Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From
to .
Commission file number 0-25552
DUALSTAR TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3776834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 42nd Street, New York, NY 10017
(Address, including zip code of principal executive offices)
(212) 986-9186
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's common
stock, as of the latest practicable date.
Common Stock, $.01 Par Value --- 9,000,000 shares as of May 12, 1996
<PAGE>
Index
DualStar Technologies Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 1996 and
June 30, 1995
Condensed consolidated statements of operations - Three and nine
months ended March 31, 1996 and 1995
Condensed consolidated statements of cash flows - Nine months
ended March 31, 1996 and 1995
Notes to condensed consolidated financial statements - March 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K*
Signatures
* No exhibits are included in this filing
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1996 1995
(unaudited)
ASSETS (SUBSTANTIALLY PLEDGED)
Current assets:
Cash $ 4,309,540 $ 2,072,856
Marketable securities 1,746,463 5,854,147
Contracts receivable, net 14,150,648 15,920,385
Retainages receivable 4,825,785 3,938,669
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,479,035 125,133
Income taxes receivable 1,686,532 -
Prepaid expenses and sundry receivable 242,923 137,598
Deferred tax asset 524,000 84,000
------------ ------------
Total current assets 29,964,926 28,132,788
Property and equipment, net 942,596 753,716
Other assetss 325,623 388,131
------------ ------------
$31,233,145 $29,274,635
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,084,918 $ 9,791,112
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,564,603 1,848,122
Accrued expenses and other liabilities 2,642,219 1,622,348
Income taxes payable - 916,053
------------ ------------
Total current liabilities 18,291,740 14,177,635
Contingencies
Shareholders' equity:
Common stock 90,000 90,000
Additional paid-in capital 14,995,836 14,995,836
Retained earnings accumulated deficit) (2,144,431) 11,164
------------ ------------
$31,233,145 $29,274,635
============ ============
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Contract revenues earned $20,343,115 $19,417,019 $50,924,879 $49,712,020
Cost of revenues earned 18,302,912 17,616,059 44,900,705 45,035,067
------------ ------------ ------------ ------------
Gross profit 2,040,203 1,800,960 6,024,174 4,676,953
General and administrative expenses 2,178,596 1,534,583 5,961,274 4,002,564
Costs incurred in connection with
joint venture - - 4,096,428 -
----------- ------------ ------------ ------------
Income (loss) before provision for
income taxes (benefits) (138,393) 266,377 (4,033,528) 674,389
Provision for income taxes (benefits):
Federal, state and local (46,933) 116,000 (1,877,933) 303,000
Effect of S Corporation revocation - - - 660,000
------------ ------------ ------------ ------------
Net income (loss) ($91,460) 150,377 ($2,155,595) ($ 288,611)
============ ============ ============ ============
Per share data:
Primary ($0.01) $0.02 ($0.24) ($0.10)
Weighted average shares outstanding 9,000,000 6,700,000 9,000,000 5,167,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1996 1995
Cash used by operating activities ($1,550,345) ($1,388,948)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (320,655) (170,072)
Net redemption of (investment in)
marketable securities 4,107,684 (4,714,672)
Due to shareholders - (24,315)
------------ ------------
Net cash provided (used) by investing
activities 3,787,029 (4,909,059)
------------ ------------
Cash flows from financing activities:
Proceeds from initial public offering - 16,100,000
Initial public offering costs - (3,320,717)
Repayment of shareholders'loan - (1,000,000)
Distributions to former shareholders'
of wholly-owned subsidiaries - (600,000)
Proceeds from stock subscription receivable - 250,000
Proceeds from issuance of stock rights - 4,000
------------ ------------
Net cash provided by financing activities - 11,433,283
------------ ------------
Net increase in cash 2,236,684 5,135,276
Cash - beginning of period 2,072,856 1,694,899
------------ ------------
Cash - end of period $4,309,540 $6,830,175
============ ============
See notes to condensed consolidated financial statements
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three-
month and nine-month periods ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended June
30, 1996. For further information, refer to the financial statements and
footnotes thereto included in the DualStar Technologies Corporation and
Subsidiaries' annual report for the fiscal year ended June 30, 1995.
NOTE B - CONTINGENCIES
Centrifugal Associates, Inc. ("Associates"), one of the Company's
subsidiaries, was involved as a defendant in litigation proceedings with a
subcontractor who claimed approximately $207,000 for work performed. The court
had ordered Associates to establish an irrevocable letter of credit in favor
of the subcontractor in the amount of $207,000. The letter of credit was
collateralized by a $210,000 certificate of deposit. In March 1996, the
court issued a final judgment in favor of the subcontractor and the claim of
$207,000 was satisfied.
In April 1994, a subcontractor filed a claim against Associates seeking
approximately $300,000 for services rendered and legal services. Management
believes that the claim is without merit and, accordingly, no provision for
loss has been made in the accompanying financial statements.
<PAGE>
In August 1994, an individual commenced an action against Mechanical
Associates, Inc. ("Mechanical"), one of the Company's subsidiaries, in
connection with an auto accident in May 1993 involving a vehicle owned by
Mechanical and driven by an employee of Mechanical. The plaintiff is seeking
$2,000,000 in damages for unspecified injury. Management of the Company
believes that the foregoing claim is without merit and, in any event, may be
covered under Mechanical's general liability insurance policy.
Associates is a partner in a joint venture that has performed mechanical and
electrical services for a general contractor on the Lincoln Square project.
Associates was responsible for the mechanical portion of the contract, and
its co-venturer was responsible for the electrical portion. The joint
venture's work on this project is complete and the joint venture has received
demands for payment from certain vendors used by the co-venturer of
Associates. These vendors have filed liens and/or made demands against the
joint venture payment bond amounting to approximately $1.5 million. Some of
these vendors have also filed lawsuits against the joint venture, the joint
venture partners and the related bonding companies, to secure payment on their
claims. These claims are based on the alleged failure of the joint venture
partner to pay for electrical goods provided to it as the electrical
subcontractor of the joint venture. The joint venture's bonding companies
proposed settling with the claimants; the bonding companies would then seek
indemnification from the joint venture. It is management's opinion that it
would cost the Company less if this settlement process is managed and
completed by the Company. There can be no assurance that these claims can be
settled on a basis favorable to the Company.
The general contractor on the Lincoln Square project advanced funds directly to
Associates' joint venture partner. The general contractor later stated that
such advances would be deducted from the payments owed to the joint venture for
mechanical work that Associates performed on the project. During the course of
the project, Associates also incurred additional costs to finish the electrical
portion of the project on behalf of its co-venturer. Management is of the
opinion that there is substantial doubt as to the collectability of such
receivable or additional costs.
Based on these developments, the Company has recorded a reserve of
approximately $4.1 million with respect to the claims, bad debts and costs
the Company incurred on behalf of Associates' co-venturer in fulfillment of the
electrical co-venturer's obligations under the contract on the Lincoln Square
project.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Sources of Capital
Cash used by operations was $1,550,000 for the nine-month period ended March
31, 1996 as compared to cash used by operations of $1,389,000 in the
comparable period of 1995. The Company's working capital at March 31, 1996
decreased by $2,281,000 from June 30, 1995. The decrease was due primarily
to the costs incurred in connection with the joint venture. These costs were
due solely to the recording of a reserve with respect to the claims, bad debts
and costs the Company incurred on behalf of Associates' co-venturer in
fulfillment of the electrical co-venturer's obligations under the contract on
the Lincoln Square project. Future cash outlays will be limited primarily to
the settlement of claims. The startup of the Company's new subsidiaries also
contributed to this decrease in working capital. The Company anticipates that
future cash generated by operations and available cash will be sufficient to
meet its normal operating requirements and the settlement of claims.
The Company also intends to identify and evaluate merger and acquisition
candidates engaged in lines of business complementary to its core business
and/or to the new businesses which the Company is developing. While certain
potential acquisition opportunities are at various stages of consideration
and evaluation, none are at a definitive stage at this time. If the Company
decides to proceed with one or more acquisitions, it may require additional
capital to consummate such transactions. There can be no assurance that the
Company will be able to obtain such capital on terms satisfactory to it.
Results of Operations
Contract revenues increased 5% in the three-month period ended March 31, 1996
to $20.3 million, up approximately $926,000 over the comparable period in
1995. For the nine-month period ended March 31, 1996, contract revenues were
$50.9 million, approximately $1.2 million, or 2% higher than the same period
in 1995. Such increases in the three- and nine-month periods ended March 31,
1996 were attributable to the additional revenues generated by the Company's
new subsidiaries.
Gross profit increased $239,000 or 13% in the three-month period ended March
31, 1996 and $1.3 million or 29% in the nine-month period ended March 31,
1996. In addition, the gross profit margins were 10% and 11.8% for the three-
and nine-month periods ended March 31, 1996 respectively, as compared to 9.3%
and 9.4% for the same periods in 1995. The improvements were attributable
primarily to higher gross profit margins of the Company's emerging businesses.
<PAGE>
General and administrative expenses increased $644,000 or 42% in the three-
month period ended March 31, 1996 and $1.9 million or 49% in the nine-month
period ended March 31, 1996. The increases were due primarily to the
startup of several new subsidiaries in lines of business that complement
the Company's core business. The Company also incurred additional
administrative expenses associated with being a publicly-held company.
Costs incurred in connection with the joint venture that performed services
on the Lincoln Square project were approximately $4.1 million for the nine-
month period ended March 31, 1996. These costs were due solely to the
recording of a reserve with respect to the claims, bad debts and costs the
Company incurred on behalf of Associates' co-venturer in fulfillment of the
electrical co-venturer's obligations under the contract on the Lincoln Square
project.
Net loss was approximately $91,000 in the three-month period ended March 31,
1996 as compared to net income of $150,000 for the comparable period in 1995.
The loss was attributable primarily to the new subsidiaries. A net loss of
approximately $2.2 million was incurred for the nine-month period ended March
31, 1996 as compared to a net loss of $289,000 for the same period in 1995.
The losses in 1996 were due primarily to the reserve discussed in the
preceding paragraph and also in Note B of the notes to the condensed
consolidated financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note B to the Company's condensed consolidated financial
statements set forth in Part I of this quarterly report on Form 10-Q for
updated information relating to the litigation involving the Company.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended March
31, 1996
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DualStar Technologies Corporation
Date May 14, 1996 By: GREGORY CUNEO
Gregory Cuneo
President and Chief Executive Officer
Date May 14, 1996 By: STEPHEN J. YAGER
Stephen J.Yager
Chief Financial Officer
