Jan 31, 2017: AlarmForce Reports 2016 Financial Results. Provides Results of Revenue Recognition Policies and Completes Restatement

NEWS RELEASE

News Media: Hugh Mansfield (416)‐599‐0024/ (212)‐370‐5045

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Investors: Chris Lynch (416) 445‐2414

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ALARMFORCE REPORTS 2016 FINANCIAL RESULTS. PROVIDES RESULTS OF REVIEW OF REVENUE RECOGNITION POLICIES AND COMPLETES RESTATEMENT

Update on Independent Review of Internal Controls & Employment Related Tax Audits

Full Year Highlights

• Revenue of $56.4 million, an increase of $1.1 million or 2% over 2015 (restated); net loss of $0.5 million, diluted loss per share of $0.04

• EBITDA decreased by 42% or $4.5 million year‐over‐year to $6.4 million. One‐time, non‐recurring items of $5.9 million (excludes higher than normal professional services fees and the impact of the refund reserve in the year), were incurred relative to $3.7 million in 2015. EBITDA of $12.3 million excluding one‐time items and adjustments compared to $14.6 million in 2015, a decrease of

  $2.4million or 16%)

• The non‐recurring items included $0.9 million related to the process of evaluating unsolicited offers to purchase the Company in Q1 2016, $4.2 million related to legal, accounting and other professional fees incurred related to the review of subscription cancellations, installation personnel worker classification, employee settlements, provisions and other costs due to the potential misclassification of installation personnel, and $0.8 million in write‐downs of obsolete VideoRelay camera equipment. These costs totalled $5.9 million for the year or $0.51 per share

• Gross new subscriber additions were 17,276 for the year, about 24% lower than 2015 reflecting a shift in focus in geographic origination and underwriting to improve the overall quality and lifetime value of new subscribers

• Total subscribers decreased by 5.5% for 2016 from 143,083 to 136,702 with net subscriber growth unfavourably impacted by approximately 6,048 subscribers which is comprised of approximately 3,436 subscribers who should have been cancelled in prior periods and approximately 2,612 subscribers who cancelled in Q4 as a result of updated cancellations practices whose cancellations historically would have been incurred in a subsequent period

• Notwithstanding decline in overall subscribers recurring monthly revenue totaled $4.5 million, down only 1% over 2015, driven by strong average revenue per new user since the launch of new products and cancellation of lower average revenue per subscriber accounts

  Q4 Highlights

• Revenue of $14 million including an increase in revenue from Canadian operations of 1% and a decrease in revenue from US operations of 9% from Q4 2015

• At October 31, 2016 the Company had provisions on the balance sheet totaling $6.1 million related to subscriber refunds, potential consumer protection penalties and liabilities related to the potential misclassification of installation personnel

• EBITDA of $1.4 million (excluding one‐time items), down $2.1 million from the comparable period in 2015

• Average revenue per user for existing subscribers was $32.56 for Q4, a 3% increase (2.5% excluding the effect of foreign exchange) over 2015

• Average revenue per user for new subscribers was $37.40, an increase of 3% (or 2% excluding the effect of foreign exchange) over 2015

Three months ended October 31, 2015 2016 (restated) Change			Twelve months ended October 31, 2015 2016 (restated) Change
($ in thousands, except per share and subscriber amounts)	$56,361	$55,214	2%
Total revenue $14,007				$14,185	-1%
Recurring monthly revenue (RMR) $4,450	$4,514	-1%	$4,450	$4,514	-1%
EBITDA* $(765)	$2,251	-134%	$6,374	$10,909	-41%
Net income $(2,652)	$1,177	-325%	$(510)	$4,420	-112%
Shares outstanding, diluted 11,590	11,644	-0.5%	11,590	11,644	-0.5%
Diluted net income per share $(0.23)	$0.10	-330%	$(0.04)	$0.38	-111%
Total subscribers 136,702	143,083	-4.5%	136,702	143,083	-4.5%

*EBITDA is a non‐IFRS financial measure and is defined in the disclosure section accompanying this press release.

Toronto, Ontario, January 31, 2017 - AlarmForce Industries Inc. (TSX:AF) (AlarmForce or the Company) announced today its financial results for Q4 And the fiscal year ended October 31, 2016, the results of the previously announced review and evaluation of the Company's revenue recognition policies for certain revenue generated from customer contracts after a customer had requested cancellation of services and the completion of the previously announced restatement of its financial statements for the year ended October 31, 2015 and the first and second quarters of 2016. The Company also provided an update of its employment related tax audits and independent review of financial controls.

"With the challenges of the review process and restatements firmly behind us we will continue to focus on implementing the Company's new strategic plan and build our momentum as the leading home security and automation company in the Canadian market," said Graham Badun, President and CEO of AlarmForce Industries Inc. "Customer loyalty and retention remain at the very core of our company's operation. New product technologies, diversification and strategic partnerships will all lead to a better customer experience and continued growth. Our strong cash position of $12 million plus our debt free balance sheet provide more than enough liquidity to not only address the cash needs of the review process but also many opportunities for us to invest to return value to our shareholders in 2017 and beyond."

Following the termination of the management cease trade order and subject to the approval of the TSX, the Company intends to initiate a normal course issuer bid and will announce the details accordingly.

Q4 and Fiscal 2016 Financial Results

For the fiscal year ended October 31, 2016, AlarmForce Industries (TSX:AF) reported revenues of $56.4 million compared to $55.2 million in 2015 (restated). Net income fell by 112% or $4.9 million year‐over‐ year, driven by one‐time, non‐recurring items totalling $5.9 million. As a result, diluted earnings per share were $(0.04) in 2016 down from $0.38 (restated) during 2015.

Recurring monthly revenue (RMR) decreased to $4.45 million from $4.51 million at the end of 2015, or 1%. Cash flow from operations increased from $8.9 million in 2015 to $13.2 million in 2016, or 48% driven by changes in non‐cash working capital.

Background of the Review

The Company received a number of unsolicited offers to purchase the Company during Q1 2016. In its evaluation of these offers, the Company granted prospective purchasers access to due diligence materials continuing into Q3. Concurrently, the Company continued to execute on its strategic plan.

Through both the efforts of Management in executing the strategic plan, and the due diligence undertaken by prospective purchasers, issues related to the absence of rescission rights in some of the Company's residential customer contracts and the Company's cancellation practices were identified (the "Identified Issues").

In July 2016 third party legal and accounting advisors were engaged to support the Company's ongoing assessment of the Identified Issues as well as a more general assessment of the Company's legacy contracts

and cancellation practices against consumer protection legislation in those provinces and states in which the Company had a material number of residential subscribers.

On August 24, 2016 the Company announced that, after concluding a review of its residential subscription practices, it determined that it ought not to have continued charging monitoring fees in some jurisdictions for the period following certain residential customers' subscription cancellations until their equipment was returned. Accordingly, retroactive to August 1, 2013, residential customers who have been incorrectly charged monitoring fees subsequent to the cancellation date will receive a refund of those charges plus interest. The Company also announced that it would be delaying the filing of its Q3 2016 financial statements and would begin a detailed subscriber‐by‐subscriber review in order to fully assess any potential required restatements. In addition, the Company announced that it was under review by tax authorities for the State of Florida and separate IRS and Ontario Employer Health Tax Act audits were initiated.

Scope of Review

Consumer Legislation Compliance Regarding Cancellations

Legal analysis was undertaken to assess the Company's cancellation practices relative to the consumer protection legislation and associated statute of limitation periods in each of the jurisdictions in which the Company operates. The conclusions of such legal review were used by the Company in determining the circumstances and periods within which a subscriber could and could not be charged monitoring fees subsequent to receipt of its cancellation request.

The Company has changed its cancellation practices to comply with consumer protection laws. In addition, in connection with the launch of new third party manufactured products in Q4 2016, the Company introduced new compliant residential customer contracts.

Revenue Recognition

Efforts have been focused on quantifying the amount of monitoring revenue required to be derecognized. This involved a detailed review (the "Customer Review"), assessing previously cancelled subscribers as well as active customers who may have requested cancellation of monitoring services but had either reconsidered or had not returned their equipment ("Pending Cancelled"). This has resulted in the Company determining to pay refunds to certain customers who have cancelled subsequent to August 1, 2013.

A detailed, manual, subscriber‐by‐subscriber review was undertaken for all Pending Cancelled customers. A dataset of all active subscribers at July 31, 2016 formed the starting point, where system data was used to determine where an active subscriber may have submitted either a written or oral cancellation request. Through the review, it was determined that 3,436 subscribers would need to be cancelled with the cancellation captured in the period in which the cancellation request was received. In addition, the Company completed a review of its previously cancelled subscribers in order to assess the actual cancellation date relative to any prior cancellation request.

Nature of the Errors and Impact on Recognized Revenue