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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Quarterly Period Ended March 31, 2003.
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 (I.R.S. Employer
incorporation or organization) Identification No.)
11-30 47TH AVENUE, LONG ISLAND CITY, NY 11101
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(Address, including zip code of principal executive offices)
(718) 340-6655
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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 .
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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 --- 16,501,568 SHARES AS OF MAY 8, 2003
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INDEX
DUALSTAR TECHNOLOGIES CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2003 (Unaudited) and
June 30, 2002
Condensed Consolidated Statements of Operations for the Three months
and Nine months ended March 31, 2003 and 2002 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine months
ended March 31, 2003 and 2002 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited) -
March 31, 2003
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 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2003 2002
-------------------- ------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $2,779,361 $2,535,419
Accounts receivable - net of allowance for doubtful accounts 18,196,996 26,249,507
Retainage receivable 3,732,251 3,473,970
Costs and estimated earnings in excess of billings on uncompleted
contracts 973,891 1,299,615
Prepaid expenses and other current assets 257,693 210,997
-------------------- ------------------
Total current assets 25,940,192 33,769,508
Property and equipment - net of accumulated depreciation and amortization 1,650,570 3,158,890
Other 453,039 511,303
-------------------- ------------------
Total assets $28,043,801 $37,439,701
==================== ==================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Senior secured promissory note payable $16,268,525 $14,850,300
Mortgage payable - 1,693,885
Accounts payable 5,056,603 12,250,161
Billings in excess of costs and estimated earnings on uncompleted
contracts 5,299,069 5,707,947
Accrued expenses and other current liabilities 4,360,841 3,540,799
-------------------- ------------------
Total current liabilities 30,985,038 38,043,092
-------------------- ------------------
Total liabilities 30,985,038 38,043,092
-------------------- ------------------
Commitments and contingencies
Shareholders' deficit:
Common stock 165,016 165,016
Additional paid-in capital 41,575,421 41,575,421
Accumulated deficit (44,681,674) (42,343,828)
-------------------- ------------------
Total shareholders' deficit (2,941,237) (603,391)
-------------------- ------------------
Total liabilities and shareholders' deficit $28,043,801 $37,439,701
==================== ==================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE NINE MONTHS ENDED MARCH 31,
------------------------------------ -----------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues earned $ 15,088,273 $ 19,715,569 $ 44,188,750 $ 56,985,364
Costs of revenues earned, excluding depreciation
and amortization 11,503,007 17,454,638 36,024,425 49,711,780
------------ ------------ ------------ ------------
Gross profit 3,585,266 2,260,931 8,164,325 7,273,584
------------ ------------ ------------ ------------
Operating expenses:
General and administrative expenses, excluding
depreciation and amortization 2,824,250 2,639,883 7,746,177 8,612,211
Depreciation and amortization 176,264 624,861 692,747 1,758,689
Impairment of equipment -- 2,500,000 700,000 2,500,000
------------ ------------ ------------ ------------
Operating income (loss) 584,752 (3,503,813) (974,599) (5,597,316)
------------ ------------ ------------ ------------
Other (income) expense:
Interest income (11,582) -- (23,188) (152,808)
Interest expense 454,854 438,521 1,477,641 1,433,997
Gain on disposition of
communications assets (41,035) -- (115,580) --
Loss on sale of marketable securities -- -- -- 337,500
------------ ------------ ------------ ------------
Other expense - net 402,237 438,521 1,338,873 1,618,689
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 182,515 (3,942,334) (2,313,472) (7,216,005)
Provision for income taxes 4,113 1,076,000 24,373 1,076,000
------------ ------------ ------------ ------------
Net income (loss) $ 178,402 $ (5,018,334) $ (2,337,845) $ (8,292,005)
============ ============ ============ ============
Basic and diluted income (loss) per share $ 0.01 $ (0.30) $ (0.14) $ (0.50)
Weighted average shares outstanding 16,501,568 16,501,568 16,501,568 16,501,568
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MARCH 31,
---------------------------------------
2003 2002
-------------------- ------------------
Net cash provided by (used in) operating activities $1,722,955 $(2,463,744)
-------------------- ------------------
Cash flows from investing activities:
Acquisition of property and equipment (73,644) (442,359)
Proceeds from sale of property and equipment 295,280 -
Proceeds from sale of marketable securities - 555,000
Long term investment (6,764) -
-------------------- ------------------
Net cash provided by investing activities 214,872 112,641
-------------------- ------------------
Cash flows from financing activities:
Principal payments on capital lease obligations - (102,559)
Principal payments on mortgage (1,693,885) (18,072)
-------------------- ------------------
Net cash used in financing activities (1,693,885) (120,631)
-------------------- ------------------
Net increase (decrease) in cash and cash equivalents 243,942 (2,471,734)
Cash and cash equivalents at beginning of period 2,535,419 3,711,287
-------------------- ------------------
Cash and cash equivalents at end of period $2,779,361 $1,239,553
==================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
During the nine months ended March 31, 2003, cash was used to pay interest
expense of $127,480 primarily for the mortgage loan.
NON-CASH TRANSACTION:
During the nine months ended March 31, 2003, accrued interest of $1,418,225 was
added to the outstanding principal of the senior secured promissory note
payable.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DualStar Technologies Corporation ("DualStar" or the "Company"), through its
wholly owned subsidiaries, operates two separate lines of business: (a)
construction and (b) communications.
The Company has continued to further curtail its communications business. Its
communications segment is now primarily limited to the subscription video
business in the New York City metropolitan area and in Florida. The Company's
communications segment's telephone service business was discontinued in August
2002. The effects of the discontinuation of the business are immaterial and
thus, presentation as discontinued operations is not considered necessary.
In addition, the Company has sold certain communications assets in locations
outside of the New York City metropolitan area and Florida. In April 2002, the
Company sold certain communications assets for $0.4 million. The transaction
resulted in a loss of $0.5 million. In August 2002, the Company sold certain
access agreements on properties located in the Los Angeles area and the
communications assets located in the properties for $0.4 million. The
transaction resulted in a gain of $0.1 million.
Due to the Company's continuing re-focus and resulting curtailment of its
communications business efforts and resources, a $2.5 million charge for the
impairment of certain remaining communications assets was recorded in fiscal
year 2002. Additionally, the Company evaluated its network infrastructure
equipment during the previous quarter by comparing the net book value of the
assets to their fair market value and determined there was an impairment loss of
$700,000. Such loss is reflected in the accompanying condensed consolidated
statement of operations for the nine months ended March 31, 2003. In January
2003, the Company sold the network infrastructure assets in conjunction with its
exit out of the Internet service business for a nominal amount. The net book
value of the assets sold was $587,104. A gain of $112,897 on the sale of these
assets, due to the recovery of an over-impairment in the previous quarter, is
reflected in the accompanying condensed consolidated statement of operations for
the three months ended March 31, 2003.
The Company incurred significant losses in the last several fiscal years,
primarily in the communications segment, and it expects that the communications
segment, even significantly limited, will continue to incur losses going forward
and will require additional capital to fund those losses. The Company has
implemented and will continue to implement cost reductions designed to minimize
such losses. There can be no assurance that these efforts will be successful or
that the construction segment will sustain profitability or positive cash flow
from future operations or that positive cash flow, if any, will be sufficient to
offset continued losses from the communications segment. Given the current U.S.
economic climate, market conditions and the financial condition of the Company,
there is a substantial likelihood that the Company will be unable to raise
additional funds on terms satisfactory to it, if at all, to fund the expected
operating losses. Moreover, the Company presently owes Madeleine L.L.C.
("Madeleine") approximately $16.3 million and is in default under the loan
(described below). Madeleine may call the loan due and payable at any time, and,
if it is not paid, foreclose on significant assets of the Company's subsidiaries
that secure such loan. If the Company cannot raise additional funds or if
Madeleine demands payment on its loan, the Company will likely be forced to
cease operations. Accordingly, there is substantial doubt about the Company's
ability to continue as a going concern.
In November 2000, the Company consummated a $12.5 million senior secured loan
transaction with Madeleine, an affiliate of Blackacre Capital Management L.L.C.
("Blackacre") (the "Madeleine Loan"). The Madeleine Loan, which is due and
payable in November 2007, bears interest at a fixed rate of 11% per annum. The
Madeleine Loan is a senior secured obligation of the Company and is guaranteed
by certain subsidiaries of the Company, which have pledged
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
substantially all of their respective assets to collateralize such guarantee. In
connection with the Madeleine Loan, the Company issued warrants to purchase
3,125,000 shares of common stock at an exercise price of $4.00 per share,
subject to antidilution provisions, expiring in December 2007, to an affiliate
of Madeleine. A portion of the Madeleine Loan proceeds was used to retire
existing indebtedness of the Company in the principal amount of $7 million owed
to Madeleine and to pay expenses of obtaining the Madeleine Loan. The remaining
proceeds were used for the Company's working capital purposes. No value was
allocated to the warrants because the value was deemed immaterial.
The Company has not made payments to Madeleine pursuant to the Madeleine Loan
agreement. The de-listing of the Company's common shares from the Nasdaq
National Market has also created a default under the Madeleine Loan agreement.
In August 2002, the Company, Blackacre and Madeleine began negotiating, with a
view towards reducing the Madeleine Loan by selling certain of the Company's
communications assets to Blackacre at fair market value and by converting the
remaining Madeleine Loan balance to stock of the Company. In November 2002, the
Company announced that it entered into a letter of intent with Madeleine under
which Madeleine or its designee would purchase substantially all the assets of
ParaComm Inc. The assets to be acquired are ParaComm's private cable television
systems and associated assets related to its principal properties in the State
of Florida. The purchase price will be satisfied by a reduction of principal in
the amount of $3,000,000 plus a reduction of related accrued and unpaid
interest on the note. The ParaComm sale to Madeleine is subject to the execution
of a definitive purchase agreement, receipt of a fairness opinion from an
independent financial advisor and the approval of the transaction by the
Company's Board of Directors. There is no assurance that the Company, Blackacre
and Madeleine will be able to reach definitive agreement or that they will reach
agreement with respect to further elimination or reduction of the Madeleine
Loan.
The Company presently owes Madeleine approximately $16.3 million under the
Madeleine Loan and is in default under the Madeleine Loan agreement. Madeleine
has the right to call the loan due and payable at any time. If Madeleine were to
demand payment, the Company would be unable to make such payment. In such an
event, Madeleine would have the right to foreclose on significant assets of the
Company that collateralize the Madeleine Loan. Such foreclosure would result in
the Company being unable to continue in business.
Due to the downturn affecting corporate America, the bonding industry has come
under increased pressure and claims, and in general, the bonding market has
tightened. Consequently, it has become more difficult for the Company to secure
surety bonds due to the Company's financial position and overall market
conditions. The Company is currently considering ways to improve its ability to
obtain bonding. There can be no assurance that the Company will be able to
obtain bonding or, if so, at a reasonable cost. If the Company is unable to
obtain surety bonds as needed, this may have a material adverse effect on the
Company.
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
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A (CONTINUED)
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 and nine-month periods ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2003. 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, 2002.
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
loss and income per share, when dilutive, stock options and warrants are
included as share equivalents using the treasury stock method, and shares
available for conversion under the convertible note are included as if converted
at the date of issuance. For the three and nine months ended March 31, 2003 and
2002, respectively, stock options and warrants have been excluded from the
calculation of diluted loss per share as their effect would have been
antidilutive.
NOTE C - CONTINGENCIES
(a) Until 1995, Centrifugal was a partner with DAK Electric Contracting Corp.
("DAK") in a joint venture that performed mechanical and electrical services for
a general contractor on a construction project in Manhattan known as the Lincoln
Square project. Centrifugal was responsible for the mechanical portion of the
contract, and its co-venturer, DAK, was responsible for the electrical portion.
In 1995, DAK became insolvent, thereby obligating Centrifugal to complete the
work on this project. As a result, in fiscal 1996 the Company wrote off
approximately $3.7 million with respect to accounts receivable, loans
receivable, claims and other costs that the Company incurred on behalf of DAK in
fulfillment of DAK's obligations under the contract on the Lincoln Square
project.
As of June 30, 1996, all of the known claims and liens of subcontractors of the
joint venture were settled and discharged, and all of the vendor lawsuits which
arose out of these claims were also settled with the exception of the following:
The joint venture's bonding companies have claims over for indemnity against
Centrifugal and under a guarantee agreement against the Company in the event
that a judgment is rendered against the bonding companies in a suit brought by
an employee benefit fund for DAK's employees' union seeking contributions to the
fund which the fund claims were due but not paid by DAK. The complaint alleges
several causes of action against several defendants in connection with several
projects and seeks a total of approximately $450,000 in damages on all of these
causes against the named defendants; however, only one of the several causes of
action, which seeks an unspecified portion of the total damages demanded,
relates to the Company. In February 2003, the Company was informed that the
bonding company reached a settlement with the union on account of the claim for
unpaid benefits on the Lincoln Square project in the amount of $270,000. The
bonding company expressed its intent to pursue reimbursement for such settlement
amount through the cross-claims alleged against the Company in such action.
Additionally, the Company may be exposed to such legal fees and other expenses
as the Company's bonding company may have incurred or will incur in connection
with this claim. Centrifugal and the Company have asserted, among other
defenses, that such contributions were not guaranteed under the terms of the
joint venture's bonds.
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C (CONTINUED)
(b) In August 2001, OnTera signed a promissory note and security agreement with
Nokia 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 the Company is in default of the
agreement. As such, the remaining balance at March 31, 2003 of $564,370 is
included in accrued expenses and other current liabilities. In August 2002,
Nokia filed suit in the District Court of Dallas County, Texas, claiming damages
of approximately $607,000 plus interest, costs and attorneys on the promissory
note.
(c) In 1999, ParaComm purchased from Golden Sky Systems (GSS) GSS's contract
with DirecTV which authorized it to be a DirecTV Master Systems Operator (MSO).
Along with the contract so purchased, ParaComm acquired a GSS contract with one
of its System Operators, Cable America, Inc. In May, 2002 Cable America, Inc.
filed suit in the Circuit Court of Cook County, Illinois against ParaComm,
OnTera, DirecTV, GSS and Pegasus Communications Inc., which had subsequently
acquired GSS. The suit claims damages for allegedly unpaid commissions in the
claimed amount of $339,000 and also seeks an accounting.
(d) 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 alleges
breach of fiduciary duties and seeks to compel the Company to hold a
shareholders' meeting for the election of directors. The complaint seeks
injunctive relief and unspecified damages. Motions to dismiss have been filed by
the Company and other defendants and are pending before the Court.
(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. The Company believes that the claims are
covered under its liability policies and that no loss to the Company is
probable. No provision for such claims has been made in the accompanying
financial statements.
NOTE D - SEGMENT INFORMATION
The Company has the following two reportable segments: construction and
communications. The construction segment primarily provides electrical and
mechanical contracting services in the New York Metropolitan area. The
communications segment primarily provides cable television services to buildings
in New York City and Florida.
The accounting policies used to develop segment information correspond to those
disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2002. The Company does not allocate certain corporate expenses incurred
by the parent company to its segments. Segment profit (loss) is based on profit
(loss) from operations before income taxes (benefits) and does not include those
corporate expenses incurred by the parent company. Sales and transfers between
segments are accounted for at cost. The reportable segments are distinct
business units operating in different industries. They are separately managed,
with separate marketing systems.
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D (CONTINUED)
REPORTABLE SEGMENT INFORMATION CONSTRUCTION COMMUNICATIONS TOTALS
- ----------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2003
Revenues from external customers $14,837,973 $250,300 $15,088,273
Segment profit (loss) 1,398,875 (463,675) 935,200
Segment assets at March 31, 2003 26,032,778 851,882 26,884,660
FOR THE THREE MONTHS ENDED MARCH 31, 2002
Revenues from external customers $18,798,776 $916,793 $19,715,569
Intersegment revenues - 6,250 6,250
Segment profit (loss) 308,372 (3,595,711) (3,287,339)
Segment assets at June 30, 2002 33,658,903 2,768,592 36,427,495
FOR THE NINE MONTHS ENDED MARCH 31, 2003
Revenues from external customers $43,107,737 $1,081,013 $44,188,750
Segment profit (loss) 2,225,271 (2,156,854) 68,417
FOR THE NINE MONTHS ENDED MARCH 31, 2002
Revenues from external customers $54,392,132 $2,593,232 $56,985,364
Intersegment revenues - 18,750 18,750
Segment profit (loss) 1,401,381 (6,097,478) (4,696,097)
RECONCILIATION TO CONSOLIDATED AMOUNTS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
PROFIT (LOSS)
Total profit (loss) for reportable segments $935,200 $(3,287,339) $68,417 $(4,696,097)
Unallocated amounts:
Corporate (756,798) (1,730,995) (2,406,262) (3,595,908)
--------- ----------- ----------- -----------
Total consolidated net income (loss) $178,402 $(5,018,334) $(2,337,845) $(8,292,005)
========= =========== =========== ===========
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - DEBT
Senior Secured Promissory Note
In November 2000, the Company consummated a $12.5 million senior secured loan
transaction with Madeleine, an affiliate of Blackacre Capital Management L.L.C.
("Blackacre") (the "Madeleine Loan"). The Madeleine Loan, which is due and
payable in November 2007, bears interest at a fixed rate of 11% per annum. The
Madeleine Loan is a senior secured obligation of the Company and is guaranteed
by certain subsidiaries of the Company, which have pledged substantially all of
their respective assets to collateralize such guarantee. In connection with the
Madeleine Loan, the Company issued warrants to purchase 3,125,000 shares of
common stock at an exercise price of $4.00 per share, subject to antidilution
provisions, expiring in December 2007, to an affiliate of Madeleine. A portion
of the Madeleine Loan proceeds was used to retire existing indebtedness of the
Company in the principal amount of $7 million owed to Madeleine and to pay
expenses of obtaining the Madeleine Loan. The remaining proceeds were used for
the Company's working capital purposes. No value was allocated to the warrants
because the value was deemed immaterial.
The Company has not made payments to Madeleine pursuant to the Madeleine Loan
agreement. The de-listing of the Company's common shares from the Nasdaq
National Market has also created a default under the loan agreement. In August
2002, the Company, Blackacre and Madeleine began negotiating, with a view
towards reducing the Madeleine Loan by selling certain of the Company's
communications assets to Blackacre at fair market value and by converting the
remaining Madeleine Loan balance to stock of the Company. In November 2002, the
Company announced that it entered into a letter of intent with Madeleine under
which Madeleine or its designee would purchase substantially all the assets of
ParaComm Inc. The assets to be acquired are ParaComm's private cable television
systems and associated assets related to its principal properties in the State
of Florida. The purchase price will be satisfied by a reduction of principal in
the amount of $3,000,000 plus a reduction of related accrued and unpaid
interest on the note. The ParaComm sale to Madeleine is subject to the execution
of a definitive purchase agreement, receipt of a fairness opinion from an
independent financial advisor and the approval of the transaction by the
Company's Board of Directors. There is no assurance that the Company, Blackacre
and Madeleine will be able to reach definitive agreement or that they will reach
agreement with respect to further elimination or reduction of the Madeleine
Loan.
The Company presently owes Madeleine approximately $16.3 million under the
Madeleine Loan and is in default under the Madeleine Loan agreement. Madeleine
has the right to call the loan due and payable at any time. If Madeleine were to
demand payment, the Company would be unable to make such payment. In such an
event, Madeleine would have the right to foreclose on significant assets of the
Company that collateralize the Madeleine Loan. Such foreclosure would result in
the Company being unable to continue in business.
Mortgage Payable
In March 2003, the Company paid off its mortgage in the amount of $1,693,885.
NOTE F - NEW ACCOUNTING STANDARDS ADOPTED
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F (CONTINUED)
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The disclosure requirements apply to all companies for
fiscal years ending after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The adoption of SFAS No. 148 is not
expected to have a material impact on the Company's financial statements.
NOTE G - NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullified
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. A fundamental conclusion reached by the FASB in
this statement is that an entity's commitment to a plan, by itself, does not
create a present obligation to others that meets the definition of a liability.
SFAS No. 146 also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this statement are effective for
exit or disposal activities that are initiated after March 31, 2003, with early
application encouraged. The Company has not yet determined the impact of SFAS
No.146 on its financial position and results of operations, if any.
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 two separate lines of business: (a)
construction businesses; and (b) communications 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, 2002. The statements
contained in this Quarterly Report on Form 10-Q, including the exhibits hereto,
relating to operations of DualStar Technologies Corporation and its subsidiaries
(DualStar or 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 Company's ability to continue operations, including if
Madeleine L.L.C. were to call its loan, the ability of the Company's
communications segment to continue to implement its cost reduction plan, the
ability of the Company to raise and provide the capital resources to fund the
continuing communications 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, 2002 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.
Due to the downturn affecting corporate America, the bonding industry has come
under increased pressure and claims, and in general, the bonding market has
tightened. Consequently, it has become more difficult for the Company to secure
surety bonds due to the Company's financial position and overall market
conditions. The Company is currently considering ways to improve its ability to
obtain bonding. There can be no assurance that the Company will be able to
obtain bonding or, if so, at a reasonable cost. If the Company is unable to
obtain surety bonds as needed, this may have a material adverse effect on the
Company.
CAPITAL RESOURCES AND LIQUIDITY
Cash balances at March 31, 2003 and June 30, 2002 were $2.8 million and $2.5
million, respectively. The Company was provided with $1.7 million of cash in the
nine months ended March 31, 2003 by operating activities. The net cash provided
by operating activities was primarily due to decrease in receivables of the
construction businesses. In the nine months ended March 31, 2002, the Company
used net cash of $2.5 million in operating activities to fund the operating loss
incurred by the communications segment. The Company's operating cash flows are
primarily generated from the construction segment. Due to the relatively high
dollar value of each construction contract, generally ranging from $3 million to
$10 million, should the collection of contract receivables be delayed, the
Company's operations may be materially adversely affected.
The Company incurred significant losses in the last several fiscal years,
primarily in the communications segment, and it expects that the communications
segment will continue to incur losses going forward and will require additional
capital to fund those losses. The Company has implemented and will continue to
implement cost reductions designed to minimize such losses. There can be no
assurance that these efforts will be successful or that the construction segment
will sustain profitability or positive cash flow from future operations or that
any positive cash flow will be sufficient to offset continued losses from the
communications segment. Given the current U.S. economic climate and market
conditions and the financial condition of the Company, there is a substantial
likelihood that the Company will be unable to raise additional
funds on terms satisfactory to it, if at all, to fund the expected operating
losses. Moreover, the Company presently owes Madeleine approximately $16.3
million and is in default under the loan. Madeleine may call the loan due and
payable at any time, and, if it is not paid, foreclose on significant assets of
the Company's subsidiaries that secure such loan. If the Company cannot raise
additional funds or if Madeleine demands payment on its loan, the Company will
likely be forced to cease operations. Accordingly, there is substantial doubt
about the Company's ability to continue as a going concern.
Senior Secured Promissory Note
In November 2000, the Company consummated a $12.5 million senior secured loan
transaction with Madeleine, an affiliate of Blackacre Capital Management L.L.C.
("Blackacre") (the "Madeleine Loan"). The Madeleine Loan, which is due and
payable in November 2007, bears interest at a fixed rate of 11% per annum. The
Madeleine Loan is a senior secured obligation of the Company and is guaranteed
by certain subsidiaries of the Company, which have pledged substantially all of
their respective assets to collateralize such guarantee. In connection with the
Madeleine Loan, the Company issued warrants to purchase 3,125,000 shares of
common stock at an exercise price of $4.00 per share, subject to antidilution
provisions, expiring in December 2007, to an affiliate of Madeleine. A portion
of the Madeleine Loan proceeds was used to retire existing indebtedness of the
Company in the principal amount of $7 million owed to Madeleine and to pay
expenses of obtaining the Madeleine Loan. The remaining proceeds were used for
the Company's working capital purposes. No value was allocated to the warrants
because the value was deemed immaterial.
The Company has not made payments to Madeleine pursuant to the Madeleine Loan
agreement. The de-listing of the Company's common shares from the Nasdaq
National Market has also created a default under the Madeleine Loan agreement.
In August 2002, the Company, Blackacre and Madeleine began negotiating, with a
view towards reducing the Madeleine Loan by selling certain of the Company's
communications assets to Blackacre at fair market value and by converting the
remaining Madeleine Loan balance to stock of the Company. In November 2002, the
Company announced that it entered into a letter of intent with Madeleine under
which Madeleine or its designee would purchase substantially all the assets of
ParaComm Inc. The assets to be acquired are ParaComm's private cable television
systems and associated assets related to its principal properties in the State
of Florida. The purchase price will be satisfied by a reduction of principal in
the amount of $3,000,000 plus a reduction of related accrued and unpaid
interest on the note. The ParaComm sale to Madeleine is subject to the execution
of a definitive purchase agreement, receipt of a fairness opinion from an
independent financial advisor and the approval of the transaction by the
Company's Board of Directors. There is no assurance that the Company, Blackacre
and Madeleine will be able to reach definitive agreement or that they will reach
agreement with respect to further elimination or reduction of the Madeleine
Loan.
The Company presently owes Madeleine approximately $16.3 million under the
Madeleine Loan and is in default under the Madeleine Loan agreement. Madeleine
has the right to call the Madeleine Loan due and payable at any time. If
Madeleine were to demand payment, the Company would be unable to make such
payment. In such an event, Madeleine would have the right to foreclose on
significant assets of the Company that collateralize the Madeleine Loan. Such
foreclosure would result in the Company being unable to continue in business.
Mortgage Payable
In March 2003, the Company paid off its mortgage in the amount of $1,693,885.
RESULTS OF OPERATIONS
NET REVENUES BY SEGMENT
FOR THE THREE MONTHS ENDED MARCH 31,
2003 2002
---- ----
SEGMENTS ($ million) % of Total ($ million) % of Total
--------------- ------------- ---------------- -------------
Construction $14.8 98.0 $18.8 95.4
Communications 0.3 2.0 0.9 4.6
--------------- ------------- ---------------- -------------
Total revenues $15.1 100.0 $19.7 100.0
=============== ============= ================ =============
NET REVENUES BY SEGMENT
FOR THE NINE MONTHS ENDED MARCH 31,
2003 2002
---- ----
SEGMENTS ($ million) % of Total ($ million) % of Total
--------------- ------------- ---------------- -------------
Construction $43.1 97.5 $54.4 95.4
Communications 1.1 2.5 2.6 4.6
--------------- ------------- ---------------- -------------
Total revenues $44.2 100.0 $57.0 100.0
=============== ============= ================ =============
OPERATING INCOME (LOSS) BY SEGMENT
FOR THE THREE MONTHS ENDED MARCH 31,
2003 2002
---- ----
SEGMENTS ($ million) % of Total ($ million) % of Total
--------------- ------------- ---------------- -------------
Construction $1.4 155.6 $ 0.3 (9.1)
Communications (0.5) (55.6) (3.6) 109.1
--------------- ------------- ---------------- -------------
Total operating income (loss) $0.9 100.0 $(3.3) 100.0
=============== ============= ================ =============
OPERATING INCOME (LOSS) BY SEGMENT
FOR THE NINE MONTHS ENDED MARCH 31,
2003 2002
---- ----
SEGMENTS ($ million) % of Total ($ million) % of Total
--------------- ------------- ---------------- -------------
Construction $2.2 2,200.0 $ 1.4 (29.8)
Communications (2.1) (2,100.0) (6.1) 129.8
--------------- ------------- ---------------- -------------
Total operating income (loss) $0.1 100.0 $(4.7) 100.0
=============== ============= ================ =============
Construction revenue decreased $4.0 million or 21.3% from $18.8 million in the
three months ended March 31, 2002 to $14.8 million in the three months ended
March 31, 2003. The decrease was primarily due to fewer and smaller construction
contracts.
Construction revenue decreased $11.3 million or 20.8% from $54.4 million in the
nine months ended March 31, 2002 to $43.1 million in the nine months ended March
31, 2003. The decrease was primarily due to fewer and smaller construction
contracts.
Cost of construction revenue decreased $5.6 million or 33.1% from $16.9 million
in the three months ended March 31, 2002 to $11.3 million in the three months
ended March 31, 2003. The decrease was primarily due to the decrease in
construction revenue. Gross profit percentages were 23.6% and 10.1% in the three
months ended March 31, 2003 and 2002, respectively. The improvement in gross
profit percentage was due primarily to a higher gross margin percentage in the
new contracts.
Cost of construction revenue decreased $12.9 million or 26.7% from $48.3 million
in the nine months ended March 31, 2002 to $35.4 million in the nine months
ended March 31, 2003. The decrease was primarily due to the decrease in
construction revenue. Gross profit percentages were 17.9% and 11.2% in the nine
months ended March 31, 2003 and 2002, respectively. The
improvement in gross profit percentage was due primarily to a higher gross
margin percentage in the new contracts.
Construction operating income increased $1.1 million or 366.7% from $0.3 million
in the three months ended March 31, 2002 to $1.4 million for the three months
ended March 31, 2003. The increase was due primarily to higher gross margins in
the new contracts.
Construction operating income increased $0.8 million or 57.1% from $1.4 million
in the nine months ended March 31, 2002 to $2.2 million for the nine months
ended March 31, 2003. The increase was due primarily to higher gross margins in
the new contracts.
Communications revenue decreased $0.6 million or 66.7% from $0.9 million in the
three months ended March 31, 2002 to $0.3 million in the three months ended
March 31, 2003. Communications revenue decreased $1.5 million or 57.7% from $2.6
million in the nine months ended March 31, 2002 to $1.1 million in the nine
months ended March 31, 2003. The decreases were due primarily to the
discontinuance of the Company's telephone and Internet service businesses.
Cost of communications revenue decreased $0.3 million or 60.0% from $0.5 million
in the three months ended March 31, 2002 to $0.2 million in the three months
ended March 31, 2003. The decrease was primarily due to the decrease in revenue.
Gross profit percentages were 33.3% and 44.4% in the three months ended March
31, 2003 and 2002, respectively. The decrease was due primarily to the
recognition of direct costs attributable to the termination of the Internet
service business.
Cost of communications revenue decreased $0.8 million or 57.1% from $1.4 million
in the nine months ended March 31, 2002 to $0.6 million in the nine months ended
March 31, 2003. The decrease was due primarily to the decrease in revenue. Gross
profit percentages were 45.5% and 46.2% in the nine months ended March 31, 2003
and 2002, respectively. The decrease was due primarily to the recognition of
direct costs attributable to the termination of the telephone and Internet
service businesses.
Operating loss of the communications segment decreased $3.1 million or 86.1%
from ($3.6) million in the three months ended March 31, 2002 to ($0.5) million
in the three months ended March 31, 2003. Operating loss of the communications
segment decreased $4.0 million or 65.6% from ($6.1) million in the nine months
ended March 31, 2002 to ($2.1) million in nine months ended March 31, 2003.
Included in the nine months ended March 31, 2003 is a $0.7 million impairment
charge related to the sale of the Internet business.
The improvement in lowering the operating loss of the communications segment was
due primarily to the Company's decision to further limit its communications
business efforts and resources to the subscription video business in the New
York City metropolitan area and in Florida. The Company's communications
segment's telephone service business was discontinued in August 2002. The
Company is presently engaged in negotiating to sell substantially all of its
assets in Florida. There can be no assurance that the Company will be able to
raise and provide the capital resources to fund the expected communications
operating losses. In addition, in the event that additional working capital
becomes necessary to fund communications operations, there can be no assurance
that the Company will be able to obtain financing on terms satisfactory to it.
In August 2002, OnTera, Inc. sold certain access agreements on properties
located in the Los Angeles area and the communications assets located in the
properties for $0.4 million. The transaction resulted in a gain of $0.1 million.
In the quarter ended December 31, 2002, the Company took a $0.7 million charge
for the impairment of certain communications assets in contemplation of exiting
the Internet service business. The Company exited the Internet service
business in January 2003 and sold the impaired communications assets. In the
quarter ended March 31, 2003, the Company recognized a gain of $112,897 on the
sale of the assets.
On a consolidated basis, the general and administrative expenses increased $0.2
million or 7.7% from $2.6 million in the three months ended March 31, 2002 to
$2.8 million in the three months ended March 31, 2003. The increase in general
and administrative expenses included a $0.2 million increase in payroll and
related costs, a $0.3 million increase in insurance, and a $0.3 million decrease
in rent expense.
As a result of the continuing restructuring of the communications segment, on a
consolidated basis, the general and administrative expenses decreased $0.9
million or 10.5% from $8.6 million in the nine months ended March 31, 2002 to
$7.7 million in the nine months ended March 31, 2003. The decrease in general
and administrative expenses included a $0.4 million decrease in payroll and
related costs, a $0.1 million decrease in telephone expense, a $0.1 million
decrease in bad debt expense, and a $0.3 million decrease in rent expense.
Depreciation and amortization decreased $0.4 million or 66.7% from $0.6 million
in the three months ended March 31, 2002 to $0.2 million in the three months
ended March 31, 2003. The decrease was primarily due to charges of impairment of
communications assets recorded in the previous fiscal year, as well as the sale
of communications assets.
Depreciation and amortization decreased $1.1 million or 61.1% from $1.8 million
in the nine months ended March 31, 2002 to $0.7 million in the nine months ended
March 31, 2003. The decrease was primarily due to charges of impairment of
communications assets recorded in the previous fiscal year, as well as the sale
of communications assets.
Interest income was insignificant in the three months ended March 31, 2003 and
the three months ended March 31, 2002. Interest income was insignificant in the
nine months ended March 31, 2003 compared to $0.2 million in the nine months
ended March 31, 2002. The decrease was due to a decrease in investment of the
Company's excess cash, which was used instead to fund the operating losses of
the communications segment.
Interest expense increased $0.1 million or 25% from $0.4 million in the three
months ended March 31, 2002 to $0.5 million in the three months ended March 31,
2003. Interest expense increased $0.1 million or 7.1% from $1.4 million in the
nine months ended March 31, 2002 to $1.5 million in the nine months ended March
31, 2003. The increase is due to the compounding of the accrued interest on the
Madeleine Loan.
NEW ACCOUNTING STANDARDS ADOPTED
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
disclosure requirements apply to all companies for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS No. 148 is not expected to have a
material impact on the Company's financial statements.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs
associated with exit or disposal activities and nullified Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. A fundamental conclusion reached by the FASB in this statement is that
an entity's commitment to a plan, by itself, does not create a present
obligation to others that meets the definition of a liability. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. The provisions of this statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company has not yet determined the impact of SFAS No.146 on its
financial position and results of operations, if any.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2003, the Company had debt of $16.3 million with a fixed
interest rate of 11.0%. The Company does not have any derivative financial
instruments as of March 31, 2003. The Company believes that the interest rate
risk associated with its investments is not material to the results of
operations of the Company.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
of the Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15-d-14(c) under the Securities Exchange Act of 1934) as of a date
within 90 days of the filing date of this Quarterly Report on Form 10-Q, the
Company's chief executive officer and chief financial officer have concluded
that the Company's disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and are
operating in an effective manner.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.
PART II - OTHER INFORMATION
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
See Part I, Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital Resources and Liquidity, for a discussion of
current defaults under the Madeleine loan agreement.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K.
Exhibit No.
Regulation S-K
Item 601
Designation Exhibit Description
- -------------- -------------------
99.1 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. During the period covered by this Report on
Form 10-Q, the Company filed no Current Reports on Form 8-K.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DualStar Technologies Corporation
Date: May 14, 2003 By: /s/ GREGORY CUNEO
------------------------- ----------------------------
Gregory Cuneo
President and Chief Executive Officer
Date: May 14, 2003 By: /s/ ROBERT BIRNBACH
------------------------- ----------------------------
Robert Birnbach
Executive Vice President and
Chief Financial Officer
Date: May 14, 2003 By: /s/ MICHAEL GIAMBRA
------------------------- ---------------------------
Michael Giambra
Chief Accounting Officer and
Corporate Controller
CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory Cuneo, President and Chief Executive Officer of DualStar Technologies
Corporation, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of DualStar Technologies
Corporation;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this Quarterly Report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Gregory Cuneo
----------------------
Gregory Cuneo
President and Chief Executive Officer
I, Robert Birnbach, Executive Vice President and Chief Financial Officer of
DualStar Technologies Corporation, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of DualStar Technologies
Corporation;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this Quarterly Report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Robert Birnbach
----------------------
Robert Birnbach
Executive Vice President and Chief Financial Officer
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
- -------------- -------------------
99.1 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002