INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the three months ended January 31, 2012 and January 31, 2011
(Expressed in CDN dollars)

ALARMFORCE INDUSTRIES INC.

Interim Condensed Consolidated Statements of Financial Position

Commitments and Contingencies (note 10)

Transition to International Financial Reporting Standards (note 15)

See accompanying notes to interim condensed consolidated financial statements

ALARMFORCE INDUSTRIES INC.

Interim Condensed Consolidated Statements of Income

See accompanying notes to unaudited consolidated financial statements.

ALARMFORCE INDUSTRIES INC.

Interim Condensed Consolidated Statements of Comprehensive Income

See accompanying notes to interim condensed consolidated financial statements

ALARMFORCE INDUSTRIES INC.

Interim Condensed Consolidated Statements of Changes in Equity

See accompanying notes to interim condensed consolidated financial statements

ALARMFORCE INDUSTRIES INC.

Interim Condensed Consolidated Statements of Cash Flows

See accompanying notes to interim condensed consolidated financial statements

1. REPORTING ENTITY

AlarmForce Industries Inc. (“AlarmForce”) is a public company domiciled in Canada and incorporated in Ontario on November 16, 1988. The Company’s principal business office is 675 Garyray Drive, Toronto, Ontario, Canada.

The Company’s core business is to provide security alarm and personal emergency response monitoring and related two-way voice security services to subscribers throughout Canada and selected centers across the United States of America (“US”). The Company’s shares are listed on the Toronto stock Exchange under the ticker symbol “AF”.

The interim condensed consolidated financial statements of the Company as at and for the three months ended January 31, 2012 and January 31, 2011 comprise the Company and its subsidiaries (together referred to as the “Company” and individually as “Company entities”).

2. BASIS OF PRESENTATION

Statement of Compliance

These condensed consolidated financial statements of the Company, approved by the Board of Directors on March 13, 2012, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and their interpretations adopted by the International Accounting Standards Board (“IASB”).

The Company previously prepared its financial statements in accordance with generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards, and require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company has commenced reporting on this basis in these condensed consolidated financial statements. In these financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the adoption of IFRS.

These condensed consolidated financial statements have been prepared in accordance with IFRS applicable to the preparation of financial statements, including IAS 34. Subject to certain transition elections disclosed in Note 15, these condensed consolidated financial statements have been prepared using the historical cost basis and the Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at November 1, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 15 discloses the impact of transition to IFRS on the Company’s reported financial positions, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended October 31, 2010.

The policies applied in these condensed consolidated financial statements are based on IFRS issued and outstanding as of January 31, 2012. Any subsequent changes to IFRS that are given effect in the Company’s annual consolidated financial statements for the year ending October 31, 2012 could result in restatement of these condensed consolidated financial statements, including the transition adjustments recognized on change-over to IFRS.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s Canadian GAAP annual financial statements for the year ended October 31, 2011.

ALARMFORCE INDUSTRIES INC

For the three months ended January 31, 2012 and 2011

Notes to condensed interim consolidated financial statements

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these interim condensed consolidated financial statements.

Principles of Consolidation

Subsidiaries are entities controlled by AlarmForce. The financial statements of subsidiaries are included in the condensed consolidated financial statements from the date that control commences until the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the condensed consolidated financial statements.

The accompanying condensed consolidated financial statements include the accounts of AlarmForce and its subsidiaries:

Use of Estimates

The preparation of these interim condensed consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates.

Estimates are based on a number of factors, including historical experience, current events and actions that the Company may undertake in the future, and other assumptions that are believed to be reasonable under the circumstances. By their nature, these estimates are subject to measurement uncertainty. Key areas of estimation, where management has made difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain, are the allowance for doubtful accounts, revenue, deferred income taxes, capitalization of labour and overhead, capital asset additions and disposals, inventory, useful lives of depreciable assets, legal and tax contingencies, share-based compensation plans, the fair value of assets acquired and liabilities assumed in business acquisitions, and the recoverability of equipment costs, indefinite life identifiable intangibles and goodwill using estimated future cash flows. Significant changes in assumptions could result in a material adjustment to the carrying amounts of assets and liabilities, and revenues and expenses.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency

Foreign Currency Translation:

The condensed consolidated financial statements are presented in Canadian dollars. Management has determined that the functional currency of the Company and its subsidiaries is the Canadian dollar.

i) Foreign Currency Transactions:

Transactions in foreign currencies are translated to the respective functional currencies of Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign currency differences arising on translation are recognized in profit or loss.

ii) Translation of Foreign Operations:

Monetary assets and liabilities of foreign operations are translated into the reporting currency at exchange rates at the reporting date. Non-monetary assets and liabilities of foreign operations are translated into the reporting currency at historical exchange rates. The income and expenses of foreign operations are translated into the reporting currency at exchange rates at the dates of the transactions. Foreign currency differences related to the translation of foreign operations are recognized in profit or loss.

Revenues

The Company’s revenue is derived from monthly recurring services and the installation of equipment.

i) Monthly recurring revenue

The Company earns the majority of its revenue from monthly recurring services provided to its subscribers. Revenue from recurring services is earned as the service is provided pursuant to the term of the subscriber agreement. The alarm and video subscriber agreements are non-cancellable over a three or four year term with automatic annual renewals thereafter. The Personal Emergency Response Service (PERS) subscribers have a no term agreement, which can be terminated at any time.

ii) Unearned revenue

Unearned revenue results from subscribers who are billed for monthly recurring services in advance of the period in which such services are provided, either on a bi-monthly, quarterly, semi-annual or annual basis. Revenues from monthly recurring services are recognized in the period such services are provided. The maximum period for which subscribers are billed in advance is one year.

iii) Deferred equipment revenue

Revenue from the installation of additional equipment and the associated costs are deferred and recognized on a straight-line basis over the term of the subscriber agreement.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Research and Development

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset.

Development costs that meet specific criteria related to technical, market and financial feasibility are capitalized and amortized over the useful life of commercial production, or in the case of serviceable property, plant, and equipment, are included in the appropriate asset group and amortized over its estimated life. Other development expenditure is recognized in profit or loss as incurred.

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss when incurred.

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments, which are all deposits rated R1, term deposits, savings investment deposits, guaranteed investment certificate deposits or bankers’ acceptances, with a term to maturity of less than three months when acquired and are carried at fair value.

Short-Term Investments

Short-term deposits, which are all deposits rated R1, term deposits, savings investment deposits, guaranteed investment certificate deposits or bankers’ acceptances, with a term to maturity of greater than three months but less than one year when acquired and are carried at fair value.

Inventory

Inventory consists of subscriber equipment and accessories, which are held for installation. Raw materials and work in progress goods are valued at the lower of cost on a first-in, first-out basis and net realizable value. When finished goods (subscriber equipment) are installed, they are transferred to rental equipment (property, plant and equipment) and amortized over their useful lives. Finished goods are valued at the lower of the weighted average unamortized cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses.

Advertising Costs

Advertising costs including advertising and promotions related to gaining new subscribers are expensed as incurred. These costs are included in the consolidated statements of income and comprehensive income as components of selling expenses.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts related to trade and other receivables that are considered to be uncollectible. The allowance is based on the Company’s knowledge of the financial condition of its customers, the aging of the receivables, the current business environment and historical experience. A change to these factors could impact the estimated allowance and the provision for bad debts.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant, and Equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When significant parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment. Rental equipment that is transferred to inventory is transferred at weighted average amortized cost.

Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of equipment, and are recognized net within other income in profit or loss. The cost of replacing a part of an item of equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of equipment are recognized immediately in profit or loss.

Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value. Depreciation is recognized in profit or loss over the estimated useful lives of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term

The Company rates for depreciation are as follows:

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Intangible Assets

Intangible assets consist of computer software which is recorded at cost and amortized on a 30% declining balance basis and franchise rights, which are acquired either individually or with a group of other assets and are initially recognized or measured at the cost at which the Company acquired the rights. The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their relative fair values.

Intangible assets with finite useful lives are amortized over their estimated useful lives. The amortization methods and estimated useful lives of intangible assets are reviewed annually. Intangible assets are tested for impairment by comparing their carrying values to the sum of the undiscounted cash flows expected to result from their use or eventual disposition. If not recoverable, the impairment charge is the difference between the carrying value and fair value.

Amortization of franchise rights is provided on a straight line basis over their estimated useful lives, between one and nine years, representing the remaining terms of the respective franchise agreements.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Share Capital

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.

When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are issued, the amount received is recognized as an increase in equity.

Share-Based Payment Transactions

The Company grants stock options to directors and employees of the Company. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. The grant date fair value of options granted is recognized as share-based payment expense, with a corresponding increase in other capital reserves, over the period that the individual becomes unconditionally entitled to the options. The amount recognized as an expense is adjusted for forfeitures, and to reflect the number of share options for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of share options that do meet the related service and non-market performance conditions at the vesting date.

Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost.

A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower that the unavoidable cost of meeting its obligation under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected cost net of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract. No onerous contracts have been recorded at this time.

Income Taxes

Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of prior years.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred tax is recognized using the statement of financial position method, with respect to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits, and deductable temporary differences to the extent that it is probable that future tax profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Any such reduction will be reversed to the extent that it becomes probable that sufficient taxable income will be provided.

Comprehensive Income

Comprehensive income or loss includes unrealized gains and losses on any available-for-sale investments, none of which are included in the calculation of net income until realized.

Earnings per Share

The Company presents basic and diluted earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for its own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for its own shares held, for the effects of all dilutive potential common shares.

Financial Instruments

Financial Assets

From time-to-time, the Company may have the following non-derivative financial assets: financial assets at fair value through profit or loss, available-for-sale financial assets, held to maturity financial assets and trade and other receivables. Management determines the appropriate classification upon initial recognition. All financial assets are recognized initially at fair value

Financial Assets at Fair Value through Profit or Loss:

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. The Company has not designated any financial assets upon initial recognition at fair value through profit or losses.

ALARMFORCE INDUSTRIES INC

For the three months ended January 31, 2012 and 2011

Notes to condensed interim consolidated financial statements

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Available-for-Sale Financial Assets:

Any investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale monetary items, are recognized in other comprehensive income. When an investment is derecognized, the cumulative gain or loss in equity is transferred to profit or loss.

Held-to-Maturity Financial Assets:

If the Company has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortized cost using the effective interest method, less any impairment losses. The Company did not have any heldto- maturity financial assets for the periods presented.

Financial Liabilities

From time-to-time the Company may have the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and trade and other payables.

Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized costs using the effective interest method.

Classification

Financial instruments recorded at fair value on the interim condensed consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

[i] Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities;

[ii] Level 2 - Inputs other than quoted prices that are observable for the asset or liability directly or indirectly;

[iii] Level 3 - Inputs that are not based on observable market data.

The Company’s financial instruments are categorized as Level 1 instruments as it has determined that the carrying value of its short-term financial assets and liabilities approximates fair value due to the short-term maturity of these instruments. The carrying value of capital lease obligations approximate their fair value given that the interest rates inherent in the leases reflect rates currently available for leases with similar terms and maturities. The carrying value of the other long term liabilities is discounted (due to its long term to maturity) using observable interest rates.

Derecognition

The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial assets are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

ALARMFORCE INDUSTRIES INC

For the three months ended January 31, 2012 and 2011

Notes to condensed interim consolidated financial statements

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment

Financial Assets:

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss on an available-for-sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost and available-for-sale financial assets that are debt securities, the reversal is recognized in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognized in other comprehensive income.

Non-Financial Assets:

The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets which are separately assessed, are reviewed each reporting date to determine whether there is any indication of impairment. If such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together in the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

An impairment loss in respect to goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New Standards and Interpretations Not Yet Adopted

Certain new standards, amendments to standards, and interpretations are not yet effective for the current reporting period, and therefore have not been applied in preparing the condensed consolidated financial statements:

IFRS 9 – Financial Instruments: Classification and Measurement

IFRS 9 as issued reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for fiscal periods beginning on or after January 1, 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an impact on the classification and measurement of financial assets, but will potentially have no impact on classification and measurement of financial liabilities. The Company will quantify the impact in conjunction with the other phases when issued.

IFRS 10 – Consolidated Financial Statements

This standard will replace portions of IAS 27, Consolidated and Separate Financial Statements and interpretation SIC-12, Consolidated - Special Purpose Entities. This standard incorporates a single model for consolidating all entities that are controlled and revises the definition of when an investor controls an investee to be when it is exposed, or has rights, to variable returns from its involvement with the investee and has the current ability to affect those returns through its power over the investee. Along with control, the new standard also focuses on the concept of power, both of which will include a use of judgment and a continuous reassessment as facts and circumstances change. IFRS 10 is effective for fiscal periods beginning on or after January 1, 2013, with early adoption permitted. The Company is assessing the impact of IFRS 10 on its financial position and results of operations.

IFRS 11 – Joint Arrangements

This standard will replace IAS 31, Interest in Joint Ventures. The new standard will apply to the accounting for interest in joint arrangements where there is joint control. Joint arrangements will be separated into joint ventures and joint operations. The structure of the joint arrangement will no longer be the most significant factor on classifying a joint arrangement as either a joint operation or a joint venture. IFRS 11 is effective for fiscal periods beginning on or after January 1, 2013, with early adoption permitted. The Company is assessing the impact of IFRS 11 on its financial position and results of operations.

IFRS 12 – Disclosure of Interest in Other Entities

The new standard includes disclosure requirements for subsidiaries, joint ventures and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements. IFRS 12 is effective for fiscal periods beginning on or after January 1, 2013, with early adoption permitted. The Company is assessing the impact of IFRS 12 on its financial position and results of operations.

IFRS 13 – Fair Value Measurement

The new standard creates a single source of guidance for fair value measurement, where fair value is required or permitted under IFRS, by not changing how fair value is used but how it is measured. The focus will be on an exit price. IFRS 13 is effective for fiscal periods beginning on or after January 1, 2013, with early adoption permitted. The Company is assessing the impact of IFRS 13 on its financial position and results of operations.

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IAS 1 – Presentation of Financial Statements

The amendment requires financial statements to group together items within other comprehensive income (loss) that may be reclassified to the profit or loss section of the interim consolidated statements of income (loss). The amendment reaffirms existing requirements that items in other comprehensive income (loss) and profit or loss should be presented as either a single statement or two consecutive statements. The amendment requires tax associated with items presented before tax to be shown separately for each of the two groups of other comprehensive income items (without changing the option to present items of other comprehensive income (loss) either before tax or net of tax). IAS 1 is effective for fiscal periods beginning on or after July 1, 2012, with early adoption permitted. The Company is assessing the impact of IAS 1 on its financial position and results of operations.

IAS 12 – Income Taxes—Recovery of Underlying Assets

The amendment clarifies the determination of deferred taxes in investment properties measured at fair value. The amendment introduces a rebuttable presumption that deferred taxes on investment properties measured using the fair value model in IAS 40 should be determined on the basis that their carrying amount will be recovered through sale. Furthermore, it introduces the requirement to calculate deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 to always be measured on the sale basis of the asset. The amendment becomes effective for fiscal periods beginning on or after January 1, 2012. The Company is assessing the impact of IAS 12 on its financial position and results of operations.

4. TRADE AND OTHER RECEIVABLES

5. PROPERTY, PLANT AND EQUIPMENT

The following tables present details of movement in the carrying value of property, plant & equipment by type:

6. INTANGIBLE ASSETS

The following table presents details of movement in the carrying value of intangible assets:

The carrying value of intangible assets is inherently uncertain. The Company performed a recoverability analysis at November 1, 2010 and October 31, 2011 and concluded that the value of its intangible assets, are recoverable. In determining the need for any impairment charge, future cash flows generated from Franchise Rights associated with the intangible assets were estimated and discounted. Cash flows were projected based on actual operating results and the Company’s five year business plan. A pre-tax discount rate of 10% was applied in determining the recoverable amount. The discount rate was estimated based on an industry average weighted average cost of capital. The values assigned to key assumptions represent management’s assessment of future trends and are based on both external and internal sources.

7. INVENTORY

8. SHARE CAPITAL

Authorized

Unlimited number of common shares without par value

Share 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.

8. SHARE CAPITAL (CONTINUED)

A summary of the Company’s share option activity for the three months ended January 31, 2012 and 2011 is as follows:

(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) 50,000 options have not yet vested and will be fully vested by 2016.

The following table summarizes the share options outstanding as at January 31, 2012:

There were no stock options granted during the three months ended January 31, 2012. (Nil options granted during the three months ended January 31, 2011).

Share-based compensation cost of $13,130 was recognized in the three months ended January 31, 2012 for options granted in prior periods ($6,300 for three months ended January 31, 2011).

8. SHARE CAPITAL (CONTINUED)

Earnings per Share

9. INCOME TAXES

10. COMMITMENTS AND CONTINGENCIES

The Company has lease commitments for office premises, vehicles, and office equipment until January 2016. Future minimum lease payments are as follows:

11. SEGMENTED INFORMATION

Operating segments

The Company has one operating segment which is security monitoring, and related services. The Company has operations in North America, specifically Canada and the US. The Company’s Chief operating decision maker (CODM) reviews internal management reports on at least a quarterly basis.

Geographic information

The Company’s total assets are located as follows:

The Company earned revenues attributed to the following countries based on the location of the customer:

12. CAPITAL DISCLOSURES

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 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 bank covenants; and

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

12. CAPITAL DISCLOSURES (CONTINUED)

The Company’s capital structure is as follows:

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 January 31, 2012, 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 these covenants.

13. FINANCIAL INSTRUMENTS

[a] Financial assets and liabilities

The Company has classified cash and cash equivalents and short-term investments as held-for-trading financial assets, measured at fair value. Trade and other receivables are classified as loans and receivables, measured at amortized cost. Trade and other payables are classified as other liabilities, measured at amortized cost.

The carrying values and fair values of financial assets and liabilities as at January 31, 2012, October 31, 2011 and November 1, 2010 are summarized as follows:

13. FINANCIAL INSTRUMENTS (CONTINUED)

[b] Fair Values

The carrying value of the Company’s financial instruments consisting of cash and cash equivalents, short-term investments, trade and other receivables, and trade and other payables equals the fair value.

[c] Risk Management

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, trade and other receivables, and trade and other payables. Disclosures relating to exposure to risks, in particular credit risk, liquidity risk, foreign currency risk, and interest rate risk are provided below.

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 trade and other receivables. The Company’s maximum exposure to credit risk is represented by the carrying amounts of these assets 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 receivables 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.

As at January 31, 2012, October 31, 2011 and November 1, 2010, the Company's exposure to credit risk for these financial instruments was as follows:

13. FINANCIAL INSTRUMENTS (CONTINUED)

Trade and other receivables were aged as follows as at January 31, 2012, October 31, 2011 and November 1, 2010:

Interest rate risk

Changes in market interest rates will cause fluctuations in the future cash flows from short-term investments. As at January 31, 2012, the Company did not carry any long-term debt due to the repayment of all such debt in January, 2010, thereby mitigating the Company’s exposure to interest rate risk. While the Company does have credit facilities of $5,800,000 which it can draw upon if required, the Company did not draw upon them at any time in the periods presented, 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.

Foreign currency risk

The Company is exposed to foreign currency risk due to its foreign operations. The Company believes that 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 $107,879 increase or decrease to the Company’s income before taxes for the three months ended January 31, 2012 ($10,750 increase for the three months ended January 31, 2011).

A certain portion of the Company’s purchases are in US currency, resulting in US dollar denominated trade 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. As at January 31, 2012, the Company had net liabilities denominated in US currency of $1,595,277 (January 31, 2011: $819,453).

13. FINANCIAL INSTRUMENTS (CONTINUED)

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. 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 January 31, 2012, 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.

14. RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

Related parties include the Board of Directors, close family members and enterprises which are controlled by these individuals as well as certain persons performing similar functions.

The remuneration of directors and key management of the Company for the three months ended January 31, 2012 and 2011 is as follows:

The remuneration of directors and key management of the Company for the three months ended January 31, 2012 and 2011 is as follows:

15. TRANSITION TO IFRS

As stated in Basis of Presentation Note 2, these are the Company’s first consolidated financial statements prepared in accordance with IFRS.

The policies set out in the Significant Accounting Policies section have been applied in preparing the financial statements for the three months ended January 31, 2012, the comparative information presented in these financial statements for the three months ended January 31, 2011, and in the preparation of an opening IFRS statement of financial position at November 1, 2010 (the Company’s Transition Date).

15. TRANSITION TO IFRS (CONTINUED)

The Company has followed the recommendations in IFRS-1 First-Time Adoption of IFRS, in preparing its transitional statements. IFRS-1 provides specific one-time choices and mandates specific one-time exceptions with respect to first-time adoption of IFRS. The significant choices applicable to the Company relate to the following:

[i] Business Combinations: IFRS 1 provides that IFRS 3 may be applied prospectively or retrospectively with respect to business combinations completed prior to November 1, 2010. The Company has elected to apply IFRS 3 prospectively.

[ii] Property, Plant and 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 valuation under the prior GAAP. The Company has decided to continue to apply the cost model for property, plant, and equipment and has not restated equipment to fair value upon the adoption of IFRS. The Company has elected to use the historical cost carrying values as determined under Canadian GAAP for transitional purposes.

[iii] Share-based Compensation: IFRS 1 allows the Company to choose not to apply IFRS 2 Share-based Payment to equity instruments that vested prior to the date of transition to IFRS. The Company has therefore elected to apply IFRS 2 only to outstanding stock options that were unvested at November 1, 2010.

In preparing its opening IFRS statements of financial position, the Company has adjusted amounts reported previously prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). An explanation of how the transition from Canadian GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and the accompanying notes.

Property, Plant and Equipment

IFRS sets out more detailed criteria with respect to the use of the component approach as compared to Canadian GAAP. Under IFRS, a separate component may be either a physical component, or a non-physical component that represents a major inspection or overhaul. When an item of property, plant and equipment comprises individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately over its useful life. The Company has reviewed its capitalization policies under Canadian GAAP and determined that its approach to componentizing the assets under Canadian GAAP did not result in a significant impact upon transition to IFRS.

Impairment

Under IFRS an impairment loss is determined as the excess of the carrying amount of an asset or group of assets above the recoverable amount (the higher of fair value less costs to sell and value in use) with impairment loss being reversed in subsequent periods to reflect changes in the factors that gave rise to the impairment. The Company has reviewed its capitalization and impairment review policies under IFRS and determined that there was no significant impact upon transition to IFRS.

* Note - will be reclassified as "other resreves"

in external IFRS statements

15. TRANSITION TO IFRS (CONTINUED)

Reconciliation of net income and comprehensive income

Reconciliation of Cash Flows

The Company's previously reported cash flows were not materially affected upon transition to IFRS.

Notes to the Restatements

[a] Translation of Foreign Operations

Under IFRS, upon translation of foreign operations and the determination of related temporary differences, the carrying value of non-monetary assets and liabilities is translated into the functional currency at the historical rate and compared to its tax value translated into the functional currency at the current rate. The resulting temporary difference is then multiplied by the appropriate tax rate to determine the related deferred tax balance. Under Canadian GAAP, upon translation of foreign operations and the determination of temporary differences related to non-monetary assets and liabilities, the temporary differences computed in local currency are multiplied by the appropriate tax rate. The resulting future income tax amount is then translated into the Company’s functional currency if it is different from the local currency.

15. TRANSITION TO IFRS (CONTINUED)

[b] Deferred Income Taxes

Under IFRS, all deferred income tax balances are presented as non-current while under Canadian GAAP deferred income taxes are classified as either current or non-current based on the expected timing of temporary differences. Accordingly, deferred income taxes previously classified as current by the Company have been reclassified as noncurrent.

[c] Presentation and classification

Contributed Surplus previously presented separately under Shareholder’s Equity have now been classified “Other Capital Reserves” under IFRS. The Company’s statement of operations is presented by function. Accordingly, as disclosed in Note 11, certain expenses have been reclassified as “Other Operating Expenses” under IFRS. These changes as well as any other reclassifications upon transition to IFRS are reclassifications only and there is no impact on loss or comprehensive loss as a result of these changes.