SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X ] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 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
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DualStar Technologies Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3776834
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
150 East 42nd Street, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 986-9186
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Class A Warrants
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 .
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<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
[ X ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of September 6, 1996 was $5,484,700, based
upon the closing price ($0.81) for such Common Stock on such date.
The number of shares outstanding of Registrant's Common Stock, as
of September 6, 1996, was 9,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in the
respective Part of this Form 10-K noted below:
1. Registrant's definitive Proxy Statement, to be filed in
connection with its Annual Meeting of Shareholders scheduled
to be held on November 13, 1996, is incorporated by reference
in Part III hereof.
<PAGE>
PART I
ITEM 1 - BUSINESS
(a) General Development of Business.
DualStar Technologies Corporation ("DualStar") was incorporated in
the State of Delaware on June 17, 1994. In August, 1994, DualStar acquired
Centrifugal Associates, Inc., New York, New York ("Associates"), Centrifugal
Service, Inc., New York, New York ("Service") and Mechanical Associates, Inc.,
Brooklyn, New York ("Mechanical") in an exchange of securities, and
Associates, Service, and Mechanical each became wholly owned subsidiaries of
DualStar. Associates began operations in 1964, Mechanical in 1989, and Service
in 1992.
DualStar formed Trident Mechanical Systems, Inc., Long Island City,
New York ("Trident") and The Automation Group, Inc., Brooklyn, New York
("TAG") in May of 1995. DualStar formed Property Control, Inc., Brooklyn, New
York ("PCI") and Centrifugal/Mechanical Associates, Inc., Brooklyn, New York
("CMA") in June of 1995. DualStar formed High-Rise Electric, Inc., Long Island
City, New York ("High-Rise") in July of 1995. DualStar formed Grace Systems
Technologies, Inc., New York, New York ("Grace") and DualStar Communications,
Inc., Brooklyn, New York ("DCI") in February of 1996. DualStar formed
Integrated Controls Enterprises, Inc., Brooklyn, New York ("ICE") in August
1996.(DualStar, Associates, Mechanical, Service, Trident, TAG, PCI, CMA,
High-Rise, Grace, DCI and ICE are hereinafter collectively referred to as the
"Company.") Each subsidiary is a wholly owned subsidiary of DualStar, except
that CMA is owned 50% by Associates and 50% by Mechanical.
(b) Financial Information About Industry Segments.
The Company does not presently have more than one segment and,
accordingly, no financial information relating to industry segments is set
forth herein.
(c) Narrative Description of Business.
Associates, Mechanical and Service engage in mechanical contracting
services. Service's engagements are generally performed under short-term
service contracts, whereas Associates' and Mechanical's engagements are
generally performed under fixed price long-term contracts undertaken with
general contractors, with the lengths of such long-term contracts varying, but
typically ranging from one to two years. Service also engages in activities
relating to the retrofitting of equipment to eliminate the use of
chlorofluorocarbon (CFC) refrigerants.
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High-Rise designs and installs sophisticated electrical systems for
newly constructed residential high-rise buildings. Some of the work performed
by High-Rise (e.g., installation of control wiring) was previously
subcontracted by the Company to other non- DualStar companies.
Trident provides medium-sized institutions and commercial buildings
with heating, ventilation and air conditioning ("HVAC") systems, generally
pursuant to contracts valued at less than $1 million. In addition, Trident
provides HVAC service and maintenance.
TAG develops and maintains information systems for small and
medium-sized businesses and provides professional computer contract services.
TAG also designs and constructs World Wide Web sites and Intranet applications
for its larger corporate clients, in addition to developing the Company's Web
site (www.dualstar.com) and providing the Company with technical support.
Grace develops and maintains sophisticated security, video
intercom, fire/smoke alarm and building control systems for high-rise
residential buildings and businesses.
DCI designs and installs state-of-the-art information technology
infrastructure in high-rise buildings and provides services (e.g., telephone)
that utilize such infrastructure.
ICE was formed to act as a supplier and installer of commercial
temperature control systems and facility management systems. In general, ICE
will act as a subcontractor to mechanical subcontractors, including those of
the Company. Occasionally, ICE will work directly for real property owners or
general contractors.
PCI owns or manages the Company's fixed asset or office peripheral
needs, e.g., ownership of real property, the setting of office air
conditioners. PCI will also monitor inventories among the Company's divisions,
and will be responsible for keeping all DualStar facilities in compliance with
OSHA regulations.
CMA acts as a common paymaster for Mechanical, Associates and
Service in order to facilitate the utilization of employees covered by
collective bargaining agreements.
Major Customers. The Company's customers, which are concentrated in
the New York Tri-State area, include various general contractors, banks,
hospitals, hotels, insurance companies, securities exchanges, state and local
governmental agencies, and subcontractors. For the year ended June 30, 1996,
revenue derived from five customers (Lehrer McGovern Bovis, Inc., Morse Diesel
International, Inc., HRH Construction Corp., Gotham Construction Corp. and
Morgan Guaranty Trust Co. of NY) amounted to approximately 33%, 18%, 15%, 6%
and 6%, respectively. For the year ended June 30,
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1995, revenue derived from three customers (Lehrer McGovern Bovis, Inc., Morse
Diesel International, Inc. and New York Life Insurance Company) amounted to
approximately 39%, 28% and 9%, respectively.
Manufacturing. The Company's production and engineering facilities
are capable of fabricating and assembling mechanical and electromechanical
systems and subsystems. The Company maintains a comprehensive engineering test
and inspection program to ensure that all systems meet exacting customer
requirements for performance and quality workmanship to delivery. In addition,
pipe fabrication and machine shops allow for the manufacture of both prototype
and production hardware. To support its internal operation and to extend its
overall capacity, the Company purchases a wide variety of components,
assemblies and services from proven outside manufacturers, distributors and
service organizations.
Marketing and Sales. For Associates, Mechanical, Service and
High-Rise, the Company's marketing strategy has focused on cultivating
long-term relationships with developers, mechanical and electrical engineers
and general contractors. As a result of its limited and focused target market,
the Company's marketing efforts rely primarily on direct sales efforts
(including engineering presentations) which emphasize the Company's quality
control and value engineering. The relatively high dollar value of each
contract (approximately $5 million, except for Service's contracts which are
generally less than $1 million), combined with the technically complex nature
of the projects covered by the Company's contracts result in an in-depth and
complex purchase decision process for each contract. The selling cycle for the
Company's contracts typically lasts approximately 90 days. Sales activities
are handled by a combination of direct sales personnel and independent sales
representatives, who may also sell products of the Company's competitors. Due
to the depth of analysis involved in the customer's purchase decision,
management emphasizes active interaction between the direct sales staff, its
independent sales representatives and the buyer throughout the selling
process.
Trident's marketing strategy has focused on the solicitation of
property owners, tenants and property management companies. The marketing
strategy for TAG is to create relationships with computer system project
managers and purchasing departments. In addition, a detailed technical
analysis and systems prototyping may be performed by TAG to enhance such
relationships. Grace's and DCI's strategy has been to provide the Company's
existing clients with services and products not previously offered by the
Company. ICE intends to solicit property owners and general contractors, in
addition to serving the mechanical subsidiaries of DualStar.
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Sources of Supply and Backlog. The raw materials, such as pipe,
fittings and valves, and electrical components used in the development and
manufacture of the Company's mechanical and electromechanical engineering
products are generally available from domestic suppliers at competitive spot
prices; fabrication of certain major components may be subcontracted for on an
as-needed basis. The Company does not have any long term contracts for its raw
materials. The Company has not experienced any significant difficulty in
obtaining adequate supplies to perform under its contracts.
At fiscal year ending June 30, 1996, the Company's backlog was
approximately $41 million as contrasted with approximately $41 million at June
30, 1995. The Company believes that most of its backlog at June 30, 1996 will
be completed prior to December 31, 1997, but no assurances can be given with
respect thereto. In general, backlog represents the total value of unbilled
revenue on all contracts awarded on or before a specified date. The Company
does not believe that its backlog at any particular time is necessarily
indicative of its future business or performance.
Customer Service and Support. Given the high cost of downtime, it
is imperative that any malfunction in one of the Company's products or
systems, regardless of cause, be addressed in the shortest possible time. The
Company therefore provides a 24-hour a day phone service which can be used to
request service support. The Company's service organization consists of
technicians, mechanics and engineers reporting to customer service managers
who not only are intimately familiar with its own products, but also with
other system components. Additionally, the Company has made arrangements with
many of its component suppliers whereby they have agreed to provide service
specialists within 24 hours should the need arise. Such calls are coordinated
through the Company's service manager who is assisted by a full-time service
administrator. The Company's service personnel have their formal training
augmented by direct participation in testing of systems at the Company's
facility and also in the installation and acceptance tests at the customer's
facility.
Patent, Trademark, Servicemark, Copyright and Proprietary Rights.
The Company currently has six trademark and nine servicemark applications
pending. The Company has not made any patent or copyright applications. The
Company may file patent or copyright applications, or additional trademark or
servicemark applications, relating to certain of the Company's mechanical,
electrical, electronic and control, environmental, information technology and
telecommunication products and services. Nevertheless, if patents are issued,
or trademarks, servicemarks or copyrights are registered, there can be no
assurance as to the extent of the protection that will be granted to the
Company as a result of having such patents, trademarks, servicemarks or
copyrights or that the Company will be able to afford the expenses of any
complex
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litigation which may be necessary to enforce their proprietary rights. Failure
of any future or existing patents, trademark, servicemark and copyright
applications may have a material adverse impact on the Company's business
since the Company may not otherwise be able to protect the proprietary or
trade secret aspects of its business and operations, thereby diluting the
Company's ability to compete in the marketplace. Except as may be required by
the filing of patent, trademark, servicemark and copyright applications, the
Company will attempt to keep all other proprietary information secret and to
take such actions as may be necessary to insure the results of its development
activities are not disclosed and are protected under the common law concerning
trade secrets. Such steps may include the execution of nondisclosure
agreements by key Company personnel and may also include the imposition of
restrictive agreements on purchasers of the Company's products and services.
There is no assurance that the execution of such agreements will be effective
to protect the Company, that the Company will be able to enforce the
provisions of such nondisclosure agreements or that technology and other
information acquired by the Company pursuant to its development activities
will be deemed to constitute trade secrets by any court of competent
jurisdiction.
Regulation. Substantial environmental laws have been enacted in the
United States and in New York in response to public concern over environmental
deterioration. These federal, state and local laws and the implementing
regulations affect nearly every customer of the Company. Efforts to comply
with the requirements of these laws have increased demand for the Company's
services, and the Company believes that under the leadership of the current
federal administration there will be a trend toward increasing regulation and
government enforcement in the environmental area. The necessity that the
Company's clients comply with these laws and implementing regulations subjects
the Company to substantial liability. The Company believes that, to the best
of its information, knowledge and belief, it is in compliance with all
material federal, state and local laws and regulations governing its
operations.
In July 1995, the Company entered into an updated teaming and license
agreement with E.I. DuPont de Nemours ("DuPont") whereby the
Company has agreed to use DuPont's new CFC replacement products, which are in
constant development, in exchange for certain DuPont marketing information and
information regarding prospective industrial, commercial and institutional
customers that desire to have retrofits or equipment replacement performed at
their locations. The Company's retrofit or equipment replacement operations
may subject the Company to possible liabilities for environmental damage under
the Clean Air Act of 1970, among other federal, state or local laws and
regulations, should CFCs be released inadvertently in the atmosphere as a
result of such operations.
Potential Liability and Insurance. The Company's
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operations involve mechanical, electrical, electronic and control,
environmental, information technology and telecommunications infrastructure
contracting of major residential, commercial and institutional buildings and
facilities. The Company therefore is exposed to a significant risk of
liability for damage and personal injury. The Company maintains quality
control programs in an attempt to reduce the risk of potential damage to
persons and property and any associated potential liability. In addition, the
Company maintains up to $26 million of general liability insurance (in the
aggregate) covering damages resulting from negligent acts in rendering or
failing to render its services. The policy, however, does not include coverage
for comprehensive environmental impairment which may be caused by the
Company's actions.
The Company endeavors contractually to limit its potential
liability to the amount and terms of its insurance policy and to be
indemnified by its clients from potential liability to third parties. However,
the Company is not always able to obtain such limitations on liability or
indemnification, and such provisions, when obtained, may not adequately
shelter the Company from liability. Consequently, a partially or completely
uninsured claim, if successful and of sufficient magnitude, may have a
material adverse effect on the Company and its financial condition.
Competition. The mechanical, electrical, electronic and control,
environmental, information technology and telecommunications infrastructure
systems and service industries involve rapid technological change and are
characterized by intense and substantial competition. The Company's
competitors range from small firms to large multinational companies.
Except for the telecommunications service industry, the Company believes
that no single firm or group of firms dominates its markets.
Competition for private sector work generally is based on several factors,
including quality of work, reputation, price and marketing approach. The
Company believes that it is firmly established in the mechanical, electronic
and control, electrical and environmental industries and will be able to
maintain a strong competitive position in its areas of expertise by adhering
to its basic philosophy of delivering high-quality work in a timely fashion
within client budget constraints.
In both the private and public sectors, the Company, acting either
as a prime contractor or as a subcontractor, occasionally joins with other
firms to form a team that competes for contracts by submitting a jointly
prepared proposal. Because a team of firms will usually offer a stronger set
of qualifications that any single firm, teaming arrangements are sometimes
advantageous to the Company's success. These teaming relationships, however,
generate risk to the Company in the event that a non-DualStar team member
experiences financial difficulty or is otherwise unable to fulfill its
responsibilities on the project. The Company maintains a large network of
business relationships with other companies and has drawn repeatedly upon
these relationships to form winning teams.
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Moreover, each DualStar subsidiary may market its services independently, with
the potential to offer in concert with other DualStar subsidiaries,
comprehensive and complementary services on multi-million dollar construction
projects.
Most of the Company's contracts with public sector clients are
awarded through a competitive bidding process that places no limit on the
number or type of offerors that may compete. The process usually begins with a
government Request for Proposal (RFP) that delineates the size and scope of
the proposed contract. Proposals submitted by the Company and others are
evaluated by the government on the basis of technical merit, response to
mandatory solicitation provisions, corporate and personnel qualifications and
experience, management capabilities and cost. While each RFP sets out specific
criteria for the choice of a successful offeror, RFP selection criteria in the
government services market often tend to weight the technical merit of the
proposal more heavily than cost. The Company believes that its experience and
ongoing work strengthen its technical qualifications and thereby enhance its
ability to compete successfully for future government work. However, the
Company can make no assurances that it may be able to continue to successfully
bid and compete in its marketplace.
Employees. As of June 30, 1996, the Company employed 399 employees,
including the five officers of the Company, all of whom are full-time
employees. Of these full-time employees, 22 are engaged in administration and
finance, 359 in manufacturing, engineering and production, 14 in marketing and
sales and 4 in operations and development. Many of the Company's employees
have overlapping responsibilities in these job descriptions.
The Company believes that its future success will depend, in part,
upon its continued ability to recruit and retain qualified technical
personnel. Competition for qualified technical personnel is significant,
particularly in the geographic areas in which DualStar and its subsidiaries
are located. The Company depends upon its ability to retain the services of
key employees. The loss of services of one or more key employee could have a
material adverse impact on the Company. The Company has never experienced a
work stoppage and approximately 325 of its employees are represented by a
labor organization. Management of the Company believes that its relationship
with its employees is good.
ITEM 2 - PROPERTIES
The Company leases, on a month-to-month basis, approximately 10,000
square feet of office space at 150 East 42nd Street, New York, New York 10017,
approximately 10,000 square feet of office and manufacturing space, on a
month-to-month basis, at 141 47th Street, Brooklyn, New York 11232,
approximately 4,500 square feet of office and warehouse space, on a
month-to-month basis, at 9-
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11 44th Drive, Long Island City, New York 11101, and approximately 120 square
feet of office space, pursuant to a six-month lease expiring in January 1997,
at 900 East 8th Avenue, Suite 300, King of Prussia, Pennsylvania 19406. In
August 1996, the Company acquired real property, which includes a building
containing approximately 22,000 square feet of office and warehouse space, at
11-26 47th Avenue, Long Island City, New York 11101. The cost of the real
property was $1,109,000, of which $900,000 was financed by a mortgage loan.
The Company believes that the productive use of its current facilities,
excluding the real property purchased in August 1996, represents approximately
60 percent of capacity. Total rental expense for the Company's operating
leases for recent periods is as follows:
Period Expense
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Year ended June 30, 1996 $164,000
Year ended June 30, 1995 $123,000
9 Mos. ended June 30, 1994 $ 73,000
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings.
In November 1991, Associates commenced an action in New York State
Supreme Court, New York County against a subcontractor, Highland Metal
Industries, Inc. ("Highland") in connection with services provided by
Highland. Highland's answer asserted a counterclaim for $399,233, a second
counterclaim for $207,423 and a third counterclaim for sanctions. The $399,233
counterclaim by Highland was withdrawn. The second counterclaim for $207,423
was granted and the third counterclaim for sanctions was dismissed. Pursuant
to court order, Associates established a letter of credit in the amount of
$207,000 which was collateralized by a $210,000 certificate of deposit.
Associates' claims against Highland were dismissed except for a claim for
$37,484 for failure to remedy certain conditions. In March 1996, the court
issued a final judgment in favor of Highland. In April 1996, Highland cashed
in the letter of credit and the claim of $207,000 was satisfied.
Associates is a partner in a joint venture that has
performed mechanical and electrical services for a general
contractor. In 1995, certain vendors of Associates' joint venture
partner filed lawsuits against the joint venture, the joint venture
partners and the related bonding companies. The first of these
suits: Avon Electrical Supplies, Inc. v. Centrifugal Associates,
Inc., et al. was commenced in the Supreme Court for New York County,
NY in March, 1995. The second of these suits: Midtown Electric
Supply Corp. v. Centrifugal Associates, Inc., et al. was commenced
in the Supreme Court for New York County in April, 1995. The suits
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alleged failure of the joint venture partner to pay for electrical goods
provided to it as a subcontractor of the joint venture in the amount of
approximately $1 million. In addition, other vendors of Associates' joint
venture partner had claims and/or liens in the amount of $700,000.
The joint venture's bonding companies proposed settling with the claimants; the
bonding companies would then seek indemnification from the joint venture.
Management of the Company believed it would cost the Company less if this
settlement process was managed and completed by the Company. As a result, all of
the known claims and liens have been settled or discharged and all of the vendor
lawsuits that arose out of these claims have also been settled for a total
amount of $763,000.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year covered by this Report.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock and Class A Warrants are traded on the
Nasdaq National Market System under the symbols DSTR and DSTRW, respectively.
Set forth below are the high and low sales prices for the Common Stock for
that portion of fiscal year 1995 which followed the initial public offering of
the Company's securities on February 13, 1995 and for fiscal year 1996.
Fiscal 1995 High Low
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Third Quarter
(from 2/13/95) $ 8 3/8 $ 3 3/4
Fourth Quarter $ 10 3/4 $ 3 1/2
Fiscal 1996 High Low
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First Quarter $ 5 1/2 $ 2 3/8
Second Quarter $ 3 1/2 $ 13/16
Third Quarter $ 1 7/8 $ 13/16
Fourth Quarter $ 1 5/16 $ 15/16
As of September 20, 1996, there were approximately 109 record
holders of the Company's Common Stock.
The Company has not declared any dividends since its incorporation
in June 1994. The Company does not anticipate the declaration or payment of
dividends in the foreseeable future. Future dividend policy will be subject to
the discretion of the Board of Directors and will be contingent upon future
earnings, the Company's financial condition, capital requirements, general
business conditions and other factors.
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ITEM 6 - SELECTED FINANCIAL DATA
DUALSTAR TECHNOLOGIES CORPORATION
SELECTED FINANCIAL DATA (1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS YEAR ENDED
SEPTEMBER 30, ENDED JUNE 30, JUNE 30,
---------------------- --------------------- ---------------------
1992 1993 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Contract revenue ............................ $36,966 $38,032 $27,001 $29,167 $65,126 $66,232
(Loss) earnings from operations ............. 509 760 336 847 1,280 (5,769)
Net (loss) income ........................... 11 (3,774)
Pro forma net income (2) .................... 275 411 181 457
Cash dividends (3) .......................... 486 91 68 230 600 --
Net loss per common share ................... -- ($0.42)
Pro forma net income per common
shares (4) .............................. $0.06 $0.09 $0.04 $0.10
Supplemental pro forma net income
per common share (5) .................... $0.10 $0.05 $0.10
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------ ------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ......................... $ 1,044 $ 1,570 $ 2,190 $13,955 $ 9,091
Total assets ............................ 11,259 11,783 15,345 29,275 28,381
Shareholders' equity .................... 1,751 2,307 2,957 15,097 11,323
</TABLE>
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(1) The Selected Financial Data represent the consolidated data for the year
ended June 30, 1996 and 1995, and combined historical data from the wholly
owned subsidiaries for the years ended September 30, 1992 and 1993 and the
nine months ended June 30, 1993 and 1994. Information for the September 30
year-end periods includes the similar year ended December 31 of Mechanical
Associates, Inc., a subsidiary. As a result, Mechanical's fourth quarter
1993 results are included in both the 1993 annual data and the 1994 interim
data. Included in both periods are contract revenues of approximately
$2,583,000, earnings from operations of approximately $144,000, pro forma
net income of approximately $78,000, and pro forma net income per common
share of $.02.
(2) Pro forma income reflects the historical combined net income, adjusted for
pro forma income taxes. Pro forma income taxes reflect an additional
provision for income taxes at the effective statutory federal and New York
State tax rate applied to the Company's financial statement income in each
period. This will result in an overall effective income tax rate of
approximately 47% of all periods. (See Note A to the Consolidated
Financial Statements)
(3) The Company's subsidiaries had historically paid cash dividends to their
shareholders for the purpose of funding the income taxes on S Corporation
taxable income which were paid personally by the shareholders. In
connection with the revocation of the S Corporation status of the
Company's subsidiaries, effective August 1, 1994, the subsidiaries have
declared dividend distributions in the aggregate of $600,000. Other than
the foregoing, the Company does not anticipate the declaration or payment
of cash dividends in the foreseeable future.
(4) Computed on the basis described in Note A to the Consolidated Financial
Statements.
(5) Supplemental pro forma income per share attributable to the impact of
assuming 857,000 shares of additional common stock are outstanding and the
proceeds from those shares being used to retire $3,000,000 of debt.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR 1996
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
DualStar Technologies Corporation, incorporated in the State of Delaware on
June 17, 1994, through its wholly owned subsidiaries, provides comprehensive,
integrated mechanical, electrical, electronic and control, environmental,
information technology and telecommunication services and solutions to a wide
range of customers primarily in the New York Tri-State area.
During fiscal 1996, in addition to the seven existing wholly owned
subsidiaries, DualStar Technologies formed three new wholly owned
subsidiaries: High-Rise Electric, Inc., Long Island City, N.Y., which acts as
a designer and installer of electrical systems; Grace Systems Technologies,
Inc., New York, N.Y., which acts as a designer and installer of security alarm
and intra-building communication systems; and DualStar Communications, Inc.,
Brooklyn, N.Y., which acts as a telecommunications service provider. DualStar
Technologies and its wholly owned subsidiaries are hereafter referred to as
the "Company".
CAPITAL RESOURCES AND LIQUIDITY
Prior to the Company's initial public offering ("IPO") in February 1995, the
Company financed its operations and working capital needs through internally
generated funds, bank borrowings and loans from certain shareholders. The
proceeds to the Company from the IPO were $16,100,000, of which approximately
$3,375,000 was used to cover IPO costs and $3,000,000 was used to repay all of
the Company's then outstanding loans.
Cash balances at June 30, 1996 and 1995 were approximately $2,024,000 and
$2,073,000, respectively. The Company's operations used approximately
$3,419,000 and $3,700,000 of cash during 1996 and 1995, respectively. Net cash
used in operating activities for fiscal 1996 was due primarily to an increase
in general and administrative expenses and to the additional costs incurred in
connection with a joint venture. Further, during 1996 and 1995 the Company
acquired capital assets of approximately $503,000 and $449,000 respectively,
substantially all of which represented investment in computer hardware and
software. The Company anticipates that the development of existing and new
lines of business will require additional investment in capital assets and
additional marketing and administrative costs. The Company believes cash on
hand and future cash from operations should be sufficient to cover current
operations; however, additional working capital may be needed for future
expansion. There can be no assurance that the Company will be able to obtain
such capital on terms satisfactory to it.
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As of June 30, 1996, the Company had no outstanding debt or lines of credit,
other than ordinary trade accounts payable. In August 1996, the Company
acquired real property located in Long Island City, N.Y. for the purpose of
centralizing and consolidating its subsidiaries' operations. The cost of the
real property was approximately $1,109,000, of which $900,000 was financed by
a mortgage loan.
INFLATION
The Company has continued to experience the benefits of a low inflation
economy in the New York Tri-State area. In general, the Company enters into
long-term fixed price contracts which are largely labor intensive.
Accordingly, future wage rate increases may affect the profitability of its
long-term contracts. Short-term contracts are less susceptible to inflationary
conditions.
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Revenue increased by approximately $1,107,000 or 1.7% in 1996. The increase
was due primarily to the revenue generated by the new subsidiaries. The modest
growth in revenue was due primarily to the Company either completing or
beginning several large, multi-million dollar contracts. Since such revenue
streams typically peak during the middle of a project, this also temporarily
depressed contract revenues in 1996.
Cost of revenues earned increased by approximately $3,194,000 or 5.5% in 1996.
In 1996, cost of revenues earned included approximately $1,410,000 of
additional costs to finish the electrical portion of a project on behalf of a
co-venturer of a joint venture. Gross profit decreased by approximately
$2,088,000 or 30% in 1996. Gross profit as a percentage of revenue also
decreased from 10.5% in 1995 to 7.2% in 1996. However, excluding the
additional costs in connection with the joint venture, gross profit only
decreased by $678,000 and gross profit as a percentage of revenue was 9.3%.
The reduction in gross profit as a percentage of revenue was due to increasing
competitive pressure on contracts and overruns on lump sum contracts begun in
prior years and substantially completed in 1996.
Consolidated backlog at June 30, 1996 was approximately $40,855,000, compared
to $41,303,000 at June 30, 1995. The Company continues to bid on projects of
all sizes and bid volume remains active. Opportunities to obtain large
projects exist and therefore backlog could substantially increase. However, it
is very difficult to predict the nature and timing of large projects upon
which the Company has bid and the outcome of the bidding process. Therefore,
the Company cannot predict with certainty future contracts and revenue.
- 13 -
<PAGE>
General and administrative expenses increased by $2,695,000 or 48% in 1996.
The increase was due primarily to the formation and initial growth of the new
subsidiaries. A portion was also attributable to increased public reporting
requirements following the Company's initial public offering. As a percentage
of revenue, general and administrative expenses increased from 9% in 1995 to
13% in 1996.
Bad debt in connection with the joint venture amounted to approximately
$2,267,000 in 1996. Centrifugal Associates, Inc. is a co-venturer in the joint
venture that performed mechanical and electrical services for a general
contractor on the Lincoln Square project. The general contractor advanced
funds directly to the other co-venturer and later stated that such advances
would be deducted from the payments owed to the joint venture for work that
Centrifugal Associates, Inc. performed on the project. Management is of the
opinion that there is substantial doubt as the collectibility of such accounts
and loans receivable and wrote off the receivable and loan as bad debt in
1996.
Fiscal 1995 Compared to Nine-months Ended June 30, 1994
Revenue increased by approximately $35,959,000 or 123% in 1995. This change
was the result of an increase in the number of contracts started in 1995 as
compared to 1994 and the acceleration of project schedules on a number of
large institutional and high-rise residential contracts in 1995, along with
the three month difference between the two periods. Such three month
difference also affected the comparative figures for gross profit, general and
administrative expenses and net income. The Company believed that the increase
in the number of contracts started in 1995 was due to the upturn in the
economy in the New York Metropolitan area.
Gross profit increased by approximately $2,782,000 or 68% in 1995. However,
gross profit as percentage of revenue decreased from 14% in 1994 to 11% in
1995. The increase in gross profit was due primarily to an increase in the
number of contracts started in 1995 as compared to 1994. The reduction in
gross profit as a percentage of revenue was due to increasing competitive
pressure on a number of large contracts and an increase in labor and materials
costs associated with the acceleration of certain project schedules in 1995 as
compared to 1994.
General and administrative expenses increased by $2,349,000 or 73% in 1995.
The increase was due primarily to the increase in the number of contracts in
1995 as compared to 1994. The Company also incurred additional administrative
expenses associated with being a publicly-held company. However, general and
administrative expenses as a percentage of revenue decreased from 11% in 1994
to 9% in 1995. Such decrease was due to the increase in the number of
contracts commenced, and the acceleration of certain project schedules in 1995
as compared to 1994.
- 14 -
<PAGE>
Net income in 1995 was $11,000, after taking into account of the tax effect of
the August 1994 revocation of Subchapter S elections by certain of the
Company's wholly owned subsidiaries. Before taking this tax charge of $751,000
into account, net income was $762,000 in 1995 as compared to pro-forma net
income of $457,000 in 1994.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements following Item 14 herein.
- 15 -
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This Item is not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors and executive
officers of the Company required hereunder is incorporated by reference to the
caption "Election of Directors" in the Company's definitive proxy statement to
be filed in connection with its Annual Meeting of Shareholders scheduled to be
held on November 13, 1996.
ITEM 11 - EXECUTIVE COMPENSATION
The information required hereunder is incorporated by reference to
the caption "Executive Compensation" in the Company's definitive proxy
statement to be filed in connection with its Annual Meeting of Shareholders
scheduled to be held on November 13, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required hereunder is incorporated by reference to
the caption "Security Ownership" in the Company's definitive proxy statement
to be filed in connection with its Annual Meeting of Shareholders scheduled to
be held on November 13, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required hereunder is incorporated by reference to
the caption "Related Party Transactions" in the Company's definitive proxy
statement to be filed in connection with its Annual Meeting of Shareholders
scheduled to be held on November 13, 1996.
- 16 -
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements and Financial Statement Schedules
See the Index to Financial Statements appearing on page F-1 of
this Report following this Item 14. No financial statement schedules are
included in this Report.
2. Exhibits
Set forth below is a list of exhibits being filed with this
Report. The management contracts or compensatory plans or arrangements
required to be filed as an Exhibit pursuant to Item 14(c) are Exhibits 4.5 and
10.4 - 10.8.
Exhibit No. and Description in the Exhibit List for this Report
NUMBER TITLE
- ------ -----
3.1 Certificate of Incorporation, filed June 14, 1994, as
restated. (1)
3.2. By-Laws. (1)
4.1 Specimen Copy of Common Stock Certificate. (1)
4.2 Form of Class A Warrant Certificate and Form of Exercise
Agreement. (1)
4.3 Form of Class A Warrant Agreement.(1)
4.4 Unit Purchase Option in favor of Daniel Porush, dated July
21, 1995, and Transfer Form from Stratton Oakmont, Inc.
to Daniel Porush, dated July 21, 1995.(2)
4.5 DualStar Technologies Corporation 1994 Stock Option Plan.
(1)
10.1 Share Acquisition Agreement by and among the Registrant
and Centrifugal Associates, Inc., et al., dated August
1, 1994. (1)
- 17 -
<PAGE>
10.2 Share Acquisition Agreement by and among the Registrant
and Mechanical Associates, Inc., et al., dated August 1,
1994. (1)
10.3 Mechanical Service Network Agreement by and between
Centrifugal Associates, Inc. and E.I. DuPont de Nemours
and Company, dated July 18, 1995.(2)
10.4 Employment Agreement between the Registrant and Elven M.
Tangel, dated August 31, 1994. (1)
10.5 Employment Agreement between the Registrant and Gregory
Cuneo, dated August 31, 1994. (1)
10.6 Employment Agreement between the Registrant and Stephen
J. Yager, dated August 31, 1994. (1)
10.7 Employment Agreement between the Registrant and Armando
Spaziani, dated August 31, 1994. (1)
10.8 Employment Agreement between the Registrant and Ronald
Fregara, dated August 31, 1994. (1)
10.9 Agreements between Lehrer McGovern Bovis, Inc. and
Centrifugal Associates, Inc., dated August 18, 1992 and
September 28, 1992. (1)
10.10 Agreements between Morse Diesel International, Inc. and
Centrifugal Associates, Inc., dated June 10, 1993 and
November 19, 1990. (1)
10.11 Agreements between HRH Construction Corporation and
Mechanical Associates, Inc., dated August 28, 1991, May
14, 1993 and August 5, 1992. (1)
10.12 Agreement with Morse Diesel International, Inc. by
Centrifugal Associates, Inc., dated February 13, 1995.(2)
10.13 Loan Agreement (i.e., Non-Negotiable Term Note and Pledge
Agreement) between the Registrant and Stephen J. Drescher,
dated October 20, 1995.
10.14 Purchase and Sale Agreement for 11-26 47th Avenue, Long
Island City, New York 11101, between Property Control,
Inc. (assigned from DualStar Technologies Corp.) and
Lawrence Mitchell, Trustee, Intermediary (assigned from
William Calomiris), dated March 20, 1996.
21.1 Subsidiaries of the Registrant.
- 18 -
<PAGE>
23.1 Consent of Grant Thornton LLP, dated September 13, 1996, with
respect to Form S-8 filing (File No. 33-97708), effective
October 3, 1995.
- ----------
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form S-1, File No. 33-83722, ordered effective by the Securities and Exchange
Commission on February 13, 1995.
(2) Incorporated herein by reference to Registrant's Annual Report
on Form 10-K (File No. 0-25552) for the fiscal year ended June 30,
1995.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the last quarter
of the period covered by this Report.
(c) Exhibits Required by Item 601 of Regulation S-K
The exhibits listed under (a)(2) of this Item 14, are filed with
this Report.
(d) Financial Statement Schedules required by Regulation S-X which are
excluded from the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1996
None.
- 19 -
<PAGE>
DualStar Technologies Corporation and Subsidiaries
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statement of Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9 - F-21
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of DualStar
Technologies Corporation and Subsidiaries as of June 30, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the two years in the period ended June 30, 1996. We
have also audited the accompanying combined statements of operations,
shareholders' equity and cash flows of DualStar Technologies Corporation and
Affiliates for the nine months ended June 30, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DualStar
Technologies Corporation and Subsidiaries as of June 30, 1996 and 1995 and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended June 30, 1996, and the combined
results of their operations and their combined cash flows for the nine months
ended June 30, 1994, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
September 13, 1996
F-2
<PAGE>
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
--------------------------------
ASSETS 1996 1995
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,023,992 $ 2,072,856
Marketable securities 910,029 5,854,147
Contracts receivable - net of allowance for doubtful
accounts of $297,000 in 1996 and $153,000
in 1995 13,220,282 15,920,385
Retainage receivable 4,547,101 3,938,669
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,763,051 125,133
Income taxes receivable 1,225,532 -
Deferred tax asset - current 178,000 84,000
Prepaid expenses and sundry receivable 1,281,850 137,598
---------- ------------
Total current assets 26,149,837 28,132,788
PROPERTY AND EQUIPMENT - net of accumulated
depreciation 1,054,010 753,716
OTHER ASSETS
Deferred tax asset - long-term 924,000 -
Certificate of deposit - restricted - 210,000
Other 253,633 178,131
------------ ------------
$28,381,480 $29,274,635
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $11,015,924 $ 9,791,112
Billings in excess of costs and estimated earnings on
uncompleted contracts 3,477,465 1,848,122
Accrued expenses and other current liabilities 2,565,102 1,614,471
Due to officer - 7,877
Income taxes payable - 916,053
------------------ ------------
Total current liabilities 17,058,491 14,177,635
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - par value, $.01 per share; 25,000,000 shares authorized;
9,000,000 shares issued
and outstanding 90,000 90,000
Additional paid-in capital 14,995,836 14,995,836
(Deficit) retained earnings (3,762,847) 11,164
----------- -------------
11,322,989 15,097,000
---------- ----------
$28,381,480 $29,274,635
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(COMBINED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED JUNE 30, 1994)
<TABLE>
<CAPTION>
Nine months
YEAR ENDED Year ended ended
JUNE 30, June 30, June 30,
1996 1995 1994
------------- ------------- --------
<S> <C> <C> <C>
Contract revenues earned $66,232,311 $65,125,796 $29,166,871
Cost of revenues earned 61,454,959 58,260,462 25,083,785
---------- ---------- ----------
Gross profit 4,777,352 6,865,334 4,083,086
General and administrative expenses 8,279,701 5,585,170 3,236,130
Bad debt in connection with joint venture 2,266,662 - -
----------- ------------ -----------
(Loss) income before (benefit)
provision for income taxes (5,769,011) 1,280,164 846,956
(Benefit) provision for income taxes
Current tax (benefit) provision (977,000) 711,800 82,000
Effect of S Corporation revocation - 751,000 -
Deferred tax benefit (1,018,000) (193,800) -
----------- ----------- -----------
(1,995,000) 1,269,000 82,000
----------- ----------- -----------
NET (LOSS) INCOME $(3,774,011) $ 11,164 $ 764,956
=========== ========== ==========
Pro forma data
Income before pro forma income tax
provision $ 764,956
Pro forma income taxes 308,000
----------
Pro forma net income $ 456,956
==========
Pro forma net income per share $.10
===
Per share data:
Primary $(0.42) $ -
===== ====
Weighted average number of common
shares outstanding 9,000,000 6,125,000 4,400,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1994)
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Additional (Deficit)
Common paid-in retained
stock capital earnings
----------- ---------- -----------
<S> <C> <C> <C>
Balance - October 1, 1993 $ 2,850 $ - $ 2,304,234
Distributions - - (230,008)
Issuance of 1,790,000 shares of common stock 17,900 232,100 -
Less net income of Mechanical Associates, Inc.
for the three months ended December 31,
1993 (unaudited) - - (134,737)
Net income for the nine months ended June 30, 1994 - - 764,956
---------- ----------- -----------
Balance - June 30, 1994 20,750 232,100 2,704,445
Distributions - - (600,000)
Issuance of 2,610,000 shares of common
stock to acquire subsidiaries' stock 26,100 2,081,195 (2,104,445)
Less elimination of subsidiaries' capital (2,850) - -
Issuance of 4,600,000 shares of common stock 46,000 16,054,000 -
Issuance of stock rights - 4,000 -
Initial public offering costs - (3,375,459) -
Net income for the year ended June 30, 1995 - - 11,164
---------- ----------- -----------
Balance - June 30, 1995 90,000 14,995,836 11,164
NET LOSS FOR THE YEAR ENDED JUNE 30, 1996 - - (3,774,011)
---------- ----------- -----------
BALANCE - JUNE 30, 1996 $90,000 $14,995,836 $(3,762,847)
====== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COMBINED STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED JUNE 30, 1994)
<TABLE>
<CAPTION>
Nine months
YEAR ENDED Year ended ended
JUNE 30, June 30, June 30,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income $(3,774,011) $ 11,164 $ 764,956
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities
Depreciation 202,947 109,962 55,422
Deferred income taxes (1,018,000) (193,800) (40,000)
(Increase) decrease in assets
Contracts receivable 2,700,103 (6,912,266) (2,432,587)
Retainage receivable (608,432) (1,920,198) (553,540)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (2,637,918) 1,396,783 1,903,335
Income taxes receivable (1,225,532) - -
Prepaid expenses (73,817) (105,676) 124,074
Other assets 134,498 (36,286) (57,976)
Increase (decrease) in liabilities
Accounts payable 1,224,812 2,553,495 721,412
Billings in excess of costs and
estimated earnings on
uncompleted contracts 1,629,343 451,267 75,330
Accrued expenses and other liabilities 942,854 29,111 518,303
Income taxes payable (916,153) 916,053 -
----------- ----------- ----------
Net cash (used in) provided by
operating activities (3,419,306) (3,700,391) 1,078,729
---------- ---------- ----------
Cash flows from investing activities
Proceeds from (investment in)
marketable securities 4,944,118 (5,800,849) -
Increase in sundry receivable (1,070,435) - -
Capital expenditures (503,241) (449,088) (32,137)
Advances from shareholders - (50,256) (65,519)
---------- ---------- ----------
Net cash provided by (used in)
investing activities 3,370,442 (6,300,193) (97,656)
---------- ---------- ----------
</TABLE>
F-7
<PAGE>
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(COMBINED STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED JUNE 30, 1994)
<TABLE>
<CAPTION>
Nine months
YEAR ENDED Year ended ended
JUNE 30, June 30, June 30,
1996 1995 1994
------------- ------------- ----------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from initial public offering $ - $16,100,000 $ -
Initial public offering costs paid - (3,375,459) -
Repayment of shareholders' loan - (1,000,000) -
Repayment of bank loan - (1,000,000) -
Distribution to former shareholders of
wholly-owned subsidiaries - (600,000) (68,250)
Proceeds from stock subscription receivable - 250,000 -
Proceeds from issuance of stock rights - 4,000 -
----------- ----------- -----------
Net cash provided by (used in)
financing activities - 10,378,541 (68,250)
----------- ----------- -----------
NET (DECREASE) INCREASE
IN CASH (48,864) 377,957 912,823
Cash at beginning of period 2,072,856 1,694,899 782,076
----------- ----------- -----------
Cash at end of period $ 2,023,992 $ 2,072,856 $ 1,694,899
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 44,000 $ 268,000 $ 69,000
Income taxes 994,000 639,000 6,400
Noncash financing transaction:
As of June 30, 1994, advances due from the former shareholders of the
Company's wholly-owned subsidiaries in the amount of $161,758 were
settled as a distribution to shareholders.
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - COMPANY BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Background and Financial Statement Presentation
DualStar Technologies Corporation ("DualStar") is a holding company which
was incorporated on June 17, 1994. Effective August 1, 1994, DualStar
entered into Share Acquisition Agreements with Centrifugal Associates,
Inc. ("Associates") and Centrifugal Service, Inc. ("Service")
(collectively, "Centrifugal"), and Mechanical Associates, Inc.
("Mechanical"), whereby 2,610,000 shares of DualStar were issued to the
shareholders of Centrifugal and Mechanical in exchange for all of the
stock of Centrifugal and Mechanical and these companies became
wholly-owned subsidiaries of DualStar. In 1996 and 1995, DualStar formed
seven new wholly-owned subsidiaries: Trident Mechanical Systems, Inc.,
Centrifugal/Mechanical Associates, Inc., The Automation Group, Inc.,
Property Control, Inc., High-Rise Electric, Inc., Grace Systems
Technologies, Inc. and DualStar Communications, Inc. In 1995, these new
subsidiaries had no significant operations and therefore had no
significant impact on the accompanying 1995 consolidated financial
statements.
The accompanying consolidated financial statements for the years ended
June 30, 1996 and 1995 reflect the consolidated operations of DualStar
Technologies Corporation and subsidiaries (collectively the "Company").
The financial statements for the nine months ended June 30, 1994 reflect
the combined operations of Centrifugal and Mechanical. All significant
intercompany accounts and transactions have been eliminated in
consolidation and combination.
The Company primarily engages in mechanical and electrical contracting.
The engagements are generally performed under fixed price long-term
contracts undertaken with general contractors or under short-term service
contracts. The lengths of the long-term contracts vary but typically
range from one to two years. In accordance with the operating cycle
concept and construction industry practice, the Company classifies all
contract-related assets and liabilities as current items.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated and combined financial
statements follows:
1. Revenue and Cost Recognition
Revenues on long-term contracts are accounted for by the
percentage-of-completion method, whereby revenue is recognized based
on the estimated percentage of costs incurred to date to the
F-9
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A (CONTINUED)
estimated total costs of each individual contract. This method is
used because management considers costs to be the best available
measure of progress on these contracts. Revenue on service contracts
is recorded on the accrual basis as services are performed.
Contract costs include all direct materials and labor costs. General
and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability, including
those arising from final contract settlements, may result in
revisions to costs and income and are recognized in the period in
which the revisions are determined. An amount equal to contract costs
attributable to claims is included in revenues when realization is
probable and the amount can be reliably estimated.
The asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of
amounts billed. The liability "Billings in excess of costs and
estimated earnings on uncompleted contracts" represents billings in
excess of revenues recognized.
2. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
3. Fair Value of Financial Investments
The carrying amount of cash, marketable securities, contracts and
retainage receivable and accounts payable approximate fair value,
principally because of the short-term maturity of these items.
Marketable securities are stated at quoted market value.
F-10
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A (CONTINUED)
4. Marketable Securities
Marketable securities represent investments which mature in one year
or less, are available for sale, and are valued at market value which
approximates cost.
5. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their
estimated service lives.
6. Income Taxes
The Company files consolidated Federal, state and local income tax
returns. Deferred income taxes are principally the result of net
operating loss carryforwards and differences related to different
bases of accounting for financial accounting and tax reporting
purposes.
As a result of the Share Acquisition Agreements, commencing August 1,
1994, Centrifugal's and Mechanical's S Corporation elections ceased
to be in effect and the Company is taxed as a C Corporation. As of
August 1, 1994, for income tax purposes, the Company has recognized
additional taxable income as a result of the cumulative differences
between financial accounting and income tax purposes of approximately
$1,981,000. Accordingly, the Company has incurred additional income
tax liability of approximately $751,000 in 1995.
Pro forma income taxes reflect an additional provision for income
taxes at the effective statutory Federal and New York State tax rates
applied to the Company's financial statement income for the nine
months ended June 30, 1994. This resulted in an overall effective
income tax rate of approximately 47% for the nine-month period ended
June 30, 1994.
F-11
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A (CONTINUED)
7. Per Share Data
For the years ended June 30, 1996 and 1995, the computation of net
(loss) income per share is based on the weighted average number of
shares of common stock outstanding. When dilutive, stock options and
warrants are included as share equivalents using the treasury stock
method.
Pro forma income per share was calculated based upon the outstanding
shares of DualStar after the merger with Centrifugal and Mechanical.
Supplemental pro forma income per share attributable to the impact of
assuming 857,000 shares of additional common stock as outstanding and
the proceeds from those shares being used to retire $3,000,000 of
debt resulted in supplemental pro forma income per share of $.10 in
the nine-month period ended June 30, 1994
NOTE B - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the
following:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $77,306,927 $58,389,952
Estimated earnings 8,332,641 7,854,867
----------- -----------
85,639,568 66,244,819
Less billings to date 86,353,982 67,967,808
---------- ----------
$ (714,414) $(1,722,989)
=========== ===========
</TABLE>
F-12
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B (CONTINUED)
Costs and estimated earnings on uncompleted contracts are included in the
accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 2,763,051 $ 125,133
Billings in excess of costs and estimated
earnings on uncompleted contracts (3,477,465) (1,848,122)
----------- ----------
$ (714,414) $(1,722,989)
============ ===========
</TABLE>
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Leasehold improvements $ 486,246 $ 474,457
Automobiles 235,214 113,667
Machinery and equipment 194,091 127,165
Computer equipment 622,699 326,616
Furniture and fixtures 41,531 34,632
---------- -----------
1,579,781 1,076,537
Less accumulated depreciation (525,771) (322,821)
---------- ----------
$1,054,010 $ 753,716
========= ==========
</TABLE>
F-13
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Accrued compensation $2,111,183 $1,243,165
Other 453,919 371,306
---------- ----------
$2,565,102 $1,614,471
========= =========
</TABLE>
NOTE E - LINE OF CREDIT
At June 30, 1994, Associates had a bank loan of $1,000,000, pursuant to a
$1,500,000 demand line of credit, which was collateralized by
substantially all of Associates' assets. In April 1995, the loan was
fully repaid and the line of credit was canceled. Interest expense for
the year ended June 30, 1995 and for the nine months ended June 30, 1994
was $82,000 and $56,000, respectively.
NOTE F - SHAREHOLDERS' EQUITY
In February 1995, in connection with the Company's initial public
offering, the Company issued 4,600,000 Class A warrants to shareholders.
The warrants are exercisable for 4,600,000 shares of common stock at
$4.00 per share. The warrants became exercisable in February 1996 and
will expire in February 2000. The warrants are redeemable by the Company
for $.05 per warrant at any time after February 1997, upon thirty days'
prior written notice if the average closing price of the common stock
equals or exceeds $9.00 per share, for any twenty consecutive trading
days within a period of thirty days ending within ten days of the notice
of redemption. At June 30, 1996, all warrants are outstanding.
F-14
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - INCOME TAXES
Deferred income taxes reflect the impact of "temporary differences"
between the amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws, and relate primarily
to net operating loss carryforwards, the allowance for doubtful accounts
and depreciation.
The following is a summary of the items giving rise to deferred tax
benefits at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Current
Allowance for doubtful accounts $ 162,000 $74,000
Accumulated depreciation 16,000 10,000
---------- -------
178,000 84,000
---------- -------
Long-term
Net operating loss carryfowards 1,849,000 -
---------- -------
Total deferred tax assets 2,027,000 84,000
Less: valuation allowance (925,000) -
---------- -------
Net deferred tax assets $1,102,000 $84,000
========== =======
</TABLE>
Management believes that the Company will generate sufficient taxable
earnings or utilize tax planning opportunities to ensure realization of
these tax benefits.
F-15
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G (CONTINUED)
The (benefit) provision for income taxes differs from the amount computed
by applying the statutory Federal income tax rate to (loss) income before
(benefit) provision for income taxes due to the following:
<TABLE>
<CAPTION>
June 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Statutory Federal income tax (benefit) $(1,962,000) $ 435,000
State and local income taxes 75,000 310,000
Net operating loss carryback limitation 1,289,000 -
Net operating loss carryforward (1,849,000) -
Valuation allowance 925,000 -
Allowance for doubtful accounts (88,000) (84,000)
Accumulated depreciation (6,000) -
Cash-to-accrual basis - (75,000)
Completed contract to percentage-of-completion basis - (35,000)
S Corporation revocation
Cash-to-accrual basis (272,000) 650,000
Completed contract to percentage-of-completion basis - 101,000
Prior year overaccrual (107,000) (33,000)
----------- ----------
$(1,995,000) $1,269,000
=========== ==========
</TABLE>
The Company has available for Federal income tax purposes net operating
losses of approximately $2,650,000 and state and local net operating
losses of approximately $4,628,000, all expiring in the year 2011.
At June 30, 1995, included in income taxes payable in the accompanying
consolidated balance sheet was an amount that the Company expected to pay
when it files its June 30, 1996 income tax returns. In accordance with
the Internal Revenue Code, one-half of the cash-to-accrual differences
recognized by the Company upon the revocation of the S Corporation status
of certain of its subsidiaries would be payable with the Company's June
30, 1996 income tax returns. At June 30, 1995, this liability amounted to
approximately $272,000, which was reversed at June 30, 1996 due to the
net operating losses.
F-16
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under operating leases expiring at
various dates through July 2001. At June 30, 1996, minimum rental
commitments under noncancellable leases are as follows:
1997 $133,000
1998 110,000
1999 46,000
2000 26,000
2001 25,000
Thereafter 2,000
---------
$342,000
=========
Equipment rent for the year ended June 30, 1996 and 1995, and for the
nine months ended June 30, 1994 was $127,000, $86,000 and $38,000,
respectively.
In 1994, the Company entered into employment agreements with five
officers. The agreements expire in 1997 and require minimum annual
salaries of $150,000 for each officer with subsequent increases not to
exceed $150,000 during the first three years following the effective date
of the offering. Among other items, the agreements provide for a
discretionary bonus of up to 45% of salary, the payment of certain
disability benefits of the officers and discretionary incentive bonuses.
The agreements shall be automatically renewed for an additional
three-year term unless the Company or officer gives contrary written
notice on a timely basis as described in the agreement.
The Company contributes to multiemployer pension plans for employees
covered by collective bargaining agreements. These plans are not
administered by the Company and contributions are determined in
accordance with provisions of the agreements. Information with respect to
the Company's proportionate share of the excess, if any, of the
actuarially computed value of vested benefits over the total of the
pension plan's net assets is not available from the plan's
administrators. For the years ended June 30, 1996 and 1995, and for the
nine months ended June 30, 1994, the Company contributed $1,344,000,
$1,021,000, and $486,000, respectively.
The Multiemployer Pension Plan Administration Act of 1980 (the "Act")
significantly increased the pension responsibilities of participating
employers. Under the provisions of the Act, if the plans are terminated
or the Company withdraws, the Company could be subject to a substantial
"withdrawal liability."
F-17
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H (CONTINUED)
The Company is contingently liable to a surety under a general indemnity
agreement. The Company agrees to indemnify the surety for any payments
made on contracts of suretyship, guarantee or indemnity. Management
believes that all such contingent liabilities will be satisfied by
performance on the specific bonded contracts.
In 1995, Associates 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. In April 1996, the subcontractor cashed in the letter of
credit and the claim of $207,000 was satisfied.
Associates is a partner in a joint venture that 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. The joint venture
received demands for payment from certain vendors used by the co-venturer
of Associates. These vendors filed liens and/or made demands against the
joint venture payment bond amounting to approximately $1.7 million. Some
of these vendors also filed lawsuits against the joint venture, the joint
venture partners and the related bonding companies, to secure payment on
their claims. These claims were 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 was
management's opinion that it would cost the Company less if this
settlement process was managed and completed by 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 collectibility of such receivable or
additional costs.
F-18
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H (CONTINUED)
Based on these developments, the Company has written off in fiscal 1996
approximately $2.3 million with respect to accounts and loans receivable,
and $1.4 million of claims and other costs that 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. As of June 30, 1996, all of the known claims and liens were
settled and discharged, and all of the vendor lawsuits which arose out of
these claims were also settled.
NOTE I - RELATED PARTY TRANSACTIONS
At June 30, 1996, the Company has a loan to a member of its Board of
Directors of approximately $73,400. The loan is collateralized by 65,250
shares of the Company's common stock, bears interest at 8.75% per annum
and is due on October 20, 1996.
Mechanical leases office space on a month-to-month basis from a company
in which certain officers own a majority interest. Rent expense for the
years ended June 30, 1996 and 1995, and for the nine months ended June
30, 1994, was $65,000, $53,000 and $26,000, respectively.
Associates had loans payable to its former shareholders in the amount of
$1,000,000 which were subordinated to its bank debt, were
uncollateralized, and bore interest at the same rate as Associates' money
market fund rate. The loans were fully repaid in February 1995. Interest
expense related to these loans for the year ended June 30, 1995 and the
nine months ended June 30, 1994, was $17,000 and $16,000, respectively.
NOTE J - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash, marketable
securities, trade accounts receivable and retainage receivable.
The Company maintains its cash in accounts which exceed federally insured
limits. It has not experienced any losses to date resulting from this
policy.
F-19
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J (CONTINUED)
The Company performs construction contracts for, and extends credit to,
private owners and general contractors located in the New York Tri-State
area. The Company is directly affected by the well-being of these
entities and the construction industry as a whole. For the year ended
June 30, 1996, revenue from five customers amounted to approximately 78%
of total revenue. For the year ended June 30, 1995, revenue from three
customers amounted to approximately 77% of total revenue. For the nine
months ended June 30, 1994, revenue from two customers amounted to
approximately 58% of total revenue.
NOTE K - STOCK OPTION PLAN
In October 1994, the Company adopted a stock option plan. Under the plan,
the officers of the Company may be given options, which will be shared
equally, to purchase shares of the Company's common stock at fair market
value on the date of grant. The options shall be granted as follows:
(i) an aggregate of 500,000 options, if the Company has pretax earnings
of at least $2,500,000 in the fiscal year ending June 30, 1996; (ii) an
aggregate of 500,000 options, if the Company has pretax earnings of at
least $5,000,000 in the fiscal year ending June 30, 1997; and (iii) an
aggregate of 500,000 options, if the Company has pretax earnings of at
least $7,500,000 in the fiscal year ending June 30, 1998. Additionally,
the plan provides for an aggregate of 700,000 options for other employees
of the Company. During 1995, the Company granted 177,000 options at an
option price of $3 per share. At June 30, 1996, all of these options were
outstanding.
NOTE L - EMPLOYEE BENEFIT PLAN
In 1995, the Company adopted a defined contribution retirement plan
(commonly referred to as a 401(k) plan) which satisfies the requirements
for qualification under Section 401(k) of the Internal Revenue Code. The
Company's contribution to the plan is based entirely on management's
discretion. For the years ended June 30, 1996 and 1995, the Company made
no contribution to the plan.
F-20
<PAGE>
DualStar Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M - NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of," which provides guidance on when to assess and how to
measure impairment of long-lived assets, certain intangibles and goodwill
related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. The Financial
Accounting Standards Board also issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123"), "Accounting for Stock-Based
Compensation," which gives companies a choice of the method of accounting
used to determine stock-based compensation. Companies may account for
such compensation either by using the intrinsic value-based method
provided in APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees," or the fair market value-based method provided in
SFAS No. 123. These accounting standards are effective for financial
statements for fiscal years beginning after December 31, 1995. The
Company believes that the impact of adopting SFAS No. 121 will not have a
material effect on the Company. The Company intends to continue to use
the intrinsic value-based method provided in APB No. 25 to determine
stock-based compensation. The sole effect of the adoption of SFAS No. 123
will be the obligation to comply with the new disclosure requirements
provided thereunder.
NOTE N - SUBSEQUENT EVENTS
In August 1996, the Company acquired real property located in Long Island
City, New York for the purpose of centralizing and consolidating its
subsidiaries' operations. The cost of the real property was approximately
$1,109,000, of which $900,000 was financed by a mortgage.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By GREGORY CUNEO
------------------------------
Gregory Cuneo
President and Chief
Executive Officer
Dated: September 24, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Company and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
GREGORY CUNEO President, Chief September 24, 1996
- --------------------------- Executive Officer
Gregory Cuneo and Director
STEPHEN J. YAGER Executive Vice September 24, 1996
- --------------------------- President, Chief
Stephen J. Yager Financial Officer,
Secretary and
Director
GARY DELUCA Director September 24, 1996
- ---------------------------
Gary DeLuca
STEPHEN J. DRESCHER Director September 24, 1996
- ---------------------------
Stephen J. Drescher
RONALD FREGARA Director September 24, 1996
- ---------------------------
Ronald Fregara
<PAGE>
Signature Title Date
--------- ----- ----
ELVEN M. TANGEL Director September 24, 1996
- ---------------------------
Elven M. Tangel
ARMANDO SPAZIANI Director September 24, 1996
- ---------------------------
Armando Spaziani
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS TO
FORM 10-K
Commission file number 0-25552
DUALSTAR TECHNOLOGIES CORPORATION
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3776834
- --------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
150 East 42nd Street, New York, New York 10017
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 986-9186
--------------------------
(Registrant's telephone number, including area code)
<PAGE>
INDEX EXHIBITS
--------------
NUMBER TITLE PAGE HEREIN
- ------ ----- -----------
3.1 Certificate of Incorporation, filed June 14,
1994, as restated. (1)
3.2 By-Laws. (1)
4.1 Specimen Copy of Common Stock Certificate. (1)
4.2 Form of Class A Warrant Certificate and Form of
Exercise Agreement. (1)
4.3 Form of Class A Warrant Agreement.(1)
4.4 Unit Purchase Option in favor of Daniel
Porush, dated July 21, 1995, and Transfer
Form from Stratton Oakmont, Inc. to Daniel
Porush, dated July 21, 1995.(2)
4.5 DualStar Technologies Corporation 1994 Stock
Option Plan. (1)
10.1 Share Acquisition Agreement by and among the
Registrant and Centrifugal Associates, Inc.,
et al., dated August 1, 1994. (1)
10.2 Share Acquisition Agreement by and among the
Registrant and Mechanical Associates, Inc.,
et al., dated August 1, 1994. (1)
10.3 Mechanical Service Network Agreement by and
between Centrifugal Associates, Inc. and E.I.
DuPont de Nemours and Company, dated July 18,
1995.(2)
10.4 Employment Agreement between the Registrant
and Elven M. Tangel, dated August 31, 1994.(1)
10.5 Employment Agreement between the Registrant
and Gregory Cuneo, dated August 31, 1994.(1)
10.6 Employment Agreement between the Registrant
and Stephen J. Yager, dated August 31,
1994.(1)
10.7 Employment Agreement between the Registrant
and Armando Spaziani, dated August 31,
1994.(1)
- i -
<PAGE>
10.8 Employment Agreement between the Registrant
and Ronald Fregara, dated August 31, 1994. (1)
10.9 Agreements between Lehrer McGovern Bovis,
Inc. and Centrifugal Associates, Inc., dated
August 18, 1992 and September 28, 1992. (1)
10.10 Agreements between Morse Diesel
International, Inc. and Centrifugal
Associates, Inc., dated June 10, 1993 and
November 19, 1990. (1)
10.11 Agreements between HRH Construction
Corporation and Mechanical Associates, Inc.,
dated August 28, 1991, May 14, 1993 and
August 5, 1992. (1)
10.12 Agreement with Morse Diesel International,
Inc. by Centrifugal Associates, Inc., dated
February 13, 1995.(2)
10.13 Loan Agreement (i.e., Non-Negotiable Term Note
and Pledge Agreement) between the Registrant and
Stephen J. Drescher, dated October 20, 1995.
10.14 Purchase and Sale Agreement for 11-26 47th
Avenue, Long Island City, New York 11101,
between Property Control, Inc. (assigned from
DualStar Technologies Corp.) and Lawrence
Mitchell, Trustee, Intermediary (assigned
from William Calomiris), dated March 20,
1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, dated September 13, 1996, with
respect to Form S-8 filing (File No. 33-97708), effective
October 3, 1995.
- ----------
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form S-1, File No. 33-83722, ordered effective by the Securities and Exchange
Commission on February 13, 1995.
(2) Incorporated herein by reference to Registrant's Annual Report
on Form 10-K (File No. 0-25552) for the fiscal year ended June 30,
1995.
- ii -
<PAGE>
NON-NEGOTIABLE
TERM NOTE
$73,406.00 New York, New York
October 20, 1995
FOR VALUE RECEIVED, the undersigned, Stephen J. Drescher,
300 East 93rd Street, New York, New York 10128 (hereinafter referred to as the
"Maker"), hereby promises to pay to DUALSTAR TECHNOLOGIES CORPORATION, a
Delaware corporation, at its principal place of business at 150 East 42nd
Street, New York, New York 10017 (hereinafter referred to as the "Holder") or
at such other place or places and to such account or accounts as Holder may
direct from time to time by notice to Maker, the principal amount of SEVENTY
THREE THOUSAND FOUR HUNDRED SIX AND 00/100 DOLLARS ($73,406.00) in lawful
money of the United States in immediately available funds, payable on October
20, 1996.
Interest shall accrue on the outstanding principal amount at
an annual rate of 8.75%, compounding monthly, payable at maturity.
This Note has reference to and is secured by a pledge of
property under a Pledge Agreement of even date between Maker and Holder.
As security for payment of this Note, the undersigned has
pledged or deposited with the Company, and grants it a security interest in
the following property:
65,250 shares of DualStar Technologies Corporation Common
Stock
and will forthwith deliver to the Holder any and all securities issued
in lieu of, or by way of stock dividends, or otherwise received because of
ownership of any securities herein pledged; and does agree on demand to
deposit with Holder such additional securities or other collateral as it may,
from time to time, require. It is further agreed that the collateral hereby
pledged, together with any that may be pledged hereafter, shall be applicable
in like manner to secure the payment of any past or any future obligations of
the undersigned held by Holder; and all such collateral in its hands shall
stand as one general continuing collateral security for the whole of said
obligations, so that the deficiency on any one shall be made good from the
collaterals for the rest, hereby remaining responsible for any deficiency in
payment, and waiving any benefit, exemption or privilege under any law now or
hereafter to be in force. In the
<PAGE>
event of default, Holder, at its option, may sell, assign, or otherwise
dispose of the collateral.
Notwithstanding anything in this Note to the contrary, the
then outstanding principal amount and accrued but unpaid interest shall, at
Holder's option, be payable on demand in the event that an event of default
occurs as set forth below.
Maker shall be in default hereunder, at the option of
Holder, upon the occurrence of any of the following events: (i) the failure by
Maker to make any payments of principal or interest when due hereunder, and
such failure shall have continued for a period of more than ten (10) days
after notice and a reasonable opportunity to cure; (ii) the entering into of a
decree or order by a court of competent jurisdiction adjudicating Maker a
bankrupt or the appointing of a receiver or trustee of Maker upon the
application of any creditor in an insolvency or bankruptcy proceeding or other
creditor's suit; (iii) a court of competent jurisdiction approving, as
properly filed, a petition for reorganization or arrangement filed against
Maker under the Federal bankruptcy laws and such decree or order not being
vacated within thirty (30) days; (iv) the pendency of any bankruptcy
proceedings or other creditors' suit against Maker; (v) a petition or answer
seeking reorganization or arrangement under the Federal bankruptcy laws with
respect to Maker; (vi) an assignment for the benefit of creditors by Maker;
(vii) Maker consents to the appointment of a receiver or trustee in an
insolvency or bankruptcy proceeding or other creditors' suit; (viii) the
existence of any uncured event of default under the terms of any material
instrument in writing evidencing a debt to someone other than Holder, provided
that Maker is not contesting in good faith by appropriate proceeding such
uncured event of default; (ix) the existence of any material judgement
against, or any material attachment of property of Maker; or (x) any other
condition which, in the reasonable determination of Holder, would materially
impair the timely repayment of this Note (individually and collectively,
"Event(s) of Default").
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection and such
costs shall include without limitation all costs, attorneys' fees and expenses
incurred by Holder hereof in connection with any insolvency, bankruptcy,
reorganization, arrangement or similar proceedings involving Holder, or
involving any endorser or guarantor hereof, which in any way affects the
exercise by Holder of its rights and remedies under this Note.
Maker reserves the right to prepay this Note, in whole or in
part, prior to the due date with no prepayment penalty.
-2-
<PAGE>
None of the rights or remedies of Holder hereunder is to be
deemed waived or affected by failure or delay on the part of Holder to exercise
the same.
Maker hereby waives presentment, demand for payment, protest
and notice of protest, notice of dishonor, and except as expressly provided by
this Note, all other notices in connection with this Note.
The terms "Maker" and "Holder" shall be construed to include
their respective heirs, personal representatives, successors, subsequent
holder and assigns.
This Note has been executed and delivered in New York, New
York and shall be governed by the laws of the State of New York without giving
effect to principles of conflicts of law. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
WITNESS the hand of Maker.
-------------------
Stephen J. Drescher
-3-
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") made and entered into as
of October 20, 1995, by STEPHEN J. DRESCHER, an individual residing at 300
East 93rd Street, New York, New York 10128 ("Pledgor"), to and in favor of
DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation with its principal
place of business at 150 East 42nd Street, New York, New York 10017 (the
"Company") in connection with securing certain obligations under that certain
Non-Negotiable Term Note dated as of October 20, 1995, between Pledgor and the
Company (hereinafter, as the same may from time to time be amended or
supplemented, called the "Note").
Pledgor is the record and beneficial owner of the Company
securities identified in Schedule I attached hereto and delivered to the
Company as of the date hereof (said securities of Pledgor, together with any
and all additional securities which may be delivered to the Company at any
time and from time to time under this Agreement by or in respect of Pledgor
are collectively referred to in this Agreement as the "Pledged Securities").
The Company is willing to make the loan in respect of which
the Pledgor is executing and delivering the Note, but only on the condition
that there are first deposited with it the Pledged Securities pursuant to and
as contemplated by this Agreement and the Note. Pursuant to the terms of the
Note, Pledgor shall have made the pledges contemplated by this Agreement. As
an inducement and as a condition precedent to the Company executing and
delivering the Note and as security for the Obligations (as hereinafter
defined), and in consideration of the premises, Pledgor hereby covenants and
agrees as follows:
ARTICLE 1. DEFINED TERMS.
Section 1.01. Defined Terms. Capitalized terms used and not
otherwise defined herein shall have the respective meanings given to them in
the Note. Unless otherwise defined herein or in the Note, terms defined in the
Uniform Commercial Code of the State of New York (the "U.C.C.") are used
herein as therein defined.
<PAGE>
Section 1.02. Obligations means all loans, advances, debts,
liabilities, and obligations, for monetary amounts, whether for principal,
interest, fees, expenses or otherwise (whether or not such amounts are
liquidated or determinable) owing by Pledgor to the Company, and all covenants
and duties regarding such amounts, of any kind or nature, present or future,
whether or not evidenced by any note, agreement, reimbursement agreement, or
other instrument, whether arising by reason of extension of credit, loan,
guarantee, opening of a letter of credit, supplying any credit enhancement, or
direct Letter of Credit, indemnification or in any other manner, whether
direct or indirect (including those acquired by assignment) absolute or
contingent, joint or several, due or to become due, whether incurred as
principal, surety guaranty or otherwise, now existing or hereafter arising and
however acquired.
ARTICLE 2. THE PLEDGE.
Section 2.01. Pledge. Pledgor hereby pledges to the
Company and grants to the Company a security interest in the following (the
following so pledged by the Pledgor, collectively the "Pledged Collateral"):
(a) the Pledged Securities which have been or are
to be delivered to the Company hereunder by or in respect of
Pledgor and the certificates and instruments representing
such Pledged Securities, and all interest, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any
or all of such Pledged Securities;
(b) all indebtedness of any issuer of such Pledged
Securities, and the certificates representing such
indebtedness, and all interest, dividends, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any
or all of such Pledged Securities; and
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(c) to the extent not included in the foregoing,
any and all proceeds of any and all of the foregoing
collateral.
Section 2.02. Security for Obligations. This Agreement
secures the Obligations.
Section 2.03. Delivery of Pledged Collateral. All
certificates or instruments representing or evidencing the Pledged Collateral
shall be delivered to and held by or on behalf of the Company pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Company. The Company shall have
the right, at any time in its discretion and without notice to Pledgor, to
transfer to or to register in the name of the Company or any of its nominees
any or all of the Pledged Collateral, subject only to the provisions of
Section 6.01(a) hereof. In addition, the Company shall have the right at any
time and from time to time to exchange certificates or instruments
representing or evidencing Pledged Collateral for certificates or instruments
of smaller or larger denominations evidencing such Pledged Collateral in the
same aggregate number of shares or interests or principal amount as the
Pledged Collateral so exchanged therefor.
Section 2.04. Continuing Agreement. This Agreement shall
create a continuing security interest in the Pledged Collateral and shall
remain in full force and effect until payment in full of the Obligations.
Section 2.05. Security Interest Absolute. All rights of the
Company and security interests hereunder, and all obligations of the Pledgor
hereunder, shall be absolute, unconditional, and irrevocable, irrespective of
any defenses whatsoever available to the Pledgor, including but not limited
to, the following:
(a) any extension of credit by the Company to
or for the account of Pledgor other than under the Note;
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(b) any lack of validity or enforceability of
the Note or any of the Obligations;
(c) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Obligations, or any other modification, amendment,
compromise, settlement, release, waiver or termination
(whether material or otherwise) of any obligation, covenant
or agreement of Pledgor under the Note;
(d) any exchange, release or non-perfection
of any other collateral, or any release or amendment or
waiver of or consent to departure from any guaranty, for all
or any of the Obligations;
(e) the death, incapacity, legal incompetency
or disability of Pledgor;
(f) the voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or
substantially all the assets, marshalling of assets,
bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting, the
Pledgor, or any of the assets of any thereof, or any
allegation of the validity, or contest of the validity, of
this Agreement in any such proceeding;
(g) any law, regulation or order of any
jurisdiction affecting or purporting to affect any term of
any Obligation, the Note or the Company's rights with
respect thereto;
(h) any of the events or circumstances
described in the Note.
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Section 2.06 Margin Maintenance Requirements. At all times,
the fair market value of the Pledged Collateral shall be at least one hundred
thirty percent (130%) of the value of the Obligations. In the event the fair
market value of the Pledged Collateral ever becomes less than one hundred
thirty percent (130%) of the value of the Obligations, the Company, in its
sole discretion, may issue a notification to Pledgor either to: (i) deposit
additional collateral sufficient to raise the fair market value of the Pledged
Collateral to one hundred thirty percent (130%) of the value of the
Obligations, which additional collateral shall be deposited with the Company
within fifteen (15) days of such notification, or (ii) pay to Company the
difference between one hundred thirty percent (130%) of the value of the
Obligations, and the amount by which the fair market value of the Pledged
Collateral is less than one hundred thirty percent (130%) of the value of the
Obligations, which payment to the Company shall be made within fifteen (15)
days of such notification. Failure to comply with the requirements of this
Section 2.06 shall constitute a default pursuant to Article 7 herein.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
Pledgor represents and warrants as follows:
Section 3.01. Ownership and Liens. Pledgor is the
legal and beneficial owner of the Pledged Securities described under the
name of Pledgor listed in Schedule I attached hereto and will be the legal and
beneficial owner of any and all Additional Securities which may be delivered
to the Company at any time and from time to time hereunder by or in respect of
Pledgor and the remainder of the Pledged Collateral attributable to such
Pledged Securities and Additional Securities when delivered to the Company.
The Pledged Securities are, and any and all such Additional Securities and the
remainder of the Pledged Collateral when delivered to the Company will be,
free and clear of any lien, security interest, option or other charge or
encumbrance and any other interest except for the security interest created by
this Agreement.
Section 3.02. Perfection. The delivery of the Pledged
Securities pursuant to this Agreement creates a valid and
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perfected first priority security interest in the Pledged Collateral, securing
the payment of the Obligations.
Section 3.03. No Authorization or Consent Required. (i) No
authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for, and (ii) no
agreement to which Pledgor is a party or by which Pledgor or any assets of
Pledgor are bound, will be contravened by, (a) the pledge by Pledgor of the
Pledged Collateral pursuant to this Agreement or the execution, delivery or
performance of this Agreement by Pledgor, or (b) the exercise by the Company
of the voting or other rights provided for in this Agreement or the remedies
in respect of the Pledged Collateral pursuant to this Agreement (except as may
be required by laws affecting the offering and sale of securities generally).
Section 3.04. Financial Benefit. Pledgor expects and
anticipates that the performance by him of his obligations hereunder will
result in a financial benefit to him.
ARTICLE 4. COVENANTS.
Section 4.01. Further Assurances. Pledgor agrees that at any
time and from time to time, at the expense of Pledgor, Pledgor will promptly
execute and deliver all further instruments and documents, and take all
further action that may be necessary or desirable, or that the Company may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Company to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
Section 4.02. Transfers and Other Liens. Pledgor agrees that
he will not (i) sell or otherwise dispose of, or grant any option with respect
to, or permit to exist any interest (other than the interest of the Company)
in, any of the Pledged Collateral, or (ii) create or permit to exist any lien,
security interest, or other charge or encumbrance upon or with respect to any
of the Pledged Collateral, except for the security interest under this
Agreement.
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ARTICLE 5. THE COMPANY.
Section 5.01. Company Appointed Attorney-in-Fact. Pledgor
hereby irrevocably appoints the Company as Pledgor's attorney-in-fact, with
full authority in the place and stead of Pledgor and in the name of Pledgor or
otherwise, from time to time in the Company's discretion, to take any action
and to execute any instrument which the Company may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, to receive, endorse and collect all instruments made payable to
Pledgor representing any interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same.
Section 5.02. Company May Perform. If Pledgor fails to
perform any agreement contained herein, the Company may itself perform, or
cause performance of, such agreement, and the expenses of the Company incurred
in connection therewith shall be payable by Pledgor under Section 9.02.
Section 5.03. Reasonable Care. The Company shall be deemed
to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Company accords its own
property, it being understood that the Company shall not have responsibility
for (a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Company has or is deemed to have knowledge of
such matters, or (b) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral.
ARTICLE 6. VOTING RIGHTS; DIVIDENDS; ETC.
Section 6.01. Voting Rights; Dividends; Etc. (a) If
and so long as no Event of Default under the Note shall have occurred and be
continuing and Pledgor shall not be in default on any other Obligations:
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(i) Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral relating to
Pledged Securities delivered to the Company hereunder by or in respect of
Pledgor or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Note; provided, however, that Pledgor shall not exercise
or shall refrain from exercising any such right if, in the Company's judgment,
such action would have a material adverse effect on the value of the Pledged
Collateral or any part thereof, and, provided, further, that the Pledgor shall
give the Company at least five (5) days' written notice of the manner in which
Pledgor intends to exercise, or the reasons for refraining from exercising,
any such right.
(ii) Pledgor shall be entitled to receive and retain any and
all dividends paid in respect of the Pledged Collateral relating to Pledged
Securities delivered to the Company hereunder by or in respect of Pledgor,
provided, however, that any and all
(A) dividends paid or payable other than in cash in
respect of, and instruments and other property
received, receivable or otherwise distributed in
respect of, or in exchange for, any such Pledged
Collateral,
(B) other distributions paid or payable in cash in
respect of any such Pledged Collateral in
connection with a partial or total liquidation or
dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, or
otherwise, and
(C) cash paid, payable or otherwise distributed in
respect of, in redemption of, or in exchange
for, any such Pledged Collateral,
shall be, and shall forthwith be delivered to the Company to hold as, Pledged
Collateral and shall, if received by Pledgor, be
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received in trust for the benefit of the Company, be segregated from the other
property or funds of Pledgor, and shall be forthwith delivered to the Company as
Pledged Collateral in the same form as so received (with any necessary
endorsement).
(iii) The Company shall execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies and other instruments as
Pledgor may reasonably request for the purpose of enabling Pledgor to exercise
the voting and other rights which Pledgor is entitled to exercise pursuant to
paragraph (i) above and to receive the dividend payments which it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an
Event of Default under the Note or default on any other Obligations:
(i) All rights of Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Section 6.01(a)(i) hereof and to receive the dividend payments which it would
otherwise be authorized to receive and retain pursuant to Section 6.01(a)(ii)
hereof shall cease, and all such rights shall thereupon become vested in the
Company, and the Company shall thereupon have the sole right to exercise such
voting and other consensual rights and to receive and hold as Pledged
Collateral such dividend payments.
(ii) All dividend payments which are received by Pledgor
contrary to the provisions of Paragraph (i) of this Section 6.01(b) shall be
received by Pledgor in trust for the benefit of the Company, shall be
segregated from other funds of Pledgor and shall be forthwith paid over to the
Company as Pledged Collateral in the same form as so received (with any
necessary endorsement).
ARTICLE 7. DEFAULT.
Section 7.01. Remedies upon Default. If any
Event of Default under the Note shall have occurred and be continuing or if
Pledgor shall default on any other Obligations:
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(a) The Company may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the U.C.C. in effect in the State of New York at that time, and
the Company may also, without notice except as specified below, sell the
Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Company's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Company may deem commercially
reasonable. Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to Pledgor of the time and
place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Company shall not be
obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Company may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Company as Pledged Collateral and
all cash proceeds received by the Company in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral may, in the discretion of the Company, be held by the Company as
collateral for, and/or then or at any time thereafter applied (after payment
of any amounts payable to the Company pursuant to Section 9.02) in whole or in
part by the Company and for the benefit of the Company, against all or any
part of the Obligations in such order as the Company shall elect. Any surplus
of such cash or cash proceeds held by the Company and remaining after payment
in full of all the Obligations shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
ARTICLE 8. NO WAIVER; REMEDIES CUMULATIVE
Section 8.01. No Waiver; Remedies Cumulative. No failure on
the part of the Company to exercise, and no delay in exercising, any right
under this Agreement shall operate as a waiver thereof, nor shall any
extension of time, renewal,
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compromise or other indulgence which may occur or be granted by the Company
impair the Company's right or security interests under this Agreement, nor shall
the single or partial exercise of any right under this Agreement preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided for in this Agreement are cumulative and not exclusive of any
remedies provided by law or otherwise.
ARTICLE 9. MISCELLANEOUS.
Section 9.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by Pledgor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Company, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Section 9.02. Expenses. The Pledgor shall upon demand pay to
the Company the amount of any and all reasonable expenses, including the
reasonable fees and expenses of counsel to the Company, and of any experts and
agents, which the Company may incur in connection with (a) the administration
of this Agreement, (b) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Pledged Collateral, (c)
the exercise or enforcement of any of the rights of the Company hereunder, or
(d) the failure by Pledgor to perform or observe any of the provisions hereof.
Section 9.03. Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier
communication) and, if to Pledgor, mailed or telecopied or delivered to him at
the address of Pledgor hereinabove specified; if to the Company, mailed or
delivered to it, addressed to it at the address of the Company specified in
the Note; or as to any party at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery
with the terms of this Section 9.03. All such notices and other communications
shall, when mailed or telecopied, respectively, be effective when deposited in
the mails or telecopied, respectively, addressed as aforesaid.
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Section 9.04. Binding Effect. This Agreement shall (a) be
binding upon Pledgor, his heirs, devisees, legal representatives and assigns,
and (b) inure, together with the rights and remedies of the Company hereunder,
to the benefit of the Company and its successors, transferees and assigns.
Section 9.05. Entire Agreement. This Agreement constitutes
the entire agreement, and supersedes all prior agreements and understandings,
both written and oral, between Pledgor and the Company with respect to the
subject matter hereof.
Section 9.06. Headings. Article and Section headings in
his Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
Section 9.07. Governing Law; Terms. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York. In the event any term or provision of this Agreement shall be held
invalid or unenforceable in any jurisdiction by any court of competent
jurisdiction, the remaining terms and provisions hereof shall be unimpaired
(and such invalid or unenforceable term or provision shall not thereby be
deemed to be invalid or unenforceable in any other jurisdiction) and the
invalid or unenforceable term or provision shall be as to such jurisdiction
deemed replaced by a term or provision that is valid and enforceable in such
jurisdiction and that comes closest to expressing the intention of such
invalid or unenforceable term or provision.
IN WITNESS WHEREOF, Pledgor and the Company have each
caused this Agreement to be duly executed and delivered as of the date first
above written.
- ------------------------- --------------------------------
Witness STEPHEN J. DRESCHER
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DUALSTAR TECHNOLOGIES CORPORATION
- -------------------------
Witness By:____________________________
Name:__________________________
Title:_________________________
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SCHEDULE I
Attached to and forming a part of that certain Pledge
Agreement made and entered into as of October 20, 1995, by Stephen J.
Drescher, to and in favor of DualStar Technologies Corporation (the
"Company").
The following is a list of the Pledged Securities delivered
and pledged to the Company as of October 20, 1995 by Pledgor:
Pledged Securities Delivered and Pledged by Stephen J.
Drescher
Number of
Shares Description Certificate No.
- --------- ----------- ---------------
65,250* DualStar Common Stock
- ----------
* Under Reg. ss.207.7, no more than 50% of the fair market value of a "margin
security" can be loaned where the loan is secured by such margin security.
Based upon the current market price of $2.25 per share of the DualStar common
stock, it appears that no more than $73,406 could be loaned by the Company
based upon the number of shares.
SALE AND PURCHASE AGREEMENT
---------------------------
THIS AGREEMENT, made this ___ day of ________, 199__ by and
between DUAL STAR TECHNOLOGIES CORP. (hereinafter called "Purchaser"), and
WILLIAM CALOMIRIS ("Seller").
W I T N E S S E T H :
-------------------
WHEREAS, Seller is the owner in fee simple of certain
parcels of land (the "Land") situated in the Borough of Queens, County of
Queens, City of New York and State of York, described on Exhibit "A" attached
hereto and made a part hereof, with a street address of 11-26 47th Avenue,
Long Island City, New York, together with the improvements situated on said
Land now assigned by Johnson Service Company ("Johnson") and all of the
tangible personal property attached or appurtenant thereto (the Land and
improvements and said personal property are herein referred to as the
"Premises"); and
WHEREAS, Purchaser desires to buy and Seller is willing to
sell the Premises upon and subject to the terms, conditions and provisions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, it is hereby agreed as
follows:
1. Agreement to Sell. Seller hereby agrees to sell to
Purchaser, and Purchaser hereby agrees to purchase from Seller, the Premises
in its "as is" condition, subject to the terms and conditions set forth in
this Agreement, together with (a) all transferable licenses, permits and other
approvals relating to the Premises, (b) all rights to any awards or proceeds
paid or to be paid for damage to the Premises by condemnation, eminent domain,
exercise of police power or change of grade or any street, and (c) Seller's
<PAGE>
interest in all service, utility, maintenance and other contracts affecting
the Premises, (the property rights listed above and the Premises are
hereinafter collectively sometimes referred to as the "Property").
2. Purchase Price. The purchase price of the Property
to be paid by Purchaser to Sellers is One Million Fifty Thousand Dollars
($1,050,000.00) subject however, to the adjustments specified in Paragraph 14
hereof.
3. Terms of Payment of Purchase Price. The purchase
price aforesaid shall be paid as follows:
(a) On the signing of this Agreement,
Purchaser shall deliver to Seller payable to the order of Lawrence A. Miller,
Esquire ("Escrow Agent") by good check a deposit in the amount of
Fifty Thousand Dollars ($50,000.00) (the "Deposit").
(b) At closing, Purchaser agrees to pay to
Seller the sum of One Million Fifty Thousand Dollars ($1,050,000.00) in cash or
immediately available federal funds, of which the Deposit is to be a part.
4. Effective Date of Agreement. This Agreement shall
be effective on the date (the "Effective Date") of this Agreement first above
written.
5. Time of Essence. Time is hereby made of the
essence of this Agreement with respect to the obligations of both Seller and
Purchaser.
6. Seller's Representations and Warranties. Seller
represents and warrants to Purchaser that (i) it has not received any notice
of pending or threatened condemnation proceedings or legal proceedings
affecting the
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Property; and (ii) to the best of its knowledge, information and
belief, no portion of the Property is affected by existing or pending special
assessment.
7. Purchaser's Default. In the event Purchaser defaults
hereunder and fails to make settlement of this Agreement, the Deposit shall be
retained by Seller, as liquidated and agreed damages, and not as a penalty,
and as payment in full of all claims of Seller against Purchaser, and
thereupon all parties shall be relieved of any further obligations or
liabilities hereunder.
8. Title. (A) Purchaser's obligation to close this Agreement
is subject to the condition that at closing of this Agreement the title to the
Property is insurable, marketable and good of record and in fact, subject to
covenants, conditions, restrictions and encumbrances of record, provided that
they do not render the title uninsurable or unmarketable . Purchaser agrees
that it will, within five (5) business days following the signing of this
Agreement by all parties, order from the Title Company an examination of title
of the Property and to cause the Title Company to issue within thirty (30)
days from the date hereof an interim title insurance binder with respect
thereto. Promptly following Purchaser's receipt of the report of title as
issued by the Title Company, Purchaser agrees to deliver to Seller a true and
complete copy of said title report and, if Purchaser has any objections to the
title, then Purchaser will include a statement specifying the items to which
Purchaser objects, and a statement in reasonable detail of its grounds for the
objection. Seller covenants and agrees that Seller shall at its expense remove
all exceptions to title (other than standard exceptions) which can be
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removed by payment of a liquidated sum of money, including, but not limited
to, the liens of any mortgages, deeds of trust, judgments or mechanics' liens.
In addition, it shall be an express condition to the closing hereunder that
Title Company will insure against the rights of tenants in possession.
(B) Seller agrees not to encumber the Property nor to grant
any leases, easements, rights-of-way nor otherwise subject the title of the
Property to title defects without Purchaser's prior written consent while this
Agreement remains in force and effect. If upon examination of title by Title
Company, the title is found to be defective and not as set forth in the
foregoing provisions of this Paragraph 8, then and in that event the Deposit
is to be returned to Purchaser, and this Agreement shall be declared null and
void at Purchaser's option unless the defects are of such character that they
may be readily remedied by legal or other action. However, Seller is hereby
relieved of any liability for damages by reason of defects of title. If upon
examination title is found to be defective, then Seller agrees to take such
prompt legal action to endeavor to remove the defects; but if such defects
cannot be removed within sixty (60) days thereafter, then and in that event
Purchaser shall either (i) accept such title as Seller can give without
abatement or reduction in the purchase price, and proceed to Closing, or (ii)
terminate this Agreement by giving Seller written notice to that effect, and
if such termination notice is given this Agreement shall become null and void,
and the Seller shall return the Deposit to Purchaser, and all parties shall be
relieved of any further liabilities or obligations hereunder to the others or
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any of them, except that in that case, Seller shall be obligated to reimburse
Purchaser for its reasonable costs incurred in the examination of title.
9. Deed of Conveyance. The Property is to be conveyed to
Purchaser by good and sufficient bargain and sale deed in the proper statutory
form attached hereto as Exhibit "B" for recording so as to transfer full
ownership (fee simple title) to the Premises free of all encumbrances except
as herein stated. The form of deed contains a covenant by Seller as required
by Section 13 of the Lien Law. Seller agrees to execute and deliver to the
Title Company at closing an Affidavit under Section 1445 of the U.S. Internal
Revenue Code that he is a not foreign person. Seller agrees to furnish the
Title Company the usual affidavits and indemnities to the effect that as of
the date of closing there are no outstanding rights by third parties to file
mechanics' and/or materialmens' liens against Seller's interest in the
Property, and that the Property is free and clear of deed of trust liens.
10. "Subject to" Provisions. The Premises are to be
transferred subject to:
a. Laws and governmental regulations that
affect the use and maintenance of the Premises provided that they are not
violated by the buildings and improvements on the Land and do not limited
Purchaser's ability to use the Premises for the intended use of
________________________.
b. Conditions, agreements, restrictions and
easements of record, provided the same does not materially diminish Purchaser's
ability to use the Premises for the aforesaid intended use.
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<PAGE>
c. Any state of facts an inspection or survey
of the Premises may show if it does not make the title to the Premises
unmarketable or uninsurable.
d. Unpaid assessments payable after the date
of transfer of title, provided that the same are applicable to periods after
such termination.
11. Risk of Loss. (A) Seller assumes the risk of loss or
damage to the Property by fire or other casualty until the executed deed of
conveyance is delivered to Purchaser (or to the Title Company for the
Purchaser) at settlement and closing of this Agreement for purposes of
recording. In the event the Property is damaged by fire or other casualty
prior to settlement and closing of this Agreement, and if the Property is not
repaired by the date herein specified for closing of this Agreement, and if
the damage is so extensive that, in the reasonable opinion of Seller it cannot
be repaired within one hundred twenty (120) days after the date of the
casualty, this Agreement shall terminate at the expiration of ten (10) days
after such casualty, and upon such termination, the Deposit, shall be returned
to Purchaser, and all parties hereto shall thereupon be relieved of any
further obligations or liabilities hereunder; provided, however, that
Purchaser may, at Purchaser's option, close this Agreement on the date
specified herein for closing, and take title to the Property in its "as is"
condition without abatement of the purchase price. If Purchaser elects to take
title to the Property in its "as is" condition as aforesaid, then (1) Seller
shall at closing pay to Purchaser all insurance proceeds previously
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received on account of such casualty, and (2) assign to Purchaser all of
Seller's interest in any other insurance proceeds which are, or may become
payable (other than rental insurance or business interruption insurance
covering any period of time prior to closing of this Agreement).
(B) In the event that the aforesaid casualty is such that in
the reasonable opinion of Seller and Purchaser, the Property can be repaired
within one hundred twenty (120) days after the date of the casualty, then
Purchaser may, at Purchaser's option, (1) close this Agreement without
abatement or reduction of purchase price and restore the Property with
Seller's insurance proceeds as provided above, (2) require Seller to repair
the Property substantially to its condition prior to such casualty at Seller's
expense with the insurance proceeds, or (3) cancel this Agreement. If
Purchaser does not elect to cancel this Agreement under clause (3) above,
Purchaser shall proceed with Closing as required hereunder. In the event
Purchaser elects to cancel this Agreement, then the Deposit shall be returned
to Purchaser, and the parties shall have no further rights or obligations
under this Agreement.
12. Notices of Violation. If notices of violation of
municipal orders or requirements are issued by any department of the City of
New York or other governmental agency, having jurisdiction and legal right to
issue such notices ("Violations") after the date of this Agreement, then
Seller will comply therewith and deliver the Property free of any such
violation notices. PROVIDED, HOWEVER, if the cost of complying with such
notices exceeds $15,000.00 in the aggregate between the date hereof and the
Closing Date,
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Seller reserves the right at its option to terminate this
Agreement unless Purchaser agrees in writing to close this Agreement and to
accept $15,000.00 Seller is obligated to expend to comply with such notices.
If Seller shall have elected to terminate this Agreement pursuant to the
provisions of the immediately preceding sentence, and if Purchaser is
unwilling to close as aforesaid, the deposit shall be returned to Purchaser
and all parties shall be relieved of further obligations and liabilities
hereunder.
13. Closing. Settlement and closing of this Agreement shall
be made within one hundred fifty (150) days hereafter, at the office of the
Title Company or such earlier date selected by Purchaser of which Seller is
given at least ten (10) days advance written notice. Deposit with the Title
Company by Seller of Deed of conveyance of the Property to Purchaser in the
form attached hereto as Exhibit "B" and payment of the purchase money by
Purchaser as required by this Agreement, and the execution and delivery by
each party of such other papers as are required by the terms of this Agreement
shall be deemed and construed as good and sufficient tender of performance of
the terms hereof.
14. Adjustments. Taxes, water rent, sewer service,
electricity, gas, fuel oil, if any, shall be adjusted as of the Closing Date.
Taxes, general and special, are to be adjusted according to the Certificate of
Taxes as issued by the Collector of Taxes of the City and State of New York.
15. Costs. Examination of title, tax certificate,
conveyancing, survey, notary fees, and all recording charges are to be at the
cost of
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Purchaser. Any charges required to record any satisfactions of existing
encumbrances shall be paid by Seller.
16. Deed and Transfer and Recording Taxes. At Closing,
Seller shall deliver a certified check payable to the order of the appropriate
State, City or County officer in an amount equal to the amount of any
applicable transfer and/or recording tax payable by reason of the delivery or
recording of the deed, together with any required tax return. Purchaser agrees
to duly complete the tax return and to cause the check(s) and the tax
return(s) to be delivered to the appropriate officer promptly after closing.
17. Brokerage. Seller and Purchaser each represent to the
other that it has not dealt with any broker, finder, or similar agent other
than Cushman & Wakefield, Greiner Maltz Co, Inc., The Clifford Real Estate
Services, Inc. and George E. Grace (together the "Broker") who might be
entitled to a commission or compensation on account of introducing the
parties, the negotiation or execution of this Agreement or the settlement of
this transfer, and each hereby indemnifies and agrees to hold harmless the
other of and from any liability, cost or expense incurred by reason of a
breach of the foregoing representation and warranty by such other party
granting this indemnity. Seller agrees to pay Broker the commission earned
pursuant to a separate agreement with Broker.
18. Possession. Seller agrees to give Purchaser possession
of the Premises at Closing, free of leases, tenants and occupants. If Johnson
has not vacated the Premises by the outside date for Closing hereunder, the
date for Closing shall be extended until Johnson vacates the Premises but not
beyond September 1, 1996. If Johnson does not vacate the Premises by such
date, Purchaser shall have the right to terminate this Agreement on that date,
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upon which termination the Deposit shall be returned to Purchaser and the
parties shall be relieved of any further liability hereunder.
19. Notices. All notices required or desired to be
given hereunder shall be in writing, and shall be sent by registered or
certified mail, return receipt requested, postage prepaid, and directed to the
parties as follows:
If to Seller:
------------
1112 - 16th Street, N.W.
Suite 900
Washington, D.C. 20036
With a Copy simultaneously to:
-----------------------------
Lawrence A. Miller, Esquire
Grossberg, Yochelson, Fox & Beyda
2100 Pennsylvania Avenue, N.W.
Suite 770
Washington, D.C. 20037
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If to Purchaser:
---------------
------------------------------------
------------------------------------
------------------------------------
With a Copy simultaneously to:
-----------------------------
------------------------------------
------------------------------------
------------------------------------
Any party shall, by like notice, have the right to designate a different
address or addresses to which notices are thereafter to be sent to him.
20. Study Period.
Purchaser shall have the right, at its option and
expense, for a period of thirty (30) calendar days commencing on March 18,
1996 (the "Study Period") to cause to have performed engineering, environmental
and other tests, studies and/or economic and financing investigations
concerning the Property. In the event that any tests, studies and/or
investigations performed by or for Purchaser disclose to Purchaser, in its
sole, exclusive and absolute discretion, that the Property is not suitable for
the purposes which Purchaser may desire, then and in any such event, the
Purchaser shall have the right, also at its exclusive and absolute discretion,
to terminate this Agreement by giving written notice thereof to Seller at any
time on or prior to the expiration of the aforesaid Study Period. Upon any such
termination hereof by Purchaser, the entire Deposit and interest thereon shall
be returned to the Purchaser, and the parties shall be relieved of all further
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obligations hereunder. The Purchaser shall have the right during the term of
this Contract to enter upon the Property to make such tests and studies and
shall repair and/or restore any damage caused as a result thereof. Purchaser
agrees to indemnify and save harmless the Seller from any liability for loss
or injury to person or property, including reasonable attorney's fees, it may
incur by virtue of the negligent acts of Purchaser, its agents,
representatives or assigns in entering the Property for any reason or
performing any inspections or tests thereon of any kind whatsoever. If
Purchaser does not exercise its option to terminate this Agreement under this
Paragraph within the specified thirty (30) day Study Period, Purchaser shall
have no right to terminate this Agreement except as otherwise provided in this
Agreement. Notwithstanding the foregoing, Purchaser shall have the right to
extend its right to terminate this Agreement solely for the purpose of
securing financing for approximately $735,000 at market rates payable over a
ten (10) year) additional periods of twenty (20) days by giving Seller, within
said thirty (30) day Study Period or within said first twenty (20) days
extension period, as applicable, written notice of such extension accompanied
by evidence of its diligent good faith efforts to secure such financing.
21. Designation. Purchaser may designate the party to
whom title is to be issued at Closing.
22. Condition of Premises. Purchaser has inspected the
buildings on the Premises and the personal property included in this sale and
is thoroughly acquainted with their condition. Purchaser agrees to purchase
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them "as is" and in their present condition subject to reasonable use, wear,
tear and natural deterioration between now and Closing.
23. Entire Agreement. The parties to this Agreement mutually
agree that it shall be binding upon them, their and each of the respective
heirs, executors, administrators, successors, and assigns; that this Agreement
contains the final and entire agreement between the parties hereto, and that
they shall not be bound by any terms, conditions, statements, warranties or
representations, oral or written not herein contained.
24. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall be deemed to constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands.
SELLER:
___________________________(SEAL)
WILLIAM CALOMIRIS
PURCHASER:
DUAL STAR TECHNOLOGIES CORP.
By:_________________________(SEAL)
, President
<PAGE>
EXHIBIT 21.1
Jurisdiction and
Name of Subsidiary Date of Incorporation
- ------------------ ---------------------
Centrifugal Associates, Inc. New Jersey, 10/20/64
Mechanical Associates, Inc. New York, 3/31/89
Centrifugal Service, Inc. New York, 9/4/92
The Automation Group, Inc. Delaware, 5/25/95
Trident Mechanical
Systems, Inc. Delaware, 5/25/95
Centrifugal/Mechanical
Associates, Inc. Delaware, 6/9/95
Property Control, Inc. Delaware, 6/9/95
High-Rise Electric, Inc. Delaware, 7/5/95
Grace Systems
Technologies, Inc. Delaware, 2/2/96
DualStar Communications, Inc. Delaware, 2/2/96
Integrated Controls
Technologies, Inc. Delaware, 8/30/96
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated September 13, 1996, accompanying the
consolidated financial statements included in the Annual Report of DualStar
Technologies Corporation on Form 10-K for the year ended June 30, 1996. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of DualStar Technologies Corporation on Form S-8 (File
No. 33-97708, effective October 3, 1995).
GRANT THORNTON LLP
New York, New York
September 13, 1996
