Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period From
to .
Commission file number 0-25552
DUALSTAR TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3776834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11-30 47th Avenue, Long Island City, NY 11101
(Address, including zip code of principal executive offices)
(718) 340-6655
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's common stock, as of the latest practicable date.
Common Stock, $.01 Par Value --- 9,000,000 shares as of
November 12, 1998
<PAGE>
Per the Securities and Exchange Commission's advice, a Year
2000 Compliance section is added to the Management's
Discussion and Analysis of Financial Condition and Results
of Operations of this amended Form 10-Q for the quarterly
period ended September 30, 1998.
<PAGE>
Index
DualStar Technologies Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - September
30, 1998 and June 30, 1998
Condensed consolidated statements of income -
Three months ended September 30, 1998 and 1997
Condensed consolidated statements of cash flows -
Three months ended September 30, 1998 and 1997
Notes to condensed consolidated financial
statements - September 30, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K*
Signatures
* No exhibits are included in this filing
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1998 1998
(unaudited)
ASSETS
Current assets:
Cash $ 904,877 $ 1,356,228
Contracts receivable, net 21,805,390 19,321,514
Retainage receivable 4,719,146 4,574,252
Costs and estimated earnings
in excess of billings on
uncompleted contracts 1,577,879 1,507,471
Deferred tax asset - current 178,000 178,000
Prepaid expenses and sundry
receivable 671,624 427,725
------------ ------------
Total current assets 29,856,916 27,365,190
Property and equipment, net 3,281,378 3,400,470
Other assets:
Deferred tax asset -
long-term 924,000 924,000
Other 1,663,474 1,655,099
------------ ------------
Total assets $35,725,768 $33,344,759
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,655,179 $19,086,827
Billings in excess of costs
and estimate earnings on
uncompleted contracts 4,701,668 3,882,797
Accrued expenses and other
liabilities 5,089,453 4,030,890
------------ ------------
Total current liabilities 29,446,300 27,000,514
Mortgage payable - long-term 761,250 772,500
Other liabilities 139,974 204,576
------------ ------------
Total liabilities 30,347,524 27,977,590
------------ ------------
Contingencies
Shareholders' equity:
Common stock 90,000 90,000
Additional paid-in capital 14,995,836 14,995,836
Deficit (9,707,592) (9,718,667)
------------ ------------
Total shareholders' equity 5,378,244 5,367,169
------------ ------------
Total liabilities and
shareholders' equity $35,725,768 $33,344,759
============ ============
See notes to condensed consolidated financial statements
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1998 1997
Contract revenues earned $19,939,205 $22,721,247
Cost of revenues earned 17,812,540 20,366,999
------------ ------------
Gross profit 2,126,665 2,354,248
General and administrative expenses 2,115,590 1,874,086
------------ ------------
Net income $ 11,075 $ 480,162
============ ============
Basic income per share:
Net income per share $ - $0.05
Weighted average shares
outstanding 9,000,000 9,000,000
Diluted income per share:
Net income per share $ - $0.05
Weighted average shares
outstanding 9,946,968 9,341,045
See notes to condensed consolidated financial statements
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1998 1997
Cash (used in) provided by
operating activities $(1,343,033) $ 422,235
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (22,845) (326,452)
------------ ------------
Net cash used in investing activities (22,845) (326,452)
------------ ------------
Cash flows from financing activities:
Proceeds from short-term loan 1,000,000 -
Principal payments on capital
lease obligations (74,223) (21,592)
Principal payments on mortgage (11,250) (7,500)
------------ ------------
Net cash provided by (used in)
financing activities 914,527 (29,092)
------------ ------------
Net (decrease) increase in cash (451,351) 66,691
Cash - beginning of period 1,356,228 1,110,615
------------ ------------
Cash - end of period $ 904,877 $ 1,177,306
============ ============
See notes to condensed consolidated financial statements
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three month period
ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending
June 30, 1999. For further information, refer to the
financial statements and footnotes thereto included in
DualStar Technologies Corporation and Subsidiaries' Annual
Report on Form 10-K for the fiscal year ended June 30, 1998.
NOTE B - NET INCOME PER SHARE
Basic income per share is based on the weighted average
number of common shares outstanding during the period.
Diluted income per share includes the dilutive effect of
securities that can be converted into common stock,
including options and warrants, unless the effect is anti-
dilutive.
The weighted average number of shares outstanding for the
periods presented is as follows:
Three Months Ended
September 30,
1998 1997
Basic shares 9,000,000 9,000,000
Dilution (options) 946,968 341,045
--------- ---------
Diluted shares 9,946,968 9,341,045
========= =========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
DualStar Technologies Corporation, through its wholly owned
subsidiaries, provides mechanical, electrical, electronic
and control, environmental, security, telecommunications,
direct broadcast satellite and cable television, and high-
speed Internet access systems, services and solutions to a
wide range of customers primarily in the New York Tri-State
area.
Certain information contained in this report includes
"forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which is
subject to certain risks and uncertainties, including those
"Risk Factors" set forth in DualStar Technologies
Corporation and Subsidiaries' (the "Company") Annual Report
on Form 10-K for the fiscal year ended June 30, 1998.
Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to release
publicly any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or
to reflect unanticipated events or developments.
Capital Resources and Liquidity
Cash balances at September 30, and June 30, 1998 were
approximately $0.9 million and $1.4 million, respectively.
The Company's operations used approximately $1.3 million of
cash in the three months ended September 30, 1998, and
provided approximately $0.4 million of cash in the three
months ended September 30, 1997.
Further, in the three months ended September 30, 1998 and
1997, the Company acquired capital assets of approximately
$23,000 and $326,000, respectively, substantially all of
which represented investments in telecommunication
infrastructure systems for buildings in return for rights to
provide telephone, cable television and high-speed Internet
services to the buildings' residents.
In July 1998, the Company entered a $1 million loan
agreement with an investment group. The loan and any unpaid
interest is due and payable on demand and bears an interest
rate of 10% per annum. The loan is collateralized by the
Company's building (which is subordinate to the building's
first mortgage) and the Company's cash and accounts
receivable.
Although the Company had net income of approximately $11,000
and $556,000 for the three months ended September 30, 1998
and the year ended June 30, 1998, respectively, the Company
experienced losses of approximately $6.5 million and $3.8
million for the years ended June 30, 1997 and 1996,
respectively. At September 30, and June 30, 1998, working
capital was approximately $409,000 and $365,000,
respectively. To improve working capital, the Company
continues to consolidate certain subsidiaries' operations
and is considering the sale of certain subsidiaries. In
addition, the Company's mechanical contracting and service
businesses reorganized their engineering, drafting and
project management departments so that overhead can be
reduced and project costs can be controlled better. The
Company believes that based on the foregoing, current
cash on hand, and future cash from operating and investing
activities should be sufficient to cover current operations.
There can be no assurance, however, that the Company will
achieve these plans. In the event that additional working
capital becomes necessary to fund operations, there can be
no assurance that the Company will be able to obtain
financing on terms satisfactory to it.
Year 2000 Compliance
The Year 2000 ("Y2K") issue is the result of computer
programs using a two-digit format, as opposed to four
digits, to indicate the year. Such computer programs will be
unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to
disruptions in operations. In 1998, the Company developed a
three-phase program for Y2K compliance. Phase I is the
identification of those systems through which the Company
has exposure to Y2K issues. Phase II is the development and
implementation of action plans to be Y2K compliant in all
areas by the end of June 1999. Phase III, to be completed
by September 1999, is the final testing of each major area
of exposure to ensure compliance. The Company has
identified two major areas determined to be critical for
successful Y2K compliance: (1) financial and informational
system applications, and (2) system and software suppliers.
The Company, in accordance with Phase I of the program, is
in the process of conducting an internal review of its
systems and has contacted suppliers to determine major areas
of exposure to Y2K issues. In the financial and
informational systems area, a number of applications have
been identified as Y2K compliant due to their recent
implementation. As of September 30, 1998, the Company's
core financial and reporting systems are not yet Y2K
compliant but are scheduled for replacement and testing for
compliance in the first half of 1999. Also, the Company's
non-compliant informational systems are scheduled for
replacement and testing for compliance by September 1999.
The Company believes the current estimated replacement and
labor costs to bring the core financial, reporting and
informational system applications into compliance should not
have a material adverse effect on the Company's financial
condition in fiscal 1999 and 2000, although there can be no
assurance of this.
As of September 30, 1998, the Company has contacted most of
its major suppliers with regards to Y2K compliance. While
those suppliers that had responded to our requests stated
that they are, or intend to be, Y2K compliant by 2000, the
Company is still waiting for other suppliers' responses. In
addition, the Company is in the process of identifying non-
compliant systems and software provided by suppliers. If
non-compliant systems and/or software are found, the Company
will work closely with suppliers for resolutions and seek
alternatives from other sources if those suppliers are not
able to provide resolutions. At this time, the Company is
not able to accurately assess the costs of resolution of the
non-compliant systems and software, if any.
Results of Operations
Contract revenues decreased 12.2% in the three months ended
September 30, 1998 to $19.9 million, down $2.8 million from
the comparable period of 1997. The decrease was due
primarily to the Company either completing or beginning
several large contracts. Since such revenue streams
typically peak during the middle of a project, this
depressed contract revenues during this period.
Gross profit decreased $0.2 million in the three months
ended September 30, 1998 to $2.1 million from the comparable
period in 1997. The gross profit margins were 10.7% and
10.4% for the three months ended September 30, 1998 and
1997, respectively. The decrease in gross profit was
attributable to the decrease in contract revenues.
General and administrative expenses increased $0.2 million
in the three months ended September 30, 1998 to $2.1 million
from the comparable period of 1997. As a percentage of
revenue, general and administrative expenses increased to
10.6% for the three months ended September 30, 1998 from
8.2% for the three months ended September 30, 1997. The
increase as a percentage of revenue was due primarily to the
decrease in contract revenues.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
DualStar Technologies Corporation
Date November 16, 1998 By: GREGORY CUNEO
Gregory Cuneo
President and Chief Executive Officer
Date November 16, 1998 By: ROBERT BIRNBACH
Robert Birnbach
Vice President and Chief Financial Officer
Date November 16, 1998 By: JOSEPH CHAN
Joseph Chan
Vice President and Chief Accounting Officer
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