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Index to Consolidated Financial Statements Alarm Funding, LLC and Subsidiary

As filed with the Securities and Exchange Commission on January 19, 2011

Registration No. 333-170424

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

CASTLEROCK SECURITY HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

CastleRock Security Holdings, Inc.
2101 S. Arlington Heights Road, Suite 150
Arlington Heights, Illinois 60005
(847) 768-6300
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Brian E. Johnson
President and Chief Executive Officer
CastleRock Security Holdings, Inc.
2101 S. Arlington Heights Road, Suite 150
Arlington Heights, Illinois 60005
(847) 768-6300
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

           If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

           If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    o

           If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act of 1934.

           The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

1,818,182 Shares

Common Stock

        CastleRock Security Holdings, Inc. is offering 1,818,182 shares of its common stock. This is our initial public offering and no public market currently exists for our shares.

        We anticipate that the initial public offering price will be between $10.00 and $12.00 per share. After pricing of the offering, we expect that the shares will trade on the NASDAQ Capital Market under the symbol "CRSC."

Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 8 of this prospectus.

PRICE $          A SHARE

        We have granted the underwriter the right to purchase up to an additional 272,727 shares of common stock to cover over-allotments.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        The underwriter expects to deliver the shares of common stock to purchasers on or about                       , 2011.

Rodman & Renshaw, LLC

The date of this prospectus is                                    , 2011.

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        You should rely only on the information contained in this prospectus and in any free-writing prospectus prepared by us or on behalf of us. We have not, and the underwriters have not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or in any related free-writing prospectus. This prospectus is an offer to sell only the shares offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. Our business, financial condition, results of operations and prospects may have changed since that date.

        Until                       , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

        For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

        This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guaranty the accuracy or completeness of such information. While we believe that these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and we do not make any representation as to the accuracy of the information.

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PROSPECTUS SUMMARY

        This summary highlights information contained in greater detail elsewhere in this prospectus. It does not contain all of the information that may be important to you and your investment decision. You should carefully read this entire prospectus, including the matters set forth under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.

Overview

        We are a national provider of electronic security alarm monitoring services, providing monitoring and maintenance of alarm systems to single-family residential and light commercial customers. We monitor signals from burglary, fire, medical and environmental alarm systems at our monitoring center in Arlington Heights, Illinois. Most of our monitoring services revenue and a large portion of the maintenance services we provide our customers are governed by multi-year contracts with automatic renewal provisions that provide us with recurring monthly revenue, or RMR. As of September 30, 2010, we monitor approximately 54,000 sites in 46 states, Canada and Puerto Rico.

        We operate in a U.S. security alarm industry with an estimated $45 billion of annual revenue in 2009, approximately one-third, or $16.3 billion, from the monitoring and servicing segment which has experienced an estimated compound annual growth rate of 7.2% over the past ten years. We believe we are positioned to capitalize on growth opportunities in this industry because:

•

The highly fragmented nature of the industry creates significant opportunity for consolidation. Of the over 8,000 active security alarm companies, the vast majority are small local operations, with fewer than 100 estimated to have RMR of more than $200,000. Increasingly onerous licensing requirements and other factors, such as competitive sales and installation pricing and the relatively high fixed costs of operating a central monitoring facility, make it difficult for smaller companies to profitably expand.



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Following our reorganization, we believe that based on RMR we are among the 25 largest U.S. companies in our industry.



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We currently operate in 46 states, where we possess all required state and local jurisdiction licenses.



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Our existing, established, scalable infrastructure is capable of servicing several hundred thousand customers.



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Our experienced leadership team is headed by former ADT Security senior executives who have successfully executed business plans such as the one we have developed.

        We acquired most of our account portfolio from Alarm Funding, LLC, or Alarm Funding. We receive service fees from Security Funding, LLC, or Security Funding. Since neither Alarm Funding nor Security Funding has acquired accounts since 2008, the RMR from the account portfolio received from Alarm Funding and the Security Funding service fees have naturally declined and will continue to do so through account attrition, as described below. Furthermore, Security Funding intends to sell its account base, which may result in our loss of revenue related to servicing these accounts, which currently represents 10% of our revenue.

        Consequently, we plan to grow our business by driving RMR growth and profitability through the direct acquisition of accounts, leveraging our currently underutilized servicing platform and gaining additional operational efficiencies associated with higher geographic concentrations. Our telecommunications facilities can accommodate a significantly greater volume of alarm signals and

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inbound voice calls, and our monitoring center currently has unutilized work stations. As a result, we believe we can service several hundred thousand additional customers at nominal additional cost.

        Our business plan, which is similar to the strategy our executive management team has successfully executed in prior senior roles in our industry, encompasses:

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Strategic purchases of local or regional alarm companies (including their accounts), some of which may then become branch sales and installation offices for us;



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The establishment of company-owned branch sales, installation and service offices in markets where account densities warrant and where we have not yet acquired an operation thus creating (a) the internal sales capability to capture the full value associated with account re-signs, transfers, add-ons, upgrades and referrals (which our capital structure has heretofore hindered) and (b) greater efficiencies in field service through utilization of company-employed service technicians; and



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The introduction of a program to acquire accounts from a network of independent dealers who will regularly sell to us the monitoring contracts, or accounts, for customers to whom they have sold and installed alarm systems;

We intend to use the net proceeds from this offering primarily to fund these acquisition activities, to the extent permitted by our secured credit facility. The terms of our secured credit facility place significant restrictions on our management's ability to use the proceeds of this offering to carry out our proposed business strategy. Six and one-half million dollars of the proceeds from this offering will be deposited in a restricted bank account which will be pledged as collateral for outstanding indebtedness under our secured credit facility. Amounts in this restricted bank account will not be available to us for any purpose. The remaining net proceeds of this offering will be deposited in a second bank account pledged as collateral under our secured credit facility, which will be available to us for such purposes as are permitted under our secured credit facility, including to acquire customer accounts, invest in infrastructure and technology, and as ordinary and customary working capital. The amount required to be deposited into the restricted account shall not exceed $6.5 million through May 31, 2011. Thereafter, if the value of the collateral pledged as security for our obligations under our secured credit facility declines, we will be required to deposit additional amounts into the restricted bank account in an amount equal to the difference between the outstanding principal amount under our secured credit facility and the value of such collateral, which could deplete all or a portion of the remaining net proceeds of this offering and limit our ability to execute our proposed business strategy. If we default under our secured credit facility, the secured lenders may demand payment in full of all amounts outstanding under the secured credit facility and all or a portion of such proceeds may be used to pay such outstanding amounts, either voluntarily by us or by the secured lenders enforcing their security interest in the cash held in such bank accounts. If this occurs, we may have insufficient cash to continue operations.

        The consolidated financial statements and summaries of financial data included in this prospectus reflect the operations of Alarm Funding from January 1, 2008 and of our wholly-owned subsidiary, CastleRock Security, Inc., since its inception in November 2008, a period of time in which no growth or account replacement activities were undertaken. As a result of our reorganization (see "Corporate History and Information"), prospectively our financial statements will reflect the results of operations of CastleRock Security Holdings, Inc. and its subsidiary, CastleRock Security, Inc.

        For the year ended December 31, 2009, our net loss was $26.1 million, although we generated earnings before interest, taxes, depreciation and amortization, or EBITDA (a non-GAAP measure) of $16.6 million on net revenue of $38.2 million. For the nine months ended September 30, 2010, our net loss was $ 22.5 million, although we generated EBITDA of $8.6 million on net revenue of

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$20.8 million. Our secured debt outstanding was $45.0 million and $40.8 million at December 31, 2009 and September 30, 2010, respectively.

Risks Associated with our Business

        There are a number of risks and uncertainties that may affect our business, financial and operating performance, and our growth prospects. These risks are discussed under "Risk Factors" beginning on page 8 of this prospectus and elsewhere in this prospectus and should be carefully considered before investing in our common stock.

Corporate History and Information

        CastleRock Security, Inc., or CRS, was incorporated in November 2008 to acquire certain assets of SA Systems, LLC, or SAS. The primary assets acquired by CRS were servicing agreements with two companies formed to acquire primarily residential security alarm contracts from independent alarm dealers across the country. On September 30, 2010 these two companies—Alarm Funding (which was also CRS' majority stockholder), and Security Funding—jointly owned approximately 51,000 performing accounts, which pay an average of $41 per month for the monitoring and maintenance of their burglar and/or fire alarm systems. Prior to our reorganization, these companies, in turn, paid CRS a service fee calculated on a per-account basis ranging from $12 to $25 (depending on level of services) and averaging approximately $15 per month to provide the monitoring, maintenance, billing, collection, other technical and nontechnical customer service, and financial reporting for the customer base. In addition, on September 30, 2010, CRS directly owned 500 retail accounts and provided wholesale monitoring services to 2,500 accounts owned by independent alarm dealers.

        On September 22, 2010 we reorganized by establishing a Delaware corporation, CastleRock Security Holdings, Inc., or CastleRock Holdings. On September 24, 2010, Alarm Funding contributed to CastleRock Holdings all of its operating assets and CRS stock in exchange for common stock of CastleRock Holdings and assumption of debt. Contemporaneously, the other stockholder of CRS contributed its CRS stock to CastleRock Holdings, in exchange for common stock of CastleRock Holdings. Upon completion of these contributions, collectively, the Reorganization, CRS became a wholly owned subsidiary of CastleRock Holdings.

        Our executive offices are located at 2101 S. Arlington Heights Road, Suite 150, Arlington Heights, Illinois 60005, and our telephone number is (847) 768-6300. Our website address is www.castlerocksecurity.com. Information contained on, or accessible through, our website is not incorporated by reference into this prospectus, and should not be considered to be part of this prospectus.

        In this prospectus, unless the context otherwise requires, the "Company," "we," "us" and "our" refer to CastleRock Security Holdings, Inc. and its subsidiaries.

        The name "CastleRock Security" is our trademark. All other trademarks and trade names appearing in this prospectus are the property of their respective owners. Our use or display of other companies' product names, trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship by us of, the product, trademark, trade name or service mark owner, unless we otherwise expressly indicate.

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THE OFFERING

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        The number of shares of common stock to be outstanding after the offering is based on shares outstanding as of September 30, 2010 and excludes 600,000 shares of common stock reserved for issuance under our equity incentive plan.

        Except as otherwise indicated, all information in this prospectus assumes:

•

our common stock will be sold at $11.00 per share, which is the midpoint of the estimated offering price range shown on the front cover page of this prospectus; and



•

no exercise by the underwriters of their over allotment option.

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SUMMARY CONSOLIDATED FINANCIAL DATA

        We have derived the summary consolidated statement of operations data for the fiscal years ended December 31, 2008 and 2009 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statement of operations data for the nine months ended September 30, 2009 and 2010 and the summary consolidated balance sheet data as of September 30, 2010 from our unaudited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of results that may be expected in the future.

        We manage our business based upon earnings before interest, income taxes, depreciation, amortization, impairment losses and certain other items shown in the table below, referred to as Adjusted EBITDA, which is a non-GAAP financial measure.

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors described below and all other information contained in this prospectus, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of operations and cash flows could be materially adversely effected. In such case, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Business and Industry

We have a history of losses which may continue, which may negatively impact our ability to achieve our business objectives.

        We incurred net losses of $13.9 million and $26.1 million for the years ended December 31, 2008 and 2009, respectively. For the nine months ended September 30, 2010, we incurred a net loss of $22.5 million.

        Our losses have been driven principally by declining revenues resulting from the loss of accounts acquired by Alarm Funding, by declining service fees from Security Funding resulting from its loss of accounts, and by declining wholesale monitoring fees from independent dealers. We face a further decrease in our revenue if Security Funding is successful in selling its account base. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to acquire additional accounts and expand our revenue. We may not achieve our business objectives, and the failure to achieve such goals would have an adverse impact on us.

Loss of customer accounts could materially adversely affect our results of operations.

        We incur significant upfront cash costs for each subscriber. It requires a substantial amount of time for us to receive cash payments (net of our recurring cash costs) from a particular subscriber that are sufficient to offset this upfront cost, with that period currently averaging over five years. Accordingly, our long-term profitability is dependent on our subscribers remaining with us as customers for long periods of time. This requires that we minimize our rate of subscriber disconnects, or attrition.

        We experience the loss of accounts as a result of, among other factors:

•

customers' inability or unwillingness to pay our charges;



•

adverse financial and economic conditions, the impact of which may be particularly acute among our small business and lower income customers;



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relocation of customers;



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the customers' perceptions of value; and



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competition from other alarm service companies.

If we fail to keep our subscribers for a sufficiently long period of time, our financial position and results of operations could be adversely affected.

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We may not realize the improved operating results that we anticipate from local or regional alarm company acquisitions we may make in the future, and we may experience difficulties in integrating acquired businesses or may inherit significant liabilities related to such businesses.

        Alarm Funding and Security Funding ceased purchasing accounts in 2008, and Security Funding is attempting to sell its accounts. Our business and future growth therefore depends to a significant extent on the acquisition of additional companies and businesses, including their accounts. We may not be able to identify suitable acquisition candidates or consummate acquisitions on favorable terms or at all. We may experience difficulties and incur significant costs as a result of evaluating, completing and integrating acquisitions. In addition, we may finance future acquisitions through additional issuances of stock that could be dilutive to our stockholders or by incurring additional debt that would increase our leverage or contain restrictive covenants. Any acquisition involves significant risks and uncertainties, including the following:

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we may not realize expected synergies from the transaction;



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it may be difficult for us to successfully integrate the acquired operations into our company and maintain uniform standards, controls, policies and procedures;



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our management's time and attention may be diverted from existing business operations by transition or integration issues;



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we may not be able to retain the key employees of the acquired operation;



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it may be difficult for us to conform the financial reporting procedures of an acquired business to those required of a U.S. reporting company, including procedures required by the Sarbanes-Oxley Act of 2002; and



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unidentified issues could arise that we did not discover in our due diligence process, including liabilities, commitments and/or contingencies of the acquired company.

        Acquisitions of subscriber accounts involve a number of special risks, including the possibility of unanticipated problems that were not discovered prior to the acquisition and account attrition. We face competition from other alarm monitoring companies, including companies that have more capital than we have and that may offer higher prices and more favorable terms to dealers for subscriber accounts purchased, or lower prices for monitoring services provided. This competition could reduce the acquisition opportunities available to us, thus slowing our rate of growth, and/or increase the price we pay for such account acquisitions, thus reducing our return on investment. We cannot assure you that we will be able to purchase subscriber accounts on favorable terms in the future.

        The purchase price we pay for a subscriber account is affected by the RMR generated by that account as well as several other factors, including our prior experience with accounts purchased from the dealer, the geographic location of the account, the number of accounts purchased and the type of security equipment used by the subscriber. In purchasing accounts, we will rely on management's knowledge of the industry, due diligence procedures, and representations and warranties of the dealers. We cannot assure you that in all instances the representations and warranties made by the dealers are true and complete or, if the representations and warranties are inaccurate, that we will be able to recover damages from the dealers in an amount sufficient to fully compensate us for any resulting losses.

        We may experience the loss of newly acquired or created accounts to the extent we do not integrate or adequately service those accounts. Customer loss may not become evident for some time after an acquisition is consummated because some acquired accounts are prepaid on an annual, semiannual or quarterly basis. Net losses of customer accounts could materially and adversely affect our business, financial condition and results of operations.

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We will need additional financing to execute our strategy and fund the expansion of our operations, which additional financing may not be available on reasonable terms or at all.

        We have limited funds and will require additional funds to execute our strategy and fund the expansion of our business. If this offering is successful, our business plan assumes that we will use all funds raised by the offering within twelve months of its closing date, to the extent permitted by our secured credit facility, and we will seek additional debt or equity capital in order to continue to fund the expansion of our business. The exact amount of additional capital we will require, and the exact timing of when we will seek it, will depend on market conditions, performance of assets we have acquired with the proceeds of this offering, and the opportunities that are available in the market. We believe that a combination of debt and equity capital will provide the most attractive opportunities and returns for our stockholders, and we intend to seek both debt and equity capital to effect our business plan. There is no assurance that funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. In addition, our secured credit facility limits our ability to, among other things, incur additional indebtedness, create or incur liens, and issue securities, which restrictions may make it difficult or impossible for us to obtain additional financing. To the extent that we raise additional capital through the sale of equity securities, the issuance of such securities could result in dilution of the shares held by existing stockholders. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned business growth, which could harm our business, financial condition and operating results.

We will rely on a dealer network to generate new subscriber accounts and if we cannot effectively manage this dealer network our future operating results may be negatively affected.

        We do not have the infrastructure to develop new subscriber accounts internally and, instead, a principal element of our business strategy is to grow through the acquisition of subscriber accounts purchased from a network of independent dealers who will regularly sell to us accounts for customers to whom they have sold and installed alarm systems. This expansion will place substantial demands on our management and operational resources, including our information systems. Our future operating results will depend in large part on our ability to grow and manage this growth effectively. We may experience loss of dealers from this dealer program due to various factors, such as dealers becoming inactive or discontinuing their electronic security business, non-renewal of our dealer contracts and competition from other alarm monitoring companies. If we experience a significant loss of dealers from our dealer program or if we are unable to replace or recruit dealers in accordance with our business plans, our future operating results may be adversely affected.

Restrictive covenants in our secured credit facility may limit our current and future operations, particularly our ability to respond to changes in our business or to pursue our business strategies.

        We have a $40.8 million secured credit facility with Siemens First Capital Commercial Finance, LLC and FCC, LLC, or the Secured Lenders. The terms of our secured credit facility contain, and any future indebtedness of ours may contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to take actions that we believe may be in our interest. The secured credit facility limits our ability to, among other things:

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incur additional indebtedness;



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create or incur liens;



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guarantee indebtedness;



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make an investment in any other entity;



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pay dividends on or make distributions in respect of capital stock;

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dissolve or liquidate;



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be a party to any merger or consolidation or acquire all or substantially all of the assets or capital stock of any other entity;



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sell, transfer or otherwise dispose of any of our assets;



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enter into transactions with stockholders or affiliates;



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own or create directly or indirectly any subsidiaries;



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engage in any business other than the security alarm business substantially as currently conducted and operated by us;



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issue securities;



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make capital expenditures or enter into leases;



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enter into or amend in any material manner any dealer program pursuant to which we acquire from third parties security alarm contracts on a regular periodic basis;



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amend or otherwise modify our underwriting guidelines with respect to our customers, dealers and affiliates;



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enter into any sale-leaseback or similar transaction involving any of our property or assets or lease any real property; and,



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cancel any material claim or indebtedness owing to us or voluntarily prepay any indebtedness.

        You should read the discussions under the heading "Description of Secured Credit Facility" for further information about these covenants. A breach of the covenants or restrictions under the secured credit facility could result in a default and such default, if not cured or waived, may allow the Secured Lenders to accelerate the payment of the indebtedness. In the event the Secured Lenders accelerate the repayment of indebtedness, we cannot assure that we would have sufficient assets to repay such indebtedness. The restrictions contained in the secured credit facility could adversely affect our ability to finance our operations, make needed capital expenditures, make strategic acquisitions or investments or enter into alliances, withstand a future downturn in our business or the economy in general, engage in business activities, including future opportunities, that may be in our interest, and plan for or react to market conditions or otherwise execute our business strategies.

        Our financial results and our substantial indebtedness could adversely affect the availability and terms of any subsequent debt or equity financing.

Proceeds from our initial public offering of common stock will be pledged as collateral for our secured credit facility and, in the event of default under that credit facility, all or a portion of such proceeds may be used to satisfy outstanding indebtedness under the secured credit facility.

        All of the proceeds from our initial public offering of our common stock will be deposited in one or more bank accounts which will be pledged as collateral for outstanding indebtedness under our secured credit facility. If we default under our secured credit facility, the Secured Lenders may demand payment in full of all amounts outstanding under the secured credit facility and all or a portion of such proceeds may be used to pay such outstanding amounts, either voluntarily by us or by the lenders enforcing their security interest in the cash held in such bank accounts. If this occurs, we may have insufficient cash to continue operations and you may lose all or a portion of the value of your investment in our common stock.

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$6.5 million of the proceeds from our initial public offering of common stock will be held in a cash collateral account controlled by the Secured Lenders under our secured credit facility and may not be available to fund working capital or other cash requirements we may have during the term of the secured credit facility.

        The amount of the outstanding debt under our secured credit facility exceeds the value of the collateral securing that debt by $6.5 million. The terms of the secured credit facility require us to deposit $6.5 million of the proceeds from this offering, the Restricted Proceeds, into a cash collateral account controlled by the Secured Lenders. The amount required to be deposited into the Restricted Proceeds account shall not exceed $6.5 million through May 31, 2011, except upon the occurrence of an event of default under our amended secured credit facility. Thereafter, if the value of the collateral pledged as security for our obligations under the secured credit facility declines, we will be required to deposit additional amounts into the Restricted Proceeds account in an amount equal to the difference between the outstanding principal amount under the secured credit facility and the value of the collateral pledged as security for those obligations. Any additional amounts deposited into the Restricted Proceeds account as collateral will likely come from remaining proceeds of this offering or cash flow from operations, which will constrain our ability to acquire subscriber accounts and complementary businesses or otherwise fund working capital expenditures. This result may limit our ability to effect our strategy, and could have an adverse effect on our financial position, cash flows and results of operations. If the value of the collateral increases, an amount equal to the increased value of the collateral will be released from the Restricted Proceeds account into another cash collateral account, the Remaining Proceeds account. After funding the Restricted Proceeds account, the remaining net proceeds from this offering will be deposited into the Remaining Proceeds account. Amounts in the Restricted Proceeds account are not available to us for any purpose. Amounts in the Remaining Proceeds account will be available to us for such purposes as are permitted under the secured credit facility including to acquire customer accounts, invest in infrastructure and technology, and as ordinary and customary working capital.

        Our secured credit facility requires that, by no later than May 31, 2011, we cause the amount of outstanding debt to be no greater than the amount of collateral securing that debt. It is possible that proceeds of this offering may be used to repay part of the outstanding debt in order to ensure that, by May 31, 2011, the amount of outstanding debt is not greater than the amount of collateral securing that debt. If on May 31, 2011, the amount outstanding under the secured credit facility exceeds the value of the collateral, such excess amount will be deducted from the Remaining Proceeds account and applied as a prepayment of our obligations under the secured credit facility, which may have an adverse effect on our financial position, results of operations or cash flows.

Management's discretion to use proceeds from this offering is significantly restricted by the terms of our secured credit facility and may limit our ability to achieve our business objectives.

        The use of the net proceeds from this offering will be governed by the terms of our secured credit facility, which requires us to use the proceeds from this offering to acquire customer accounts meeting parameters set forth in our secured credit facility and for such other uses as are permitted under the secured credit facility including investment in infrastructure and technology, and as ordinary and customary working capital. Management has limited discretion in the use of proceeds from this offering. While the terms of our secured credit facility allow us to acquire customer accounts and execute our business strategy, restrictions on the use of proceeds limit our ability to achieve our business objectives, which could have a material adverse effect on our business.

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Our obligations under our secured credit facility are secured by substantially all of our assets and any failure to meet our obligations under the secured credit facility could result in our Secured Lenders enforcing their security interest in our assets, causing us to cease operations and resulting in a partial or complete loss of your investment in our common stock.

        In connection with our secured credit facility, we have granted to the Secured Lenders a security interest in substantially all of our assets. If an event of default occurs under our secured credit facility, the Secured Lenders may seek to enforce their security interest in our assets, which could result in a partial or complete transfer of our assets to the Secured Lenders. This could have a material adverse effect on our business, cause us to cease operations and result in a complete loss of your investment in our common stock.

We may be unable to pay our outstanding obligations under our secured credit facility on May 25, 2012, its maturity date, which could result in the Secured Lenders enforcing their security interest in our assets, causing us to cease operations and resulting in a partial or complete loss of your investment in our common stock.

        Amounts outstanding under our secured credit facility are to be repaid based upon collections from the security alarm accounts we own. To the extent that such collections are not sufficient to repay our obligations under our secured credit facility on May 25, 2012, the expiration date of the secured credit facility, the remaining amount outstanding under the secured credit facility will be due and payable in full. The Secured Lenders have indicated to us that they will not extend the maturity date of the secured credit facility, therefore, on the maturity date we must either use our cash resources, to the extent available, or secure alternative financing to repay amounts outstanding under the secured credit facility. We may not have the cash resources necessary to repay our remaining obligation under the secured credit facility on the maturity date and we may not be successful in obtaining alternative financing to repay amounts owed under the secured credit facility. In such event, the Secured Lenders under our secured credit facility may exercise their rights as secured creditors to force a sale of our assets to repay amounts outstanding under the secured credit facility which could have a material adverse effect on our business, cause us to cease operations and result in a partial or complete loss of your investment in our common stock.

We operate in a highly competitive industry which may make it difficult for us to execute on our growth strategy.

        The security alarm monitoring industry is highly competitive and highly fragmented. We compete with several companies that have account acquisition programs for independent dealers and some of those competitors are larger than we are and have more capital than we do. Some of the major companies we compete against include ADT Security Services, Inc., a subsidiary of Tyco International, Ltd.; Protection One, Inc.; Monitronics International Inc.; Guardian Protection Services; and Security Networks, LLC. Competition from other alarm monitoring companies could require us to increase the purchase price we pay for subscriber accounts, decrease the monitoring fees we charge our subscribers and take other measures that could reduce our margins. These increases, decreases and other measures could have an adverse effect on our results of operations.

        We also experience competitive pricing pressures on monitoring rates. Competitive pressure on monitoring and service fees is significant. We believe that the monitoring and service fees we offer are generally competitive with rates offered by other major security companies. Continued pricing pressure could adversely impact our customer base or pricing structure and have an adverse effect on our results of operations.

        We also face potential competition from improvements in self-monitoring systems, which enable customers to monitor their home environment without third-party involvement. Advances in

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self-monitoring systems could progress to the point where we could be at a competitive disadvantage. Similarly, it is possible that one or more of our competitors could develop a significant technical advantage over us that allows them to provide additional service or better quality service or to lower their price, which could put us at a competitive disadvantage. Either development could adversely affect our growth and results of operations.

We are susceptible to downturns in the housing market and consumer discretionary income, which may inhibit our ability to sustain subscriber base growth rates.

        Demand for alarm monitoring services is affected by the turnover in the housing market. Downturns in the rate of the sale of new and existing homes, which we believe will drive a substantial portion of our new customer volume in any given year, would reduce opportunities to make sales of new security systems and services and reduce opportunities to take over existing security systems. In addition, because of personal economic circumstances, current security alarm customers may decide to forego installation of alarm systems or disconnect our services in an effort to reduce their monthly spending and may default on their remaining contractual obligations to us. Our long-term revenue growth rate depends on account acquisitions and installations exceeding disconnects. If the housing market downturn is prolonged, our revenues and cash flow may be adversely affected. If the general economic downturn is prolonged, this could lead to an increase in customer disconnects and defaults, and may also adversely affect our revenues and cash flow.

Our financial results may be negatively impacted by recent financial events.

        Recent financial events have resulted in the consolidation, failure or near failure of a number of institutions in the banking, insurance and investment banking industries and have substantially reduced the ability of companies to obtain financing. These events have also led to a substantial reduction in stock market valuations and job losses, and could have a number of different effects on our business, including a reduction in consumer spending, which could result in increased customer disconnects and/or a reduction in new customer additions; a negative impact on the ability of customers to timely pay their obligations to us, thus reducing our cash flow; and restricted access to capital markets that may limit our ability to take advantage of business opportunities, such as acquisitions.

        Other events or conditions may arise directly or indirectly from financial events that could negatively impact our business.

Increased adoption of statutes and governmental policies purporting to void automatic renewal provisions in our customer contracts, or purporting to characterize certain of our charges as unlawful, may adversely affect our business.

        Our customer contracts typically contain provisions automatically renewing the term of the contract at the end of the initial term, unless cancellation notice is delivered in accordance with the terms of the contract. If the customer cancels prior to the end of the contract term, other than in accordance with the contract, we may charge the customer the amounts that would have been paid over the remaining term of the contract, or charge an early cancellation fee.

        Several states have adopted, or are considering the adoption of, consumer protection policies or legal precedents which purport to void the automatic renewal provisions of our customer contracts, or otherwise restrict the charges we can impose upon contract cancellation. Such initiatives could compel us to increase the length of the initial term of our contracts, increase our charges during the initial term, or both, and consequently lead to less demand for our services and increase our attrition. Adverse judicial determinations regarding these matters could cause us to incur legal exposure to customers against whom such charges have been imposed, and the risk that certain of our customers may seek to recover such charges through litigation. In addition, the costs of defending such litigation and enforcement actions could have an adverse effect on us.

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Increased litigation against us regarding our business practices could have a material adverse effect on our financial position, results of operation or cash flows.

        We are currently a defendant in a class action with respect to our business practices in South Carolina. We are also subject to investigation by the attorney generals in Wisconsin and Washington and have received consumer complaints from the offices of attorney generals in many states. Although we do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our financial position, we must incur the costs of defending such proceedings. However, additional class action lawsuits or enforcement actions by state attorney generals in the future could adversely affect our business.

Shifts in our customers' choice of telecommunications services and equipment could adversely impact our business and require significant capital expenditures.

        Certain elements of our operating model have historically relied on our customers' continued selection and use of traditional land-line telecommunications to transmit alarm signals to our monitoring centers. There is a growing trend for customers to switch to the exclusive use of cell-phone, satellite, or internet communication technology in their homes and businesses, and we anticipate telecommunication providers to permanently switch from land-line to broadband communications in the future. The use of communications other than land-line would require customers to upgrade to alternative, and often more expensive, technologies to transmit alarm signals, which generally result in increased recurring revenues for us. This, however, could increase our customer attrition rates, slow down our new subscriber rates, or reduce our ability to attract a sufficient volume of new customers. In the future, we may not be able to successfully implement new technologies or adapt existing technologies to changing market demands. If we are unable to continue to adapt timely to changing technologies, market conditions, or customer preferences, it could adversely affect our business.

We rely on third party providers for the components of our security systems and any failure or interruption in products or services provided by these third parties could harm our ability to operate our business.

        The components for the security systems that we repair are manufactured by third parties. We are therefore susceptible to interruptions in supply and to the receipt of components that do not meet our high standards. Any financial or other difficulties our providers face may have negative effects on our business. We exercise little control over our suppliers, which increases our vulnerability to problems with the products and services they provide. Any interruption in supply could cause delays in installations and repairs and the loss of current and potential customers. Also, if a previously installed component were found to be defective, we might not be able to recover the costs associated with its repair or replacement, and the diversion of technical personnel to address such an issue could affect subscriber, revenue, and profit growth.

An interruption to our monitoring facility could adversely affect our business.

        A disruption to our monitoring facility could disrupt our ability to provide alarm monitoring services and serve our customers which could have a material adverse effect on our business. The disruption could occur for many reasons, including fire, natural disasters, weather, disease, transportation interruption, or terrorism.

We are exposed to greater risks of liability for employee acts or omissions, or system failure, than may be inherent in other businesses.

        If a subscriber believes that he or she has suffered harm to person or property due to an actual or alleged act or omission of one of our employees or security system failure, he or she may pursue legal action against us, and the cost of defending the legal action and of any judgment could be substantial. Substantially all of our customer contracts contain provisions limiting our liability; however, in the

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event of litigation with respect to such matters, it is possible that these limitations may be deemed not applicable.

We could be assessed penalties for false alarms, which could have an adverse impact on our results of operations.

        Some local governments impose assessments, fines, penalties and limitations on either subscribers or the alarm companies for false alarms. A few municipalities have adopted ordinances under which both permit and alarm dispatch fees are charged directly to the alarm companies. Our alarm service contracts generally allow us to pass these charges on to customers. If more local governments were to impose assessments, fines or penalties, our customers might find these additional charges prohibitive and the growth of our subscriber base could be adversely affected. Further, to the extent we are unable to pass assessments, fines and penalties on to our customers, our operating results could be adversely affected.

Police departments could refuse to respond to calls from monitored security service companies which could affect our ability to attract and retain subscribers and negatively impact our results of operations.

        Police departments in a limited number of U.S. cities do not respond to calls from monitored security service companies, either as a matter of policy or by local ordinance. We have offered affected customers the option of receiving response from private guard companies, in most cases through contracts with us, which increases the overall cost to customers. If more police departments were to refuse to respond or be prohibited from responding to calls from monitored security service companies, our ability to attract and retain subscribers could be negatively impacted and our results of operations and cash flow could be adversely affected.

Our business operates in a regulated industry and we may incur additional costs due to changing regulations or enforcement of existing regulations, which could negatively impact our results of operations.

        Our operations and employees are subject to various U.S. federal, state and local consumer protection, licensing and other laws and regulations. Most states in which we operate have licensing laws directed specifically toward the monitored security services industry. Our business relies heavily upon wireline telephone service to communicate signals. Wireline telephone companies are currently regulated by both the federal and state governments.

        Changes in laws or regulations could require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable laws or regulations could result in substantial fines or revocation of our operating permits and licenses. If laws and regulations were to change or we fail to comply with applicable laws or regulations, our business, financial condition and results of operations could be materially and adversely affected.

Our success and growth strategy depend on our senior management and our ability to attract and retain qualified personnel.

        We depend on our senior management for the success and future growth of our operations and revenue, and the loss of any member of our senior management team could have an adverse impact on our operations. Any management transition may be a distraction to senior management as we search for a qualified replacement, could result in significant recruiting, relocation, training and other costs and could cause operational inefficiencies as a replacement becomes familiar with our business and operations.

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We could incur substantial costs as the result of violations of, or liabilities under, environmental laws, which could have a negative impact on our results of operations.

        Our facilities and operations are subject to U.S. laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the environment, the management and disposal of hazardous substances and wastes, and the cleanup of contamination. Failure to comply with these laws and regulations, or with the permits required for our operations, could result in fines or civil or criminal sanctions, third-party claims for property damage or personal injury, and corrective investigation and cleanup costs. Some laws impose strict liability, and in certain circumstances joint and several liability, on current and former owners and operators of contaminated sites and other potentially responsible parties for investigation, cleanup and other costs. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future, including those imposed in response to climate change concerns. Compliance with any current or future laws and regulations could have an adverse effect on our business and results of operations.

We may incur liabilities or suffer adverse financial consequences as a result of occupational health and safety matters.

        Our operations are subject to extensive laws and regulations relating to the maintenance of safe conditions in the workplace. Our industry involves a high degree of operational risk and there can be no assurance that we will avoid significant liability exposure. Our business is subject to numerous safety risks, such as electrocutions, fires, burns, falls, mechanical failures, weather-related incidents, transportation accidents and damage to equipment on which we work. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and other consequential damages and could lead to suspension of operations, large damage claims and, in extreme cases, criminal liability.

Due to a concentration of accounts in the States of California and Washington, we are susceptible to environmental incidents that may negatively impact our results of operations.

        Approximately 13% and 8% of our RMR at September 30, 2010 was derived from customers located in California and Washington, respectively. A major earthquake, hurricane or other environmental disaster in an area of high account concentration could disrupt our ability to serve those customers or render those customers uninterested in continuing to retain us to provide alarm monitoring services.

In the event that adequate insurance is not available or our insurance is not deemed to cover a claim, we could face liability.

        We carry insurance of various types, including general liability and professional liability insurance, in amounts management considers adequate and customary for the industry. Some of our insurance policies, and the laws of some states, may limit or prohibit insurance coverage for punitive or certain other types of damages, or liability arising from gross negligence. If we incur increased losses related to employee acts or omissions, or system failure, or if we are unable to obtain adequate insurance coverage at reasonable rates, or if we are unable to receive reimbursements from insurance carriers, our financial condition and results of operations could be materially and adversely affected.

The loss of our Underwriter Laboratories listing could negatively impact our competitive position.

        Our alarm monitoring center is Underwriters Laboratories, or UL, listed. To obtain and maintain a UL listing, an alarm monitoring center must be located in a building meeting UL's structural requirements, have back-up and uninterruptible power supplies, have secure telephone lines and maintain redundant computer systems. UL conducts periodic reviews of alarm monitoring centers to

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ensure compliance with their regulations. Non-compliance could result in a suspension of our UL listing. The loss of our UL listing could negatively impact our competitive position.

Risks Relating to Our Relationship with Our Significant Stockholder

Following the offering, Alarm Funding will continue to own a significant percentage of our common stock and, therefore, will have control over outcome of director elections and other matters requiring stockholder approval, including a change in corporate control.

        Following the offering, Alarm Funding will own approximately 53.6% of our outstanding common stock, or 50.4% of our outstanding common stock if the underwriters exercise their over allotment option in full. Alarm Funding's Managing Director, Westin Lovy, is also on our board of directors. As a result of this ownership position, Alarm Funding will continue to control the outcome of matters requiring stockholder approval, including:

•

election of our directors;



•

amendment of our certificate of incorporation or bylaws; and



•

approval of mergers, consolidations or the sale of all or substantially all of our assets.

        The directors of Alarm Funding may cause Alarm Funding to vote its shares of our common stock in ways that are adverse to the interests of other holders of our common stock, including investors in the offering. Its significant ownership interest could delay, prevent or cause a change in control of our company, any of which could adversely affect the market price of our common stock. In addition, Alarm Funding's significant percentage of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning stock in companies with a controlling stockholder. For additional information regarding our relationship with Alarm Funding, see "Certain Relationships and Related-Party Transactions."

Alarm Funding and its designee on our board of directors may have interests that conflict with our interests and the interests of our other stockholders.

        Alarm Funding and its designee on our board of directors, Westin Lovy, may have interests that conflict with, or are different from, our own and those of our other stockholders. Conflicts of interest may not be resolved in a manner favorable to us or our other stockholders.

Risks Relating to our Common Stock and this Offering

Our share price may be volatile and you may be unable to sell your shares at or above the offering price, if at all.

        The initial public offering price for the shares of our common stock was determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

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actual or anticipated fluctuations in our financial condition and operating results;



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overall conditions in the residential or commercial alarm market;



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addition or loss of customers;



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changes in laws or regulations applicable to our products;



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actual or anticipated changes in our growth rate relative to our competitors;



•

announcements of technological innovations by us or our competitors;

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•

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;



•

additions or departures of key personnel;



•

issuance of new or updated research or reports by securities analysts;



•

fluctuations in the valuation of companies perceived by investors to be comparable to us;



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announcement or expectation of additional financing efforts;



•

sales of our common stock by us or our stockholders;



•

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;



•

the expiration of contractual lock-up agreements with our executive officers, directors and stockholders; and



•

general economic and market conditions.

        Furthermore, the stock markets recently have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

        We intend to use the net proceeds from this offering to acquire complementary businesses and/or customer accounts and for general corporate purposes, including working capital and infrastructure enhancements, subject to the restrictions in our secured credit facility. However, while we believe significant acquisition opportunities exist at attractive prices, we do not have any agreements or commitments for any specific acquisitions at this time. Our management will have discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value.

If there are substantial sales of our common stock or issuances of our common stock by us, our stock price could decline.

        The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after the offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

        Upon completion of the offering, 4,218,182 shares of our common stock will be outstanding. All of the shares of common stock expected to be sold in the offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, unless held by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The resale

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of the remaining 2,400,000 shares, or 56.9% of our outstanding shares after the offering, is currently prohibited or otherwise restricted as a result of securities law provisions, market stand-off agreements entered into by our stockholders with us or lock-up agreements entered into by our stockholders with the underwriters; however, subject to applicable securities law restrictions and certain extensions, these shares will be able to be sold in the public market beginning 180 days after the date of this prospectus. In addition, the shares reserved for future issuance under our equity incentive plan will become available for sale immediately upon the exercise of such options and the expiration of any applicable market stand-off or lock-up agreements. For more information see "Shares Eligible for Future Sale."

        In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, employee arrangement or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause the value of our common stock to decline.

We currently do not intend to pay dividends on our common stock.

        We have never paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Instead, we anticipate that all of our earnings will be used to provide working capital to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects and other factors as our board of directors may deem relevant. The ability of our board of directors to declare any cash dividends is subject to limits imposed by the terms of our credit agreement, which currently prohibits us from paying dividends on our common stock.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

        Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:

•

require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;



•

specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of the Board, the Chief Executive Officer or the President;



•

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;



•

provide that our directors may be removed only for cause;



•

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and



•

specify that no stockholder is permitted to cumulate votes at any election of directors.

        These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested" stockholder for a period of three years

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following the date on which the stockholder became an "interested" stockholder. See "Description of Capital Stock" elsewhere in this prospectus.

If securities or industry analysts do not publish research or reports about our business, or if they publish unfavorable research about our business or our stock, our stock price and trading volume could decline.

        The trading market for our common stock will be influenced in part by the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities analysts. If no securities or industry analysts commence coverage of us, the trading price for our stock may be negatively affected. If securities or industry analysts do begin coverage of us, and if one or more of the analysts who cover us downgrades our stock or publishes unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which could cause our stock price and trading volume to decline.

The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain qualified board members.

        As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the listing requirements of NASDAQ and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight may be required. When we are required to assess and evaluate our disclosure controls and procedures and internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, we may have a material weakness. As a result, management's attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. Although we have already hired additional staff to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses. We estimate that our annual incremental cost associated with compliance with Section 404 of the Sarbanes-Oxley Act will be approximately $100,000.

        In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

        We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" or similar expressions and the negatives of those terms.

        Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in "Risk Factors" and elsewhere in this prospectus. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

        Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

        This prospectus also contains estimates and other information concerning our industry, including market size and growth rates, that are based on industry publications, surveys and forecasts. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. These industry publications, surveys and forecasts generally indicate that their information has been obtained from sources believed to be reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in "Risk Factors." These and other factors could cause results to differ materially from those expressed in these publications, surveys and forecasts.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from the sale of our common stock in the offering of approximately $16.8 million, based upon an assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share would increase or decrease the net proceeds to us from the offering by approximately $1.7 million, assuming the number of shares offered by us, as indicated on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to create a public market for our common stock, obtain additional capital, facilitate our future access to the public equity markets, increase awareness of our company among potential customers and improve our competitive position. Under the terms of our amended secured credit facility with Siemens First Capital Commercial Finance, LLC and FCC, LLC, or the Secured Lenders, we are required to deposit $6.5 million of the net proceeds of this offering, representing the difference between the value of the collateral, as determined in accordance with the amended secured credit facility, and the outstanding principal balance under our amended secured credit facility, or the overadvance, into a cash collateral account controlled by the Secured Lenders, or the Restricted Proceeds account. Amounts in the Restricted Proceeds account will not be available to us for any purpose. After funding the Restricted Proceeds account, the remaining net proceeds from this offering will be deposited into another separate cash collateral account pledged to the Secured Lenders, the Remaining Proceeds account. The amount required to be deposited into the Restricted Proceeds account shall not exceed $6.5 million through May 31, 2011, except upon the occurrence of an event of default under our amended secured credit facility. To the extent we are able to acquire additional alarm accounts, increasing the value of the collateral, and we request and obtain an updated appraisal of the alarm accounts, the Secured Lenders will release an amount equal to the resulting decrease in the overadvance to us by depositing such funds from the Restricted Proceeds account into the Remaining Proceeds account. After May 31, 2011, if the value of the collateral pledged as security for our obligations under our secured credit facility declines, we will be required to deposit additional amounts into the Restricted Proceeds account in an amount equal to the overadvance. Amounts in the Remaining Proceeds account will be available to us for such purposes as are permitted under the secured credit facility, including to acquire customer accounts, invest in infrastructure and technology, and as ordinary and customary working capital. We intend to use amounts in the Remaining Proceeds account for such permitted purposes.

        Our secured credit facility requires that, by no later than May 31, 2011, we cause the amount of outstanding debt to be no greater than the amount of collateral securing that debt. It is possible that proceeds of this offering may be used to repay part of the outstanding debt in order to ensure that, by May 31, 2011, the amount of outstanding debt is not greater than the amount of collateral securing that debt. If on May 31, 2011, the amount outstanding under the secured credit facility exceeds the value of the collateral, such excess amount will be deducted from the Remaining Proceeds account and applied as a prepayment of our obligations under the secured credit facility, which may have an adverse effect on our financial position, results of operations or cash flows.

        Within the permitted uses specified in our secured credit facility, our management will have discretion in the application of the net proceeds of this offering and investors will be relying on the judgment of management regarding the application of the proceeds.

DIVIDEND POLICY

        We currently do not anticipate paying any cash dividends after the offering. Instead, we anticipate that all of our earnings will be used to provide working capital to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects and other factors as our board of directors may deem relevant. The ability of our board of directors to declare any cash dividends is subject to limits imposed by the terms of our amended secured credit facility, which currently prohibits us from paying dividends on our common stock.

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CAPITALIZATION

        The following table sets forth our consolidated cash and cash equivalents and capitalization as of September 30, 2010:

        on an actual basis; and

        on an as adjusted basis to reflect:

•

the sale of 1,818,182 shares of our common stock in the offering at an assumed initial public offering price of $11.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), and



•

the application of the estimated net proceeds from the offering as described under "Use of Proceeds."

        The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with the sections entitled "Use of Proceeds," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

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DILUTION

        If you invest in our common stock in the offering, you will experience immediate and substantial dilution in the pro forma net tangible book value of your shares of our common stock. The pro forma net tangible book value of our common stock as of September 30, 2010 was $4.9 million, or approximately $2.02 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities divided by the pro forma number of shares of common stock outstanding on September 30, 2010.

        Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in the offering and the pro forma net tangible book value per share of our common stock immediately after the completion of the offering. After giving effect to the sale of shares of our common stock in the offering at an assumed public offering price of $11.00 (the midpoint of the estimated price range shown on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of September 30, 2010 would have been approximately $21.7 million, or approximately $5.13 per share. This represents an immediate increase in pro forma net tangible book value of $3.11 per share to existing stockholders and an immediate dilution of $5.87 per share to new investors purchasing shares of our common stock in the offering at the assumed initial public offering price.

        The following table illustrates this per share dilution:

        A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) our pro forma net tangible book value by $1.7 million, the pro forma net tangible book value per share after the offering by $0.40 per share and the dilution in pro forma net tangible book value to new investors in the offering by $0.40 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

        If the underwriters exercise their over allotment in full, pro forma net tangible book value per share after the offering will be $5.44, and dilution in pro forma net tangible book value per share to new stockholders will be $5.56.

        The following table presents, on a pro forma basis, as of September 30, 2010, the differences between the number of shares of common stock purchased from us, the total consideration paid or exchanged and the average price per share paid by existing stockholders and by new investors purchasing shares of our common stock in the offering before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The table assumes an initial public offering price of $11.00 per share, as specified above.

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