareholders’ equity	31,149,266	30,194,045	28,597,884

Trends

Although the Company’s financial and operating results are generally not subject to significant seasonal fluctuations, subscriber activity may fluctuate from one quarter to another. Operating profits and subscriber additions may be influenced by the timing of our marketing and promotional expenditures. Subscriber additions and attrition are somewhat attributable to seasonal relocations during the summer months, re-opening of the school year during the fourth quarter, as well as our concentrated marketing efforts generally conducted during the fourth quarter. While subscriber activity is generally subject to these fluctuations, it may also be affected by new and existing competition and varying levels of promotional activity in potential new markets in the US and the success of those markets. The Company’s operations are not dependent upon any single customer or a few customers.

Other fluctuations in net income from quarter-to-quarter can also be attributed to foreign exchange gains and losses, the timing of equipment purchases and changes in income tax expenses.

In addition to these trends, revenue and operating profit can fluctuate due to general economic conditions. The Canadian and US economy experienced an economic slowdown over the past two years and both markets are continuing to feel the effects of this downturn in 2011.

July 2010	April 2010	January 2010	October 2009	July 2009
1,500 1,200	1,400 1,200	1,700 1,200	2,500 1,200	1,500 1,200
2,700	2,600	2,900	3,700	2,700
$	$	$	$	$
9,461,921	9,154,703	9,016,735	8,856,092	8,527,693
1,931,399	1,479,792l	1,808,543	1,064,316	2,084,021
1,361,577	1,046,373	1,197,534	680,361	1,420,706
0.11	0.09	0.10	0.05	0.12
0.11	0.09	0.10	0.05	0.12
34,819,731	33,147,089	31,815,897	33,072,558	31,833,242
27,414,965	26,027,538	24,949,015	23,743,081	23,029,120

The Company has been able to maintain and grow its strong cash position. Other than the short-term investments of $4,052,180, the Company’s cash position further increased by $1,634,072 to $7,144,468 reflecting a 30% increase from October 31, 2010.

7. LIQUIDITY AND CAPITAL RESOURCES

As at April 30, 2011, the Company had cash and cash equivalents of $7,144,468 along with short-term investments amounting to $4,052,180 and unused credit facilities of $5,800,000 available for future operating and capital requirements. With the consistent subcriber growth, strong liquid position and zero debt on the balance sheet, the Company has built a sturdy foundation with the ability to fund advanced technology development and growth in the subscriber base internally. Our cash resources and internal operating cash flows are sufficient to fund the foreseeable future capital and operating requirements. As at April 30, 2011, the Company’s assets totaled $37,983,371 of which the majority represented revenue generating capital assets including tangible and intangible assets.

The cash flows from operations and cash flows used in financing and investing activities for the first six months of fiscal 2011 and the comparative 2010 period are summarized below:

	Three months ended		Six months ended
	April 30, 2011 $	April 30, 2010 $	April 30, 2011 $	April 30, 2010 $
Operating activities:
Cash flow from operations	1,814,094	2,046,384	4,327,375	4,182,818
Changes in non-cash operating items	4,879	(218,063)	(814,983)	(1,062,833)
	1,818,973l	1,828,321	3,512,392	3,119,985
Investing activities	(782,589)	(902,845)	(1,878,320)	(2,041,459)
Financing activities	–	23,750	–	(1,155,418)
Net change in cash and cash equivalents	1,036,384	949,226	1,634,072	(76,892)
Cash and cash equivalents, beginning of period	6,108,084	7,289,674	5,510,396	8,315,792
Cash and cash equivalents, end of period	7,144,468	8,238,900	7,144,468	8,238,900

In the second quarter of fiscal 2011, cash flow from operations increased by $1,818,973 to $3,512,392 a decrease of 1% or $9,348 when compared to $1,828,321 from the corresponding quarter of 2010. This decrease is primarily attributable to changes in future tax assets and current income taxes. The overall increase is due to recurring monthly monitoring revenue generated from the net growth in the subscriber account base, the stability in the marketing expenditures, and efficiencies achieved in attaining optimal staffing levels. The Company expects to continue to generate sufficient cash flows to sustain its planned growth in the short and long-term.

There were no financing activities for the first quarter or the first six months of 2011, thus having no impact on the cash flows. The cash outflow through investing activities reflects additions to property, plant and equipment. Management believes cash generated from operations will be sufficient to fund the Company’s working capital requirements.

As at April 30, 2011, the Company’s assets totaled $37,983,371 the majority of which consisted of revenue generating capital assets, cash and cash equivalents and inventory.

The Company expects to continue investing significantly in growing the subscriber base, through the installation of new alarm security systems and AlarmCare systems. Security systems are installed under three-year agreements, which are subsequently renewable annually. The AlarmCare subscribers do not sign a fixed term agreement. The Company manufactures the equipment for both the security systems and the PERS systems that it installs. 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.

The existing cash reserves, cash from operations and credit facilities are believed to be adequate to finance new product development, growth in new and existing markets as well as operating requirements in the foreseeable future.

8. OUTSTANDING SHARE CAPITAL

Financing activities

The Company is authorized to issue an unlimited number of common shares. The changes in the issued common shares of the Company during the first six months of 2011 were as follows:

	Number of Shares	Value $
Balance, October 31, 2009	12,226,658	12,769,584
For cash pursuant to option plan	10,000	47,500
Balance, October 31, 2010	12,236,658	12,817,084
Issued during the period ended April 30, 2011: For cash pursuant to stock option plan	–	–
Balance, April 30, 2011 and June 13, 2011	12,236,658	12,817,084

The Company is committed to issuing 95,000 common shares under options that were outstanding at the end of the first six months of 2011. Exercise price under the options and the remaining life of options as at April 30, 2011 are summarized below:

Expiry Date	Number of shares	Remaining contractual life (Years)	Exercise Price
April 28, 2016	25,000	5	$10.25
August 8, 2014	70,000	3.25	$4.75

9. COMMITMENTS AND CONTRACTUAL OBLIGATIONS

There has not been any material change in commitments or contractual obligations from those presented in the most recent annual financial statements.

10. OFF-BALANCE SHEET FINANCING

The Company did not have any off-balance sheet arrangements or obligations other than the operating leases disclosed in the fiscal 2010 management, discussion and analysis.

11. RELATED PARTY TRANSACTIONS

The Company did not have any related party transactions as defined in the Canadian Institute of Chartered Accountants (“CICA”) handbook.

12. CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based on management’s historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments that are not readily apparent from other sources.

Management believes that the accounting policies that require estimation of the useful lives of long-lived assets, the recoverable values of the assets and measurement of impairment of the assets, are most affected by judgments and estimates used in the preparation of the financial statements. For a detailed description of these and other accounting policies, please refer to the Company’s 2010 annual financial statements.

Costs incurred to create long-term subscriber accounts are capitalized and amortized over the estimated useful lives of the respective assets, which principally include revenue equipment and intangible assets consisting of franchise rights. The carrying value of the assets depends on the estimate made of useful life, which is the period over which the assets are written off. Revenue equipment, which the Company continues to own during and after the term of the subscriber agreement, is written off over the estimated ten-year useful life of the security systems. The use of wireless technology makes the relocation of systems much more cost-effective than traditional wired systems, allowing the Company to relocate or redeploy the equipment if necessary. Franchise rights are written off over the remaining terms of the respective franchise agreements.

The Company follows the recommendations of CICA Handbook Section 3063, “Impairment of Long-Lived Assets”. The Company reviews for impairment the value of long-lived assets including revenue equipment and intangible assets on a regular basis, at least annually. The value is reviewed more frequently if events or changes in circumstances indicate that the carrying value exceeds fair value, as determined by the undiscounted future cash flows expected from the related subscriber accounts after normal attrition. If the sum of the undiscounted future cash flow expected from the subscriber agreements and eventual disposition of assets is less than the carrying amount, the group of assets is considered to be impaired, and an impairment loss is recorded, measured as the amount by which the carrying amount of the group of assets exceeds its estimated fair market value.

The estimate of the Company’s allowance for doubtful accounts could materially change from period to period, since this allowance is a function of the variations in the Company’s accounts receivable, which occur on a month-to-month basis. The variations in the accounts receivable balance can arise from variances in accounts receivable collection performance.

Current income tax assets and liabilities are estimated based on the amount of tax that is calculated as being owed to the tax authorities, net of periodic installment payments. Future income tax assets and liabilities are comprised of the tax effects of temporary differences between the carrying amount and tax basis of assets and liabilities. The timing of these temporary differences is estimated. The carrying amounts of the assets and liabilities are based upon the amounts recorded in the financial statements and are therefore subject to accounting estimates that are inherent in those balances. The composition of income tax assets and liabilities may change from period to period because of changes in the estimates of these significant uncertainties.

13. DISCLOSURE CONTROLS AND PROCEDURES

As defined in Multilateral Instrument 52-109, disclosure controls and procedures mean controls and other procedures designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), on a timely basis and in accordance with securities legislation.

As of the six months ended April 30, 2011, the CEO and the CFO reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as it applies to the preparation of the MD&A, the consolidated financial statements and financial reporting. Based upon that review and evaluation, they have concluded that those disclosure controls and procedures are effective at a reasonable assurance level and meet the requirements thereof.

14. ACCOUNTING POLICY DEVELOPMENTS

There have been no significant change in AlarmForce’s accounting policies, estimates and future accounting pronouncements since October 31, 2010, except as described below. Details of the Company’s policies and estimates can be found in the 2010 Annual Report.

(i) International Financial Reporting Standards (IFRS)

Canadian Generally Accepted Accounting Principles (“Canadian GAAP)”) for publicly accountable enterprises has been replaced by International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011. Companies are required to provide IFRS comparative information for the previous fiscal year. Accordingly, the conversion from Canadian GAAP to IFRS will be applicable to the Company for the first quarter of fiscal 2012 (quarter ended January 31, 2012) and current and comparative period information will be prepared under IFRS. The Company is required to apply all of those IFRS standards which are effective for fiscal year ending October 31, 2012 and apply them to its opening November 1, 2010 balance sheet.

The Company’s IFRS implementation project consists of three primary phases which are being completed by a combination of in-house resources and external consultants:

Phase I

Initial diagnostic phase- Involves preparing a preliminary impact assessment to identify key areas that may be impacted by the transition to IFRS. Each potential impact identified during this phase is ranked as having a high, moderate or low impact on the Company’s reporting and the overall difficulty of the conversion effort. The preliminary impact assessment has been completed.

Phase II

Impact analysis, evaluation and solution development phase- Involves the selection of IFRS accounting policies by senior management and the review by the Audit Committee, the quantification of the impact of changes on the Company’s existing accounting policies on the opening IFRS balance sheet, and the development of draft IFRS financial statements. During the third quarter of fiscal 2011, Management will review the transitional policy choices available under IFRS 1, First-time Adoption of International Financial Reporting Standards, and the impact of IFRS adoption will be quantified in order to prepare a preliminary IFRS opening balance sheet as at November 1, 2010. This will involve preparing a preliminary transitional balance sheet and finalizing IFRS accounting policy choice conclusions. The Company expects this to be complete by the fourth quarter of fiscal 2011.

Phase III

Implementation and review phase- Involves training key finance and other personnel and implementation of the required changes to information systems and business policies and procedures. It will enable the Company to collect the financial information necessary to prepare IFRS financial statements and obtain audit committee approval of IFRS financial statements. This phase is ongoing and the Company expects this to be complete in the fourth quarter of fiscal 2011.

IFRS Transition Plan

The Company has established a comprehensive IFRS transition Plan and engaged third party consultants to assist with the planning and implementation of its transition to IFRS. The following summarizes the Company’s progress and expectations with respect to its IFRS plan:

Initial analysis of key areas for which changes to accounting policies may be required.	Preliminary evaluation completed
Detailed analysis of all relevant IFRS requirements and identification of areas requiring accounting policy changes or those with accounting policy alternatives.	Expected to be completed during 3rd quarter of 2011
Assessment of first-time adoption (IFRS 1) requirements and alternatives.	Expected to be completed during 3rd quarter of 2011
Final determination of changes to accounting policies and choices to be made with respect to first-time adoption alternatives	Expected to be completed during 4th quarter of 2011
Resolution of the accounting policy change implications on information technology, internal controls and contractual arrangements, such as sales agreements with customers, employment agreements etc.	Throughout the transition and implementation process
Management and employee education and training	Throughout the transition and implementation process
Evaluation of the Financial Statement impact of changes in accounting policies	Expected to be completed during 4th quarter of 2011

As part of its analysis of potential changes to significant accounting policies, the Company is assessing what changes may be required to its accounting systems and business processes. The Company believes that the changes identified to date are minimal and the systems and processes can accommodate the necessary changes. To date, the Company has not identified any contractual arrangements that may be affected by potential changes to significant accounting policies. The Company’s staff and consultants involved in the preparation of the financial statements are being trained on the relevant aspects of IFRS and the anticipated changes to accounting policies. Employees of the Company who will be affected by a change to business processes as a result of the conversion to IFRS will also be trained as necessary.

Financial Reporting Expertise and Communication to Stakeholders

The Company has completed the preliminary diagnostic phase and will continue to update its disclosures throughout 2011 to reflect specific actions taken to facilitate adoption of IFRS. The Company will also continue to review and update its preliminary conclusions from the diagnostic phase during 2011 as new facts emerge. The differences that have been identified in the diagnostic phase are summarized below.

A) Impact on Financial Statement Presentation, Classification, and Disclosure

(i) Financial Statement Presentation

The Company’s financial statements will have a different format upon transition to IFRS. The components of a complete set of IFRS financial statements are: statement of financial position (balance sheet), statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes including accounting policies. The income statement will be presented as a component of the statement of comprehensive income. The statement of financial position may be presented in ascending or descending order of liquidity. The income statement is classified by each major functional area – marketing, sales, research & development, administration, etc. In addition, IFRS requires more detailed note disclosures than those required by Canadian GAAP.

Impact on the Company: The Company will reformat its financial statements in compliance with IAS 1 and elect to retain its existing presentation, (i.e. descending order of liquidity).

(ii) Deferred taxes

IFRS: IAS 12 requires presentation of all deferred tax balances as non-current. Canadian GAAP: Current balances are presented separately.

Impact on the Company: The Company does not expect any significant classification change upon the adoption of IAS 12.

(iii) Provisions

IFRS: a provision is a liability of uncertain timing or amount. Provisions are disclosed separately from liabilities and accrued liabilities and require additional disclosure. Provisions are also classified as current or non-current as appropriate (IAS 37 - Provisions and other liabilities). Canadian GAAP: Accounts payable, accrued liabilities and provisions may be and are disclosed by the Company on the statement of financial position as a single line item.

Impact on the Company: Provisions will be separately disclosed as required and additional disclosures, if any, will be provided pursuant to IAS 37.

B) IFRS-1 Transitional Policy Choices and Exceptions for Retrospective Application

IFRS-1 contains the following policy choices with respect to first-time adoption that are applicable to the Company:

(i) Equipment:

IFRS 1 provides a choice between measuring equipment at its fair value at the date of transition and using those amounts as deemed cost or using the historical cost basis under Canadian GAAP.

Impact on the Company: The Company will elect to use the historical cost carrying values for equipment as determined under Canadian GAAP for transitional purposes.

(ii) Designation of previously recognized financial instruments:

IFRS: IAS 39 restricts the circumstances in which the option to measure a financial instrument at fair value through profit or loss is available. Canadian GAAP: Contains no similar restriction.

Impact on the Company: The Company does not expect a material impact upon transition as the Company believes that its classification of financial instruments under Canadian GAAP has been largely consistent with the principles set out in IAS 39.

(iii) Share-based payment transactions:

IFRS: Companies are encouraged, but not required, to apply IFRS 2 to equity instruments that were granted on or before November 7, 2002. Companies are also encouraged, but not required, to apply IFRS 2 to equity instruments that were granted after November 7, 2002 and vested before the date of transition to IFRS. Canadian GAAP: No similar requirement.

Impact on the Company: The Company will apply IFRS 2 to all unvested share-based payment awards at the date of transition to IFRS.

C) Mandatorily Applicable Standards with Retrospective Application (i.e., Not Specifically Exempt Under IFRS - 1)

(i) Property, plant and equipment - cost

IFRS: IAS 16 contains more extensive guidance with respect to components within equipment. When an item of equipment comprises individual components for which different depreciation methods or rates are appropriate, each component is accounted for separately (component accounting). Canadian GAAP: Section 3061 essentially contains similar guidance but is less extensive.

Impact on the Company: The Company is currently reviewing the impact of IAS 16 on its financial reporting under IFRS.

(ii) Property, plant and equipment - Impairment

IFRS: Under IAS 36 an asset is impaired if the recoverable amount is lower than the asset’s carrying amount. The recoverable amount is defined as the higher of the asset’s fair value less cost to sell and its value-in-use. The value-in-use calculation involves discounting the expected future cash flows to be generated by the asset to their net present value. Canadian companies should (i) determine the existence of any impairment loss, and (ii) measure and recognize such impairment, if any at November 1, 2010. Canadian GAAP: A two-step approach is used to measure impairment. In step 1, a recoverability test is performed by comparing the expected undiscounted future cash flows to be derived from the asset with its carrying amount. If the asset fails the recoverability test, step 2 is triggered, and the entity must record an impairment loss calculated as the excess of the asset’s carrying amount over its fair value.

Impact on the Company: The Company has not noted any indicators of impairment at October 31, 2010 or during the year then ended. Accordingly, the Company does not expect a material transitional impact.

(iii) Intangible assets (franchise rights) – Impairment

The Company has significant balances relating to Intellectual property and other Intangible assets.

IFRS: Under IAS 36 an asset is impaired if the recoverable amount is lower than the asset’s carrying amount. Assets are evaluated either individually or grouped in a cash generating unit (CGU) for impairment-testing purposes. A CGU is the smallest group of assets that generates independent cash inflows and may be smaller than an asset group or a reporting unit under Canadian GAAP. Assets are tested, and any resulting impairment charges are measured using a one-step test that compares an asset or CGU’s carrying value to its recoverable amount. The recoverable amount is the higher of the fair value less cost to sell (a market based model) and the value in use (an entity-specific discounted cash flow model). Since discounting is factored in when assessing impairment and impairment often is evaluated in smaller ‘asset groups’, entities are more likely to have impairments under IFRS.

Canadian GAAP: A two-step approach is used to measure impairment. In step 1, a recoverability test is performed by comparing the expected undiscounted future cash flows to be derived from the asset with its carrying amount. If the asset fails the recoverability test, step 2 is triggered, and the entity must record an impairment loss calculated as the excess of the asset’s carrying amount over its fair value.

Impact on the Company: The Company will recalculate the recoverable amounts of its franchise rights using the IFRS 36 methodology to determine whether an impairment must be recognized at November 1, 2010 or at October 31, 2011 and the interim periods and for the year then ended.

(iv) Share based payments

The Company accounts for all stock-based payments granted to employees and non-employees using the fair value based method as per the amendment by the CICA Accounting Standards Boards to the CICA Handbook Section 3870, “Stock-Based Compensation and Other Stock-Based Payments” which requires entities to account for employee stock options using the fair value based method.

IFRS: Under IFRS 2, graded vesting awards must be accounted for as though each instalment is a separate award. IFRS does not provide for an election to treat the instruments as a pool and recognize expense on a straight line basis. Canadian GAAP: Expense recognized on a straight line basis over vesting period.

Impact on the Company: The Company does not expect this to be a material transitional impact as it has previously amortized stock compensation expense in a manner similar to the methodology specified in IFRS 2.

(v) Revenue recognition

The Company earns the majority of its revenue from subscribers for monitoring services and equipment. Revenue from monitoring services is recognized over the term of the subscriber agreement as the services are provided. The subscriber agreements are non-cancellable over a three or four year term with automatic annual renewals thereafter.

Impact on the Company: The Company believes that its existing revenue recognition policies will be appropriate under IFRS but will re-evaluate the application of the specific recognition criteria to determine whether they give rise to differences for the purpose of tran sition to IFRS.

(vi) Functional currency

The Company uses the Canadian dollar as its functional currency. IAS 21 contains a more comprehensive framework for the determination of functional currency.

Impact on the Company: The Company does not expect a material impact on transition to IFRS as the Company has concluded that its functional currency under both IFRS and Canadian GAAP is the Canadian dollar.

Impact on Systems and Processes

The Company does not expect that adoption of IFRS will have a pervasive impact on its present systems and processes. The Company expects to implement certain minor changes to the general ledger account descriptions as well as the calculation methodologies currently in use for certain specific financial statement areas such as asset impairment and share based compensation. As the accounting policies are selected, appropriate changes to ensure the integrity of internal control over financial reporting and disclosure controls and procedures will be made. For example, any changes in accounting policies could result in additional controls or procedures being required to address reporting of first time adoption as well as ongoing IFRS reporting requirements.

(ii) Business Combinations

Section 1582, “Business Combinations”, will be applicable to business combinations for which the acquisition date is on or after the Company’s fiscal years beginning January 1, 2011. Early adoption is permitted. This Section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements.

(iii) Consolidated Financial Statements

Section 1601, “Consolidated financial statements” will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. This Section establishes standards for the preparation of consolidated financial statements. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements.

(iv) Non-Controlling Interests

Section 1602, “Non-controlling interests” will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. This Section establishes standards for accounting for non-controlling interests in a subsidiary in consolidated financial statements subsequent to a business combination. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements.

(v) Multiple deliverable revenue arrangements

In December 2009, the Canadian Institute of Chartered Accountants issued EIC-175, Multiple Deliverable Revenue Arrangements, which replaces EIC-142, Revenue Arrangements with Multiple Deliverables. This abstract addresses some aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This new standard will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements

15. CAPITAL STRUCTURE

The capital structure of the Company consists principally of shareholders’ equity comprised of retained earnings and share capital. The Company’s strategy is to minimize the use of debt financing to fund growth and manage its capital structure in light of economic conditions and the risk characteristics of the underlying assets. The Company’s primary uses of capital are to finance non-cash working capital requirements and capital expenditures, which are currently funded from its internally generated cash flows. The Company is not subject to any externally imposed capital requirements.

The Company’s objectives when managing capital are:

(i) to ensure sufficient liquidity to pursue its strategy of organic growth;

(ii) to maintain compliance with debt covenants; and

(iii) to deploy a strong and efficient capital base to provide an appropriate return on investment to shareholders and maintain investor, creditor and market confidence.

	April 30, 2011 $	October 31, 2010 $
Cash and cash equivalents and short-term
investments	11,196,648	9,562,576
Total debt	–	–
Share capital	12,817,084	12,817,084
Contributed surplus	166,501	153,901
Retained earnings	18,165,681	15,626,899
Total equity	31,149,266	28,597,884
Debt/Equity ratio	–	–

The Company manages the capital structure and makes adjustments in light of economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust the capital structure, the Company may purchase shares for cancellation, issue new shares, issue new debt or issue new debt to replace existing debt with different characteristics.

The Company’s banking facilities are subject to covenants which include maintaining financial ratios such as debt to net worth ratio and debt servicing coverage ratio. As at April 30, 2011, the Company was in compliance with these covenants and based on the current business plans and economic conditions, the Company is not aware of any condition or event that would give rise to non-compliance with the covenants.

16. RISKS AND UNCERTAINTIES

In light of the current global economic climate, we expect to see continuous weakness in consumer spending and tightening of the credit markets that will lead to an overall deterioration of economic conditions potentially slowing the rate of growth in the subscriber account base. We, however, remain optimistic that the Company will be able to continue the momentum in new customer installations through continued investment in creative advertising campaigns directed at prospective subscribers in Canada and selected centers in the US.

In addition to general economic factors, the Company’s business is subject to a number of risk factors including consumer behaviors, technological changes, and competition as further described below. The Company has certain business risks linked to collection of receivables and subscriber attrition risk, which management believes is manageable.

Attrition of accounts

Customer attrition results from a variety of different factors, including relocation of subscribers, financial difficulties experienced by the customer, competition and other socio-economic factors. Any significant increase in the Company’s attrition rates could have a materially adverse effect on the Company’s business, financial condition, liquidity and operating results.

Technological

As technology evolves in the security and telecommunication industries, the Company will attempt to keep abreast of changes in technology, yet there are no assurances that the Company’s products or services, will continue to be competitive as a result of such technological advancements. There are also no guarantees that the utility companies or other companies will not enter the security alarm business with improvements in technology.

Some of our monitoring services depend on wireless technology of security alarm systems and should the need arise we may be required to implement new technology, which could require significant expenditures. The Company makes every attempt to fully embrace and implement the new wireless technology. However, we may not be able to successfully implement these new technologies or adapt to changing market demands within the specified time frames. If we are unable to adapt to changing technologies, market conditions or customer requirements in a timely manner, such inability could adversely affect our business.

Supply chain

The Company relies on major components to be manufactured on an OEM (Original Equipment Manufacturer) basis. Reliance upon OEMs, as well as industry supply conditions generally involves several risks, including the possibility of defective products (which can adversely affect the Company’s reputation for reliability), a shortage of components and delays in delivery schedules (which can adversely affect the Company’s distribution schedules), and increases in component costs (which can adversely affect the Company’s profitability). The Company has some single-sourced manufacturer relationships, either because alternative sources are not readily or economically available or because the relationship is advantageous due to performance, quality, support, delivery, capacity, or price considerations. If these sources are unable or unwilling to manufacture our products in a timely and reliable manner, the Company could experience temporary distribution interruptions, delays, or inefficiencies, adversely affecting our results of operations. Even where alternative OEMs are available, qualification of the alternative manufacturers and establishment of reliable suppliers could result in delays affecting operating results adversely. If these sources are unable or unwilling to manufacture our products in a timely and reliable manner, the Company could experience temporary distribution interruptions, delays, or inefficiencies, adversely affecting our results of operations. Even where alternative OEMs are available, qualification of the alternative manufacturers and establishment of reliable suppliers could result in delays affecting operating results adversely.

Possible Adverse Effect of “False Alarm” Ordinances

According to American industry sources, approximately 98% of alarm activations that result in the dispatch of police or fire department personnel are not emergencies, and thus are “false alarms”. Significant concern has arisen in certain municipalities about the high incidence of “false alarms”. Although AlarmForce maintains a relatively low number of false alarms by providing live two-way voice communication with the residence and thereby minimizing the number of dispatches, this concern could cause a decrease in the likelihood or timeliness of police response to alarm activations and thereby decrease the propensity of consumers to purchase or maintain security monitoring services. A number of municipalities have implemented or are considering adopting various measures aimed at reducing the number of false alarms. Such measures include (i) subjecting monitoring companies to fines for transmitting false alarms, (ii) licensing individual security systems and the revocation of such licences following a specified number of false alarms, (iii) imposing fines on security subscribers for false alarms, (iv) imposing limitations on the number of times police will respond to alarms at a particular location after a specified number of false alarms, and (v) requiring further verification of an emergency signal before the police will respond. As a result, the Company has determined that the most appropriate and cost effective method to combat these police service policies is to retain a private dispatch security response team to respond to the alarm signals.

Dependence on Key Personnel

The Company is highly dependent on the experience and personal efforts of management to promote and sell the Company’s products and services, and to manage its operations and growth. The future success of the Company is dependent on the management of the Company. The departure of any of the operations or management personnel or their inability to continue being functional could have a material adverse effect on the Company’s business, financial condition, liquidity and operating results.

Risks of Litigation

The nature of the alarm services provided by AlarmForce potentially expose it to greater risks of liability for employee acts or omissions or system failures. The Company’s subscriber agreements pursuant to which it distributes its products and services contain provisions limiting liability to subscribers in an attempt to reduce this risk. However, in the event of litigation with respect to such matters, there can be no assurance that these limitations will be enforced, and the costs of such litigation could have a material adverse effect on the Company.

Ability to Maintain Profitability and Manage Growth

There can be no assurances that the Company’s business and growth strategy will enable the Company to remain profitable in the future. The Company’s future operating results will depend on a number of factors, including (i) the efficiency and effectiveness of the Company’s marketing and advertising programs, (ii) the Company’s ability to continuously improve its service to achieve new and enhanced customer benefits, better quality service and reduced costs, (iii) the Company’s ability to successfully identify and respond to emerging trends in the security industry, (iv) the level of competition in the security industry and (v) the ability to manage attrition level and subscriber replacement costs.

There can be no assurance that the Company will be able to effectively manage its growth, and any failure to do so could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations.

Competition

The Company competes with larger companies, as well as smaller regional and local companies, in all of its operations. Furthermore, new competitors are continuing to enter the security industry and the Company may encounter additional competition from such future industry new comers. Some of the Company’s current competitors have, and new competitors may have, greater financial resources than the Company. The effect of such competition may be to reduce the volume of potential subscribers available to the Company, which could adversely affect the Company’s results of operations.

Expansion

The success of the Company’s continued expansion will depend upon many factors, including the ability of the Company to maintain acceptable attrition rates and control of operating costs. There can be no assurance that the Company will be able to grow or achieve its continued expansion. Such risks, if they materialize, could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations.

Effectiveness and Efficiency of Advertising Expenditures

The Company’s future growth and profitability will be dependent in part on the effectiveness and efficiency of the Company’s advertising expenditures, including the ability of the Company to (i) create greater awareness of the Company’s products and services, (ii) determine the appropriate creative message and media mix for future advertising expenditures, and (iii) effectively manage advertising costs in order to maintain acceptable operating margins. There can be no assurance that the Company will experience benefits from advertising expenditures in the future. In addition, no assurance can be given that the Company’s planned advertising expenditures will result in increased sales, will generate sufficient levels of product and service awareness or that the Company will be able to manage such advertising expenditures on a cost-effective basis.

Possible Adverse effect of Future Government Regulations

The Company’s operations are subject to a variety of laws, regulations and licensing requirements of federal, provincial, municipal authorities and Underwriters Laboratories of Canada (“ULC”). The loss of such licenses, or the imposition of conditions to the granting or retention of such licenses, could have a material adverse effect on the Company. The Company believes that it is in material compliance with applicable laws and regulatory requirements.

17. OUTLOOK

The Company expects continued growth in revenues as it expands its subscriber monitored account base using its mass marketing model and brand recognition, focusing on giving the customer the best value possible through its infrastructure of manufacturing capabilities, customer-focused team culture and financial capital base. The Company is committed to differentiating its position in the industry and controlling all aspects of subscriber service delivery.

Management believes that the Company is well positioned to grow the subscriber account base in the foreseeable future, given that the fundamental drivers for the residential alarm industry are considered sound. This can be accomplished by fine-tuning the low-cost approach, false alarm minimization and market features, which are expected to be strong drivers and will continue to differentiate the Company’s technology and innovative approach.

Additional information on the Company can be found in other information filed with Canadian regulators on SEDAR at www.sedar.com.