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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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.
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)
YEAR ENDED NINE MONTHS YEAR ENDED
SEPTEMBER 30, ENDED JUNE 30, JUNE 30,
---------------------- --------------------- ---------------------
1992 1993 1993 1994 1995 1996
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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
SEPTEMBER 30, JUNE 30,
------------------ ------------------------------
1992 1993 1994 1995 1996
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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
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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 -
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 -
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 -
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 -
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 -
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 -
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 -
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
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
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
--------------------------------
ASSETS 1996 1995
---------- ------------
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
========== ==========
The accompanying notes are an integral part of these statements.
F-3
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
-------------- -------------
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
========== ==========
The accompanying notes are an integral part of these statements.
F-4
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(COMBINED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED JUNE 30, 1994)
Nine months
YEAR ENDED Year ended ended
JUNE 30, June 30, June 30,
1996 1995 1994
------------- ------------- --------
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
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
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
Additional (Deficit)
Common paid-in retained
stock capital earnings
----------- ---------- -----------
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)
====== ========== ==========
The accompanying notes are an integral part of this statement.
F-6
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COMBINED STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED JUNE 30, 1994)
Nine months
YEAR ENDED Year ended ended
JUNE 30, June 30, June 30,
1996 1995 1994
------------- ------------- -------------
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)
---------- ---------- ----------
F-7
DualStar Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(COMBINED STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED JUNE 30, 1994)
Nine months
YEAR ENDED Year ended ended
JUNE 30, June 30, June 30,
1996 1995 1994
------------- ------------- ----------
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.
The accompanying notes are an integral part of these statements.
F-8
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
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
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
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:
June 30,
-----------------------------------
1996 1995
----------- -----------
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)
=========== ===========
F-12
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:
June 30,
-----------------------------------
1996 1995
----------- ----------
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)
============ ===========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30,
-----------------------------------
1996 1995
---------- ----------
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
========= ==========
F-13
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:
June 30,
-----------------------------------
1996 1995
---------- ----------
Accrued compensation $2,111,183 $1,243,165
Other 453,919 371,306
---------- ----------
$2,565,102 $1,614,471
========= =========
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
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:
June 30,
-----------------------------------
1996 1995
----------- ----------
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
========== =======
Management believes that the Company will generate sufficient taxable
earnings or utilize tax planning opportunities to ensure realization of
these tax benefits.
F-15
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:
June 30,
---------------------------
1996 1995
---------- ----------
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
=========== ==========
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
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
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
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
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
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
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
Signature Title Date
--------- ----- ----
ELVEN M. TANGEL Director September 24, 1996
- ---------------------------
Elven M. Tangel
ARMANDO SPAZIANI Director September 24, 1996
- ---------------------------
Armando Spaziani
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)
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 -
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 -