AlarmForce Industries Inc.
TSX : AF

AlarmForce Industries Inc.

August 24, 2016 07:34 ET

AlarmForce Announces Change in Subscription Cancellation Practice

Late Filing of Q3 2016; Employment Related Tax Audits Under Way

TORONTO, ONTARIO--(Marketwired - Aug. 24, 2016) - AlarmForce Industries Inc. (TSX:AF) (AlarmForce or the Company) announced today that, after concluding a review of its residential subscription cancellation practice, the Company determined that it ought not to have continued charging monitoring fees in some jurisdictions for the period following certain residential customers' subscription cancellations until the 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 is considering its cancellation and other practices relating to existing residential customer contracts in all jurisdictions.

The Company's review, in part, resulted from due diligence undertaken during a potential sale process. During the course of this review, the Company's cancellation practice was raised as an issue. Upon closer examination, and with the assistance of outside advisors, the Company determined that immediate action was required to change the practice to remedy this situation.

The Company also announced that as a result of this change in practice, it is undertaking a detailed examination of its revenue recognition policies for the periods starting fiscal Q4 2013 for revenue generated from customer contracts after a customer had requested cancellation of services. Where legislation governing consumer agreements prohibit charges made after cancellation notices, the Company's preliminary conclusion is that the cancelled subscription revenue should not have been recognized. The Company may need to restate reported revenue for some or all such previously reported financial results in relation to charges previously recognized from cancelled customer agreements where the Company's practice did not comply with such legislation.

Due to the scope and work involved in this review, the Company does not expect it will have completed the necessary work to assess any required restatement and for the reporting of its quarterly financial results by September 14, 2016. The Company will provide timely updates as to the expected date of reporting of its financial results.

The Company is in the process of applying to the Ontario Securities Commission ("OSC") pursuant to Part 3 of National Policy 12-203 ("NP 12-203") for a Management Cease Trade Order ("MCTO") in connection with the expected late filing of its Q3-interim financial statements and MD&A. If an MCTO is issued, the Company intends to satisfy the provisions of the "alternative information guidelines" as set out in NP 12-203, including the requirement to file bi-weekly default status reports in the form of news releases containing prescribed updating information, until the Q3 filings are made. An MCTO would not generally affect the ability of persons who are not directors, officers or insiders of the Company to trade in securities of the Company. There can be no assurance that a MCTO will be issued.

The Company has been reassessed by tax authorities for the State of Florida in relation to the Company's classification of installers as independent contractors. The Florida tax authorities have taken the position that the Company's contract installers should have been classified as employees. The Company is currently assessing its options relative to this ruling. As well, the Company is currently subject to two upcoming audits. The first is an IRS Employment Tax Examination for 2014 and the second is an audit under the Employer Health Tax Act in Ontario commencing September 2016. As a result, the Company is considering possible employee tax liabilities in connection with the classification of its independent contractors and is currently evaluating the impact of whether this possible liability affects Q3 2016 or prior periods. The company is considering how it will address classification of installers. A decision to convert installation personnel into employees will increase operating costs.

In addition, the Company expects to incur one-time charges estimated at $0.7 million (or $0.06 per share) in its YTD Q3 2016 financial statements related to the receipt and review of unsolicited offers to purchase the Company. Incremental costs are also expected in connection with the Company's ongoing efforts related to its subscription cancellation practice and possible employee tax liabilities.

The Company has been working hard to build a customer-centric organization over the last year and was disappointed to discover the significance of the legacy cancellation and other practices. "The AlarmForce board does not believe these issues reflect our current management's decisions or actions. We have the highest confidence that this team is the one to deliver excellent products and services to our customers and drive shareholder value," said Michael Brennan, Chairman, Board of Directors. The Company plans to work as quickly as possible to complete the review without any interruption to its operations and the September re-launch of its products and services. "We will get this right," said Graham Badun, CEO of AlarmForce. "Our response to customers and fulfilling our responsibilities as a public issuer is of utmost importance and is how we will build trust and grow market share. Paying attention to the needs of all of our stakeholders in a fair and equitable manner is the only way that we are going to succeed."

The Company sincerely regrets this inconvenience and is taking steps to ensure that all affected customers will be personally contacted beginning the week of August 29th and continuing for several weeks until impacted customers have been contacted. The Company will be reviewing residential contracts covering the period starting on August 1, 2013. For more information, customers can contact us at www.alarmforce.com/contact-us

About AlarmForce

AlarmForce provides security alarm monitoring, personal emergency response monitoring, video surveillance and related services to residential and commercial subscribers throughout Canada and the United States. More information about AlarmForce's products and services can be found at alarmforce.com.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements are often identified by words such as "may", "will", "should", "could", "anticipate", "believe", "expect", "intend", "plan", "potential", "continue" and similar expressions. Forward-looking statements contained or referred to in this press release includes, but may not be limited to: the Company's intention to provide refunds, retroactive to August 1, 2013, to residential customers have been incorrectly charged monitoring fees subsequent to the cancellation date; the Company continuing to consider its cancellation and other practices relating to existing residential customer contracts in all jurisdictions; the Company undertaking a detailed examination of its revenue recognition policies for the periods starting fiscal Q4 2013; the Company's possible need to restate reported revenue for some or all previously reported financial results; the Company's expectation that it will not have completed the necessary work to assess any required restatement and for the reporting of its quarterly financial results by September 14, 2016; the Company's intention to provide timely updates as to the expected date of the reporting of its financial results; the Company's intention to apply to the OSC for a MCTO in connection with the expected late filing of its Q3 financial statements and MD&A; the Company's consideration of the ruling of the Florida tax authorities and possible employee tax liabilities in connection with the classification of its independent contractors; the Company's consideration of how it will address classification of installers; the inclusion of one-time charges in the Company's Q3 2016 financial statements and the quantum thereof; the Company's expectation that it will incur incremental costs in connection with the Company's ongoing efforts related to its subscription cancellation practice and possible employee tax liabilities; the Company's plan to work as quickly as possible to complete the review without any interruption to its operations and the September re-launch of its products and services and the Company's intention to personally contact affected customers.

The forward-looking statements in this press release reflects the current expectations, assumptions and/or beliefs of AlarmForce about future events based on information currently available to AlarmForce. In connection with the forward-looking statements contained in this press release, AlarmForce has made assumptions about, among other things: AlarmForce's business, the economy and AlarmForce's industry in general; no significant events occur outside of AlarmForce's normal course of business; that the Company ought not to have continued charging monitoring fees in some jurisdictions for the period following certain residential customers' subscription cancellations; the quantum of refunds to be made to customers; that the cancelled subscription revenue should not have been recognized; the Company's belief that it will be able to obtain an MCTO rather than a cease trade order if it unable to file its Q3 financial statements and MD&A by the prescribed deadline; the scope and work necessary to assess any required restatement and for the reporting of its quarterly financial results; the quantum of operating costs if the Company's installers are classified as employees; the quantum of one-time charges to be included in the Company's Q3 2016 financial statements and the risk and quantum of possible employee tax liabilities relating to the Company's past and current classification of independent contractors.

Although AlarmForce believes that the expectations reflected in the forward-looking statements contained in this press release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this press release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve risks, uncertainties and other factors that could cause actual events, results, liabilities and financial results in future periods to differ materially from those expressed or implied by such forward-looking statements.

These risks and uncertainties include, among other things: the possibility that the final results of the review identify additional issues or different impacts not identified in the preliminary results of the review identified above; that AlarmForce does not obtain an MCTO or that it obtains an MCTO but does not subsequently file its Q3 financial statements and MD&A and/or any restated financials by the requisite deadlines, and that as a result of one of these events an order is issued ceasing trading in AlarmForce's securities; that the quantum of refunds to be made to customers is significantly different than preliminarily determined; that the consumer law, tax and any other possible consequences relating to the Company's past and current treatment of cancellations and classification of independent contractors is significantly different than preliminarily determined; and the other factors described in AlarmForce's public filings (including its Annual Information Form) available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this press release speak only as of the date of this press release. Except as may be required by applicable securities laws, AlarmForce disclaims any intent or obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise.

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