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, 2004.
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
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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 (I.R.S. Employer
incorporation or organization) Identification No.)
47-25 34th Street, Long Island City, NY 11101
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(Address, including zip code of principal executive offices)
(718) 784-2514
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(Registrant's telephone number, including area code)
Not applicable
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(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_____.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes _____ _No___X___ .
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 --- 24,161,467 shares as of November 10, 2004
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Index
DualStar Technologies Corporation
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2004 (Unaudited)
and June 30, 2004
Condensed Consolidated Statements of Operations for the Three months
ended September 30, 2004 and 2003 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Three months
ended September 30, 2004 and 2003 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited) -
September 30, 2004
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits
Signatures
Exhibits
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2004 2004
------------ -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,066,745 $ 435,857
Accounts receivable - net of allowance for doubtful accounts 12,936,222 14,683,529
Retainage receivable 4,764,102 4,246,292
Loan receivable - officers 65,000 65,000
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,968,157 2,684,185
Prepaid expenses and other current assets 82,949 32,958
-----------------------------------
Total current assets 21,883,175 22,147,821
Property and equipment - net of accumulated
depreciation and amortization 136,677 82,244
Other assets:
Note receivable from employee 96,243 96,243
Contract receivables - non current 944,706 944,706
Other 69,369 69,369
-----------------------------------
Total assets $ 23,130,170 $ 23,340,383
===================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 14,357,432 $ 14,459,325
Loan payable - officer 195,000 45,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,023,537 860,162
Accrued loss on uncompleted contracts 217,787 825,466
Accrued expenses and other current liabilities 4,152,669 3,807,133
Note payable 2,000,000 --
-----------------------------------
Total current liabilities 21,946,425 19,997,086
-----------------------------------
Total liabilities 21,946,425 19,997,086
-----------------------------------
Commitments and contingencies
Shareholders' equity:
Common stock 241,615 241,615
Additional paid-in capital 51,854,613 51,854,613
Accumulated deficit (50,912,483) (48,752,931)
-----------------------------------
Total shareholders' equity 1,183,745 3,343,297
-----------------------------------
Total liabilities and shareholders' equity $ 23,130,170 $ 23,340,383
===================================
See notes to condensed consolidated financial statements
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2004 2003
----------------------------------------
Revenues earned $ 16,084,959 $ 16,220,561
Costs of revenues earned, excluding depreciation and amortization 16,492,154 13,798,853
------------------------------------
Gross profit (loss) (407,195) 2,421,708
Operating expenses:
General and administrative expenses, excluding depreciation and 1,724,048 1,682,300
amortization
Depreciation and amortization 14,824 72,559
------------------------------------
Operating income (loss) (2,146,067) 666,849
------------------------------------
Other income (expense):
Interest income 98 1,424
Interest expense (12,658) (426,216)
Gain on sale of communications assets -- 4,018,853
------------------------------------
Other income (expense) - net (12,560) 3,594,061
------------------------------------
Income (loss) before provision for income taxes (2,158,627) 4,260,910
Provision for income taxes 925 10,881
------------------------------------
Net income (loss) from continuing operations (2,159,552) 4,250,029
Discontinued operations
Loss from discontinued communications business -- 125,490
Income tax (benefit) -- --
------------------------------------
Loss from discontinued operations -- 125,490
------------------------------------
Net income (loss) $ (2,159,552) $ 4,124,539
===================================
Basic and diluted income (loss) per share:
Income (loss) from continuing operations $ (0.09) $ 0.26
(Loss) from discontinued operations, net of taxes -- (0.01)
------------------------------------
Basic income (loss) $ (0.09) $ 0.25
====================================
Diluted income (loss) $ (0.09) $ 0.18
====================================
Weighted average shares outstanding 24,161,467 16,501,568
====================================
See notes to condensed consolidated financial statements
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2004 2003
--------------------------------------
Net cash used in operating activities $(1,299,854) $(1,460,257)
--------------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (69,258) (21,412)
--------------------------------------
Net cash used in investing activities (69,258) (21,412)
--------------------------------------
Cash flows from financing activities:
Proceeds from promissory note payable 2,000,000 --
--------------------------------------
Net cash provided by financing activities 2,000,000 --
--------------------------------------
Net increase (decrease) in cash 630,888 (1,481,669)
Cash and cash equivalents at beginning of period 435,857 3,055,255
--------------------------------------
Cash and cash equivalents at end of period $ 1,066,745 $ 1,573,586
======================================
Non-cash transactions:
No non-cash transactions took place during the three months ended September 30,
2004.
During the three months ended September 30, 2003, accrued interest of $394,570
was capitalized to the senior secured promissory note payable.
During the three months ended September 30, 2003, the senior secured promissory
note was reduced by $4,230,355, which was the consideration for the sale of the
communications assets and related liabilities with a net carrying value of
$211,502.
See notes to condensed consolidated financial statements
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DualStar Technologies Corporation ("DualStar" or the "Company"), through its
wholly owned subsidiaries, operates electrical and mechanical
construction-related businesses. As discussed below, the Company is winding down
its business operations.
On August 20, 2004, High-Rise Electric, Inc. ("High-Rise"), a wholly owned
subsidiary of DualStar, entered into a loan in the amount of $2,000,000 from
Gary Segal of Ozone Park, NY. Under the terms of the loan agreement, the loan
accrues interest at the rate of 5.5% per annum, which rate is adjusted on the
first day of each month commencing October 1, 2004 to one point above the then
prime rate; is payable on demand; is secured by certain accounts receivable of
High-Rise; and is guaranteed by DualStar and secured by a pledge of the capital
stock of High-Rise. The description of the terms of this loan is more fully
described in the agreements as filed in the Company's Current Report on Form 8-K
filed on August 26, 2004. Mr. Segal is a principal of Five Star Electric, Inc.
("Five Star"), a large electrical contractor that primarily does large
government work.
On December 27, 2004, High-Rise entered into an agreement with Five Star with
respect to certain High-Rise projects. Under the terms of this agreement, Five
Star became a subcontractor to High-Rise to complete such projects. On January
1, 2005, High-Rise transferred to Five Star field and office personnel relating
to those projects, including Barry Halpern, President of High-Rise and Vice
President of DualStar, and Nicholas Ahel, Vice President of High-Rise and Vice
President of DualStar. Messrs. Halpern and Ahel have resigned from their
positions as officers of DualStar. For the fiscal years ended June 30, 2003 and
2004, respectively, High-Rise revenues comprised approximately 61% and 72% of
DualStar's combined total revenue. As a result of this agreement, the Company
will realize a portion of the revenues from the High-Rise projects depending on
the timing of successful completion of the projects. The remaining High-Rise
projects are being completed by other subcontractors.
On January 12, 2005, Raymond L. Steele, a member of the Board of Directors of
DualStar and the Audit Committee of the Board of Directors, resigned from the
Board for personal reasons.
On January 20, 2005, the Company's common stock was delisted from the OTC
Bulletin Board for failure by the Company to timely file its periodic reports
under the Securities Exchange Act of 1934, as amended. Effective January 20,
2005, the Company's common stock may only be quoted on the "pink sheets"
maintained by Pink Sheets, LLC.
The Company incurred significant operating losses in the last several fiscal
years in its communications business, and, more recently, in its construction
related businesses. The Company completed the discontinuance of its
communications business in August 2003. The construction related businesses are
not presently profitable. The Company implemented additional cost containment
measures, sought additional financing, and sought to renegotiate certain
contractual obligations. These efforts have not made the Company profitable
again. Given the current U.S. economic climate and market conditions and the
financial condition of the Company, the Company has been unable to raise
additional funds to fund future operating losses that may occur through the
operation of the construction businesses. The Company is unable to obtain surety
bonds and maintain insurance coverages in connection with its construction
business. These factors have created a concern among the Company's current and
potential customers and vendors as to whether it will be able to fulfill its
contractual obligations. Employee concern about the future of the business and
their continued prospects for employment is causing them to seek employment
elsewhere. As a result of the foregoing, the Company has been unable to pursue
new work and is being forced to cease operations and wind down its affairs.
Accordingly, the Company will not be able to continue as a going concern.
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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 certain information and
disclosures required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included and are of normal and recurring nature. Operating results for the
three months ended September 30, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2005. The
interim statements should be read in conjunction with the financial statements
and notes, thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2004.
NOTE B - PER SHARE DATA
The computation of basic and diluted net income (loss) per share is based on the
weighted average number of shares of common stock outstanding. For diluted net
income (loss) per share, when dilutive, stock options and warrants are included
as share equivalents using the treasury stock method. For the three months ended
September 30, 2004, stock options and warrants have been excluded from the
calculation of diluted income (loss) per share as their effect would have been
antidilutive.
NOTE C - CONTINGENCIES
(a) In connection with its construction-related businesses, the Company is
contingently liable to sureties under a general indemnity agreement. The Company
has agreed to indemnify the sureties for any payments made on contracts of
suretyship, guarantee or indemnity. That is, on certain work at the request of
the Company, the sureties provide a full guarantee of performance and/or payment
to third parties in the form of a bond. If the sureties pay an amount to third
parties pursuant to such bond, the Company is obligated to fully reimburse the
sureties. There is no dollar amount limit on the amount of the indemnity
provided to the sureties.
(b) In August 2001, OnTera, a wholly owned subsidiary of the Company, formerly
in the telecommunications business, signed a promissory note and security
agreement with a telecommunications equipment provider to finance the purchase
of various network equipment totaling approximately $668,000. The note bears
interest at a rate of 11% per annum and requires eighteen monthly installments
effective April 1, 2001. The note is secured by the network equipment financed
by the note. OnTera has not made monthly installments since June 2001, therefore
OnTera is in default of the agreement. In August 2002, such equipment provider
filed suit claiming damages of approximately $607,000 plus interest, costs and
attorneys on the promissory note. In April 2004 a civil judgment against OnTera,
was awarded to plaintiff in New York State in the amount of $873,163. The
judgment has not been satisfied. The network equipment had no useful value to
the Company and has been disposed of.
(c) In July 2002, plaintiff Harvey Wayne filed a verified shareholders'
derivative complaint against directors and officers of the Company, various
other entities, and the Company as a nominal defendant, in the United States
District Court for the Eastern District of New York. The complaint alleged
breach of fiduciary duties and sought to compel the Company to hold a
shareholders' meeting for the election of directors. In December 2004, the Court
granted the Company's motion to dismiss and denied plaintiff leave to amend its
complaint.
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - (continued)
(d) In April 2003, a former employee of the Company commenced a lawsuit to
recover damages for the alleged failure of the Company to honor options to
purchase shares of the Company's common stock pursuant to the 1994 Stock Option
Plan. Plaintiff sought $462,500 in damages. The Company settled this matter in
December 2004 for an amount that is not material.
(e) In the ordinary course of business, the Company is involved in claims
concerning personal injuries and property damage, all of which the Company
refers to its insurance carriers, to the extent insurance is in place. The
Company believes that the claims are covered under its liability policies, to
the extent insurance is in place, and that no loss to the Company under those
circumstances is probable. No provision for such claims has been made in the
accompanying consolidated financial statements.
NOTE D - DEBT
Promissory Note
On August 20, 2004, High-Rise Electric, Inc. ("High-Rise"), a wholly owned
subsidiary of DualStar, entered into a loan agreement in the amount of
$2,000,000 from Gary Segal of Ozone Park, NY. Under the terms of the loan
agreement, the loan accrues interest at the rate of 5.5% per annum, which rate
is adjusted on the first day of each month commencing October 1, 2004 to one
point above the then prime rate; is payable on demand; is secured by certain
accounts receivable of High-Rise; and is guaranteed by DualStar and secured by a
pledge of the capital stock of High-Rise. The proceeds of the loan were used for
working capital.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
DualStar Technologies Corporation ("DualStar" or the "Company"), through its
wholly owned subsidiaries, operates electrical and mechanical
construction-related businesses. For a description of the Company's businesses
and operations, see Item 1 of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2004. As discussed below, the Company is winding down
its operations.
On August 20, 2004, High-Rise Electric, Inc. ("High-Rise"), a wholly owned
subsidiary of DualStar, entered into a loan in the amount of $2,000,000 from
Gary Segal of Ozone Park, NY. Under the terms of the loan agreement, the loan
accrues interest at the rate of 5.5% per annum, which rate is adjusted on the
first day of each month commencing October 1, 2004 to one point above the then
prime rate; is payable on demand; is secured by certain accounts receivable of
High-Rise; and is guaranteed by DualStar and secured by a pledge of the capital
stock of High-Rise. The description of the terms of this loan is more fully
described in the agreements as filed in the Company's Current Report on Form 8-K
filed on August 26, 2004. Mr. Segal is a principal of Five Star Electric, Inc.
("Five Star"), a large electrical contractor that primarily does large
government work.
On December 27, 2004, High-Rise entered into an agreement with Five Star with
respect to certain High-Rise projects. Under the terms of this agreement, Five
Star became a subcontractor to High-Rise to complete such projects. On January
1, 2005, High-Rise transferred to Five Star field and office personnel relating
to those projects, including Barry Halpern, President of High-Rise and Vice
President of DualStar, and Nicholas Ahel, Vice President of High-Rise, and Vice
President of DualStar. Messrs. Halpern and Ahel have resigned from their
positions as officers of DualStar. For the fiscal years ended June 30, 2003 and
2004, respectively, High-Rise revenues comprised approximately 61% and 72% of
DualStar's combined total revenue. As a result of this agreement, the Company
will realize a portion of the revenues from the High-Rise projects depending on
the successful completion of the projects. The remaining High-Rise projects are
being completed by other subcontractors.
On January 12, 2005, Raymond L. Steele, a member of the Board of Directors of
DualStar and the Audit Committee of the Board of Directors, resigned from the
Board for personal reasons.
On January 20, 2005, the Company's common stock was delisted from the OTC
Bulletin Board for failure by the Company to timely file its periodic reports
under the Securities Exchange Act of 1934, as amended. Effective January 20,
2005, the Company's common stock may only be quoted on the "pink sheets"
maintained by Pink Sheets, LLC.
The Company to Cease Operations
The Company incurred significant operating losses in the last several fiscal
years in its discontinued communications business, and, more recently, in its
construction related businesses. Due to recent losses described in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2004 , the
construction related businesses are not presently profitable. The Company
implemented additional cost containment measures, sought additional financing,
and sought to renegotiate certain contractual obligations. These efforts have
not made the Company profitable again. Given the current U.S. economic climate
and market conditions and the financial condition of the Company, the Company
has been unable to raise additional funds to fund future operating losses that
may occur through the operation of the construction businesses. The Company is
unable to obtain surety bonds and maintain insurance coverages in connection
with its construction business. These factors have created a concern among the
Company's current and potential customers and vendors as to whether it will be
able to fulfill its contractual obligations. Employee concern about the future
of the business and their continued prospects for employment is causing then to
seek employment elsewhere. As a result of the foregoing, the Company has been
unable to pursue new work and is being forced to cease operations and wind down
its affairs. Accordingly, the Company will not be able to continue as a going
concern.
The statements contained in this Quarterly Report on Form 10-Q, including the
exhibits hereto, relating to operations of the Company may constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Please note that the words "intends,"
"expects," "plans," "estimates," "projects," "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Actual
results of the Company may differ materially from those in the forward-looking
statements and may be affected by a number of factors including the ability of
the Company to raise and provide the capital resources to fund any continuing
operating losses, the Company's ability to obtain bonding or insurance coverage,
regulatory or legislative changes, the Company's dependence on key personnel,
and the Company's ability to manage growth, in addition to those risk factors,
set forth in the section captioned "Risk Factors" and the assumptions, risks and
uncertainties set forth in the other sections of the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2004 as well as in DualStar's other
filings with the SEC. The Company can give no assurance that its plans,
intentions, and expectations will be achieved and actual results could differ
materially from forecasts and estimates.
Capital Resources and Liquidity
Cash balances at September 30, and June 30, 2004 were $1.1 million and $0.4
million, respectively. The Company used $1.3 million of cash in the three months
ended September 30, 2004 in operating activities. The net use of cash was
primarily due to the increase in retainage receivable of $0.5 million, accrued
loss on uncompleted contracts of $0.6 million, and the increase of costs and
estimated earnings in excess of billings on uncompleted contracts of $0.3
million, which resulted from the Company' s difficulties in obtaining surety
bonds. The Company used $1.5 million of cash in the three months ended September
30, 2003 in operating activities. The net use of cash was primarily due to the
increase of costs and estimated earnings in excess of billings on uncompleted
contracts which resulted from the Company's difficulties in obtaining surety
bonds.
The Company to Cease Operations
The Company incurred significant operatin g losses in the last several fiscal
years in its discontinued communications business, and, more recently, in its
construction related businesses. The construction related businesses are not
presently profitable. Due to recent losses described in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2004, the construction
related businesses are not presently profitable. The Company implemented
additional cost containment measures, sought additional financing, and sought to
renegotiate certain contractual obligations. These efforts have not made the
Company profitable again. Given the current U.S. economic climate and market
conditions and the financial condition of the Company, the Company has been
unable to raise additional funds to fund future operating losses that may occur
through the operation of the construction businesses. This uncertainty has
created a concern among the Company's current and potential customers and
vendors as to whether it will be able to fulfill its contractual obligations.
Employee concern about the future of the business and their continued prospects
for employment is causing them to seek employment elsewhere. The Company is
unable to obtain surety bonds in connection with its construction business.
Since the Company is unable to obtain additional financing and surety bonds, and
maintain insurance coverages, the Company has been unable pursue new work and is
being forced to cease operations and wind down its affairs. Accordingly, the
Company will not be able to continue as a going concern.
Promissory Note
On August 20, 2004, High-Rise Electric, Inc. ("High-Rise"), a wholly owned
subsidiary of DualStar, entered into a loan agreement in the amount of
$2,000,000 from Gary Segal of Ozone Park, NY. Under the terms of the loan
agreement, the loan accrues interest at the rate of 5.5% per annum, which rate
is adjusted on the first day of each month commencing October 1, 2004 to one
point above the then prime rate; is payable on demand; is secured by certain
accounts receivable of High-Rise; and is guaranteed by DualStar and secured by a
pledge of the capital stock of High-Rise. The proceeds of the loan were used for
working capital.
Results of Operations
Revenue decreased $0.1 million or 0.6% from $16.2 million in the three months
ended September 30, 2003 to $16.1 million in the three months ended September
30, 2004. The decrease was primarily due to fewer construction contracts started
in fiscal 2005.
Cost of revenue increased $2.7 million or 19.6% from $13.8 million in the three
months ended September 30, 2003 to $16.5 million in the three months ended
September 30, 2004. The increase was primarily due to larger construction
contracts started in 2003 and 2004, increased costs on jobs started in 2003, and
an accrued loss on uncompleted contracts at September 30, 2004. Gross profit
percentages were (2.5)% and 14.9% in the three months ended September 30, 2004
and 2003, respectively. The decrease in gross margin percentage was due to
increased costs on jobs started in 2003, and an accrued loss on uncompleted
contracts at September 30, 2004. Essentially, the Company's inability to obtain
payment and performance bonds from a stable surety credit facility has hindered
the Company from successfully bidding jobs with customary higher margins in 2003
and 2004. Due to this circumstance, the Company was forced to take on jobs with
lower margins, and in some instances, jobs with potential to close at a loss.
Some jobs have closed at a loss during 2004, and some jobs are projected to
close at a loss in 2005. An accrued loss has been recorded at September 30,
2004.
Operating results decreased $2.8 million or 400% from $0.7 million in the three
months ended September 30, 2003 to $(2.1) million in the three months ended
September 30, 2004. The decrease was due primarily to the severe decrease in
gross margin in 2004.
General and administrative expenses remained unchanged at $1.7 million in the
three months ended September 30, 2004 and 2003, respectively.
Depreciation and amortization decreased $0.1 million or 100% from $0.1 million
in the three months ended September 30, 2003 to an immaterial amount in the
three months ended September 30, 2004. The decrease was primarily due to the
disposition of property and equipment.
Interest expense decreased $0.1 million or 100.0% from $0.1 million in the three
months ended September 30, 2003 to an immaterial amount in the three months
ended September 30, 2004. The decrease was primarily due to the reduction of the
senior secured promissory note to zero.
New Accounting Standards Adopted
None.
New Accounting Standards Not Yet Adopted
None.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
None
Item 4 -- Controls and Procedures
Included as exhibits 31.1 and 31.2 are the certifications that are required
under Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Report
contains information concerning the controls evaluation referred to in the
Section 302 certifications and the information contained herein should be read
in conjunction with the certifications.
Evaluation of Disclosure Controls and Procedures. Regulations under the
Securities Exchange Act of 1934 require public companies, including our company,
to maintain "disclosure controls and procedures," which are defined to mean a
company's controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Our Chief Executive Officer and our Chief Financial Officer, based on their
evaluation of our disclosure controls and procedures as of the end of the period
covered by this report, concluded that our disclosure controls and procedures
were not effective for this purpose, as discussed below.
Changes in Internal Control Over Financial Reporting. Regulations under the
Securities Exchange Act of 1934 require public companies, including our company,
to evaluate any change in our "internal control over financial reporting," which
is defined as a process to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial statements for
external purposes in accordance with generally accepted accounting principles in
the United States. In connection with their evaluation of our disclosure
controls and procedures as of the end of the period covered by this report, our
Chief Executive Officer and Chief Financial Officer did not identify any change
in our internal control over financial reporting during the three-month period
ended September 30, 2004 that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
In the first half of the Company's fiscal year beginning in July 2004, the
Company's accounting workload increased due to its physical relocation, related
restructuring and a potential transaction pursued during fiscal year 2004. At
the same time, the Company's accounting staff was reduced due to attrition and
budgetary constraints. As a result of all of these factors taken together,
during the quarter ended September 2004, the Company's remaining permanent
corporate accounting staff was not structured to address this increased workload
under the deadlines required.
Since January 1, 2005, the accounting workload has diminished. However, the
Company does not anticipate being able to correct the deficiencies with its
disclosure controls and procedures that have led to this late filing, as the
Company has been unable to bid on new work due to the problems discussed above
in Item 2 and in the Notes to the Financial Statements. As a result of the
Company being unable to address the identified disclosure control deficiencies,
its ability to report financial results on a timely and accurate basis will be
adversely affected.
The Company believes that its financial statements for the quarter ended
September 30, 2004 fairly present, in all material respects, its financial
condition and results of operations.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The information contained in Part I - Note C is incorporated herein by
reference.
Item 6 - Exhibits
(a) The following exhibits are filed with the report:
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10.28 Agreement by and among High-Rise Electric, Inc., Five Star
Electric Co., and the Joint Industry Board of the Electrical
Industry, dated December 27, 2004.
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10.29 Form of agreement between High-Rise Electric, Inc.
and Five Star Electric Co.
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31.1 Rule 13a-14(a)/15d -14(a) Certification by Mr. Cuneo.
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31.2 Rule 13a-14(a)/15d-14(a) Certification by Mr. Birnbach.
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32.1 Section 1350 Certification by Mr. Cuneo
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32.2 Section 1350 Certification by Mr. Birnbach
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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: February 4, 2005 By: /s/ GREGORY CUNEO
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Gregory Cuneo
President and Chief Executive Officer
Date: February 4, 2005 By: /s/ ROBERT BIRNBACH
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Robert Birnbach
Executive Vice President and Chief
Financial Officer
Date: February 4, 2005 By: /s/ MICHAEL GIAMBRA
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Michael Giambra
Vice President, Chief Accounting Officer,
and Corporate Controller
EXHIBIT INDEX
Following is the list of Exhibits, as required by Item 601 of
Regulation S-K, filed as part of this Report on Form 10-Q:
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
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10.28 Agreement by and among High-Rise Electric, Inc., Five Star Electric
Co., and the Joint Industry Board of the electrical Industry, dated
December 27, 2004.
10.29 Form of agreement between High-Rise Electric, Inc. and Five Star
Electric Co.
31.1 Rule 13a-14(a)/15d-14(a) Certification by Mr. Cuneo.
31.2 Rule 13a-14(a)/15d-14(a) Certification by Mr. Birnbach
32.1 Section 1350 Certification by Mr. Cuneo
32.2 Section 1350 Certification by Mr. Birnbach