<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>file001.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the fiscal year ended June 30, 2001

or

[ ]  Transition Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the transition period from ____________ to __________

                         COMMISSION FILE NUMBER 0-25552


                        DUALSTAR TECHNOLOGIES CORPORATION
             (Exact name of registrant as specified in its charter)

            DELAWARE                                     13-3776834
---------------------------------                -------------------------
 (State or other jurisdiction                          (IRS Employer
of incorporation or organization)                   Identification No.)


               11-30 47TH AVENUE, LONG ISLAND CITY, NEW YORK 11101
           ----------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (718) 340-6655
                                 --------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                 -----------------------------------------
None                                                  None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Common Stock, $.01 Par Value

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]


<PAGE>

The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant as of September 18, 2001 was approximately
$4,265,195 based upon the closing price ($0.29) for such Common Stock on such
date. The number of shares outstanding of Registrant's Common Stock, as of
September 18, 2001, was 16,501,568.


PART I

         The statements contained in this Annual Report on Form 10-K, including
the exhibits hereto, relating to future 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 ability of
OnTera, Inc., a wholly owned subsidiary of the Company, to continue to implement
its cost reduction plan, the ability of the Company to raise and provide the
capital resources to fund the expected communications operating losses,
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 below and in the section captioned "Risk Factors" and the assumptions,
risks and uncertainties set forth below in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as other factors contained herein and 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.

ITEM 1 - BUSINESS

OVERVIEW

         DualStar, through its wholly owned subsidiaries, operates two separate
lines of business: (a) construction businesses; and (b) communications
businesses. Due to significantly increased demand for high-speed data access
fueled by the explosive growth of the Internet, DualStar had previously
announced its intention to expand its communications businesses aggressively.
Specifically, DualStar had sought to become principally an access provider of
broadband communications services to residential and commercial properties. The
expansion would have required significant capital expenditures to construct and
operate the infrastructure necessary to provide access services for broadband
communications services, and to acquire access rights to provide such services
in residential and commercial buildings. However, as a result of the limited
availability of capital and a significant change in market conditions, in
December 2000 the Company's board of directors adopted a plan to refocus its
communications business efforts by concentrating on core communications assets
located in the New York City and Los Angeles areas and by operating subscription
video provider, ParaComm Inc. (as defined herein). In connection with this
effort, the Company's communications subsidiaries have implemented and will
continue to implement cost reductions, including reductions in personnel,
infrastructure and capital expenditures.

         In connection with DualStar's prior plan to expand its communications
businesses, the DualStar board of directors had determined to divest most of
DualStar's construction-related businesses, and, in March 2000, had entered into
a stock purchase agreement (the "M/E Agreement") with M/E Contracting Corp.
("M/E"), an affiliate of Blackacre Capital Management L.L.C. ("Blackacre").
Under the M/E Agreement, DualStar would have sold High-Rise, Centrifugal and
Mechanical (as defined herein) to M/E, subject to the approval of DualStar's
stockholders and the consummation of a previously-announced $46.2 million
investment by Blackacre (which investment was replaced by a $12.5 million loan
from Blackacre's affiliate, Madeleine L.L.C., to DualStar in November 2000).
However, because of the refocus of its communications business efforts, in
January 2001, the Company's board of directors determined not to divest those
construction-related businesses and determined to terminate and not seek
stockholder approval of the M/E Agreement. Under the M/E Agreement, the Company
could be liable for a $1 million "break-up" or termination fee if, within six
months from the termination of the M/E Agreement, there is a 50% change of
control (as defined in the M/E Agreement) or, if within one year of such
termination, the construction-related businesses' assets or stock are sold to
another party. See also Note A - "Company



                                       2
<PAGE>

Background and significant Accounting Policies" of the Notes to the Financial
Statements referred to in Item 8 hereof.

         DualStar is a Delaware corporation. Its principal place of business is
located at 11-30 47th Avenue, Long Island City, New York 11101. DualStar's
telephone number is (718) 340-6655.

         DualStar's common stock, par value $.01 per share (the "Common Stock"),
trades on the Over-the-Counter Bulletin Board under the symbol "DSTR." As of
September 18, 2001, there were 16,501,568 shares of Common Stock issued and
outstanding.

RECENT DEVELOPMENTS

    On June 13, 2001, DualStar was advised by Nasdaq that the Company's common
shares had been de-listed from the Nasdaq National Market. The Company's common
shares now trade on the NASD Over-the-Counter ("OTC") Bulletin Board and its
ticker symbol continues to be DSTR. The decision by the Nasdaq Listing
Qualifications Panel to de-list DualStar's securities was based on the Company's
failure to maintain a minimum bid price of $1.00 per share.

BUSINESS AND OPERATING STRATEGIES

         DualStar Historical Background. DualStar was incorporated in the State
of Delaware on June 17, 1994. In August 1994, DualStar acquired Centrifugal
Associates, Inc. ("Centrifugal") and Mechanical Associates, Inc. ("Mechanical")
in an exchange of securities, and Centrifugal and Mechanical each became wholly
owned subsidiaries of DualStar engaged in the construction business. Centrifugal
began operations in 1964 and Mechanical in 1989. In addition to Mechanical and
Centrifugal, the significant construction-related subsidiaries of DualStar
consist of Centrifugal/Mechanical Associates, Inc. ("CMA"), formed in June 1995;
High-Rise Electric, Inc. ("High-Rise"), formed in July 1995, Integrated Controls
Enterprises, Inc. ("ICE"), formed in August 1996, and BMS Electric, Inc.
("BMS"), formed in July 2000. Property Control, Inc. ("PCI") was formed in June
1995. OnTera, Inc. ("OnTera") (formerly known as DualStar Communications, Inc.),
formed in February 1996, and ParaComm, Inc. ("ParaComm"), acquired by DualStar
in May 2000, comprise DualStar's communications-related business subsidiaries.
Each subsidiary is wholly owned by DualStar.

         The Company historically has engaged in two business segments:
construction and communications. For financial information concerning the two
segments, see Note M - "Segment Information" of the Notes to the Financial
Statements referred to in Item 8 hereof. During the fiscal year ended June 30,
2001, the Company's board of directors terminated the Company's aggressive
pursuit of its communications business segment expansion through OnTera and
ParaComm. The Company's Board of Directors also discontinued its efforts to
transform the Company into purely a communications company, including deciding
not to sell most of its construction businesses.

CONSTRUCTION BUSINESS AND OPERATING STRATEGIES.

Overview. High-Rise designs and installs sophisticated electrical systems for
newly constructed residential and commercial high-rise buildings. CMA engages in
mechanical contracting services, i.e. heating, ventilation and air conditioning
("HVAC") services. High-Rise's and CMA's engagements are generally performed
under fixed price long-term contracts undertaken with general contractors, with
the lengths of such long-term contracts varying, but typically ranging from one
to two years.

         ICE supplies, installs and services facility management, energy
management, building automation, and commercial temperature control systems. In
general, ICE acts as a subcontractor to mechanical subcontractors, including
those of the Company. ICE also works directly for real property owners and
general contractors. BMS installs and services electrical systems, concentrating
on low-voltage work in the areas of building management systems and controls,
and fire and security, mostly in new construction.

         PCI owns or manages the Company's fixed asset or office peripheral
needs, e.g., ownership and maintenance of real property.



                                       3
<PAGE>

         Major Customers. The Company's construction customers, which are
concentrated in the New York Metropolitan area, include various general
contractors, banks, hospitals, hotels, insurance companies, securities
exchanges, governmental agencies, and subcontractors. For the year ended June
30, 2001, revenue derived from two customers (Bovis Lend Lease, Inc. (formerly
Lehrer McGovern Bovis, Inc.) and Rockrose Construction Corp.) amounted to
approximately 60% and 15%, respectively, of the Company's total revenue. For the
year ended June 30, 2000, revenue derived from two customers (Bovis Lend Lease,
Inc. and HRH Construction Corp.) amounted to approximately 49% and 16% of the
Company's total revenue, respectively. In addition, for the fiscal years ended
June 30, 2001 and 2000, approximately 2.0% and 16% of the Company's total
revenues, respectively, derived from HRH Construction Corp. DualStar's President
and Chief Executive Officer is also the President and Chief Executive Officer of
HRH Construction Corp. HRH Construction Corp. is an affiliate of Blackacre.

         Manufacturing. The Company's production facilities are capable of
fabricating and assembling mechanical and electrical systems and subsystems. The
Company maintains a test and inspection program to ensure that such systems meet
customer requirements for performance and quality workmanship. In addition, pipe
fabrication and machine shops allow for the manufacture of both prototype and
production hardware. To support its internal operation and to extend its overall
capacity, the Company purchases a wide variety of components, assemblies and
services from outside manufacturers, distributors and service organizations.

         Marketing and Sales. For High-Rise and CMA, the Company's marketing
strategy has focused on cultivating and maintaining long-term relationships with
developers, general contractors, electrical and mechanical engineers and
architects. The relatively high dollar value of each contract (generally ranging
from $2 million to $15 million), combined with the technically complex nature of
the projects covered by the Company's contracts result in an in-depth and
complex purchase decision process for each contract. The selling cycle for the
Company's contracts may last approximately 90 days. In general, sales activities
are handled by senior management or direct sales personnel. Due to the depth of
analysis involved in the customer's purchase decision, management must often
maintain frequent interaction with the buyer throughout the selling process.

         ICE solicits property owners, general contractors, and mechanical
contractors in addition to serving the mechanical subsidiaries of DualStar. BMS
sells most of its services to ICE. Some work is performed for unaffiliated
entities such as mechanical contractors, general contractors, owners directly
and other automated temperature control contractors.

         Sources of Supply and Backlog. The raw materials, such as pipe,
fittings and valves, and electrical components used in the development and
manufacture of the Company's mechanical and electrical systems and subsystems
are generally available from domestic suppliers at competitive spot prices;
fabrication of certain major components may be subcontracted for on an as-needed
basis. The Company does not have any long-term contracts for its raw materials.
The Company has not experienced any significant difficulty in obtaining adequate
supplies to perform under its contracts.

         At fiscal year ending June 30, 2001, the backlog of the Company's
construction business was approximately $62 million as contrasted with
approximately $59 million at June 30, 2000. The Company believes that most of
its backlog at June 30, 2001 will be completed prior to December 31, 2002, but
no assurances can be given with respect thereto. Backlog represents the total
value of unrealized revenue on all contracts awarded on or before a specified
date. The Company does not believe that its backlog at any particular time is
necessarily indicative of its future business or performance.

         Competition. The electrical, mechanical, electronic, control and
environmental businesses are characterized by intense and substantial
competition. The Company's construction competitors range from small firms to
large multinational companies. Competition for private sector work generally is
based on several factors, including quality of work, reputation, price and
marketing approach. The Company believes that it is established in the
electrical and mechanical contracting industries, and will be able to maintain a
strong competitive position in its areas of expertise by adhering to its basic
philosophy of delivering high-quality work in a timely fashion within client
budget constraints.



                                       4
<PAGE>

         In both the private and public sectors, the Company, acting either as a
prime contractor or as a subcontractor, occasionally joins with other firms to
form a team that competes for contracts by submitting a jointly prepared
proposal. Because a team of firms will usually offer a stronger set of
qualifications than any single firm, teaming arrangements are generally
advantageous to the Company's success. These teaming relationships, however,
generate risk to the Company in the event that a non-DualStar team member
experiences financial difficulty or is otherwise unable to fulfill its
responsibilities on the project. The Company maintains a large network of
business relationships with other companies and has drawn repeatedly upon these
relationships to form winning teams. Moreover, each DualStar subsidiary may
market its services independently, with the potential to offer in concert with
other DualStar subsidiaries, comprehensive and complementary services on
multi-million dollar construction projects.

         Most of the Company's construction contracts with public sector clients
are awarded through a competitive bidding process that places no limit on the
number or type of bidders that may compete. The process usually begins with a
government Request for Proposal ("RFP") that delineates the size and scope of
the proposed contract. Proposals submitted by the Company and others are
evaluated by the government on the basis of technical merit, response to
mandatory solicitation provisions, corporate and personnel qualifications and
experience, management capabilities and cost. While each RFP sets out specific
criteria for the choice of a successful offeror, RFP selection criteria in the
government services market often tend to weigh the technical merit of the
proposal more heavily than cost. The Company believes that its experience and
ongoing work strengthen its technical qualifications and thereby enhance its
ability to compete successfully for future government work. However, the Company
can make no assurances that it may be able to continue to successfully bid and
compete in its marketplace.

COMMUNICATIONS BUSINESS AND OPERATING STRATEGY.

         Overview. The Company's communications businesses are conducted through
OnTera and ParaComm. OnTera was originally launched as a retail provider of
integrated communications services to the MDU market in the metropolitan New
York area. In furtherance of this, OnTera is a Competitive Local Exchange
Carrier ("CLEC"), an Internet Service Provider ("ISP"), and a provider of
subscription television services. ParaComm is also a provider of subscription
television services.

         OnTera offers a variety of services utilizing several delivery
techniques and technologies. Local voice services are either obtained through
resale arrangements with AT&T Corporation or Bell Atlantic Corporation (d/b/a
Verizon Communications), or provisioned by OnTera through a switch located
within an MDU. Long distance telephony is provided through a resale arrangement
with AT&T, and high-speed Internet access services are offered via Ethernet and
Digital Subscriber Line ("DSL"). Subscription television services offered
consist of DirecTV, Dish Network or a satellite master antenna television system
for basic and premium channels, which are combined with local programming by
OnTera for the MDU.

         OnTera faces substantial competition for the services provided to
residential consumers in the metropolitan New York area. OnTera's main
competitors in the metropolitan New York area include (1) local and long
distance phone companies, such as AT&T and Verizon; (2) Internet service
providers ("ISPs") and cable companies providing high-speed Internet and data
access services, such as EarthLink, AOL, AT&T and RCN; and (3) cable franchise
operators, such as TimeWarner. OnTera attempts to differentiate itself in this
highly competitive environment by improving the MDU's communications
infrastructure, providing responsive support for property owners and residents,
and by providing residents a single source for a variety of services. Many of
OnTera's competitors are well financed, have significant market share and
significantly more resources than are available to OnTera. There can be no
assurance that OnTera will be able to successfully compete with respect to the
services that it currently provides.

         OnTera uses a new, DSL-based infrastructure in MDUs at which it has
"right of entry" agreements, in combination with satellite-based subscription
television service. OnTera believes that its infrastructure results in a lower
cost to provide service to an MDU than fiber- or coaxial cable-based providers.
The DSL-based infrastructure offers property owners the selling advantages of
faster Internet access and higher quality voice services, along with in-building
sales and marketing support and the flexibility to address an owner's entire
residential portfolio. Moreover, OnTera believes that its infrastructure is
designed to be flexible enough to be upgraded in the future to provide extremely
high speed services.


                                       5
<PAGE>

         OnTera believes that the MDU market continues to be under-served by
current communications service providers, with a majority of MDUs being
restricted to (i) traditional voice service provided via an Incumbent Local
Exchange Carrier ("ILEC"), (ii) cable television service from franchise cable
operators, and (iii) possible high-speed Internet access service provided by
second- and third-tier carriers and cable overbuilders.

         Due to significantly increased demand for high-speed data access fueled
by the explosive growth of the Internet, DualStar had previously announced its
intention to expand its communications businesses aggressively. Specifically,
DualStar had sought to become principally an access provider of broadband
communications services to residential and commercial properties. The expansion
would have required significant capital expenditures to construct and operate
the infrastructure necessary to provide access services for broadband
communications services, and to acquire access rights to provide such services
in residential and commercial buildings. However, as a result of the limited
availability of capital and a significant change in market conditions, in
December 2000 the Company's board of directors adopted a plan to refocus its
communications business efforts by concentrating on core communications assets
located in the New York City and Los Angeles areas and by operating subscription
video provider, ParaComm Inc. In connection with this effort, the Company's
communications subsidiaries have implemented and will continue to implement cost
reductions, including reductions in personnel, infrastructure and capital
expenditures. There can be no assurance that the Company will be able to
implement this cost-reduction plan in a commercially successful manner.
Furthermore, there can be no assurance that the Company will be able to raise
and provide the capital resources necessary to fund the expected communications
businesses' operating losses. There can also be no assurance that the Company
will be able to attract or retain the communications service providers to
deliver communications services over the Company's infrastructure. There can be
no assurance that the Company will obtain such financing on sufficiently
favorable terms and conditions. Should the Company be unable to secure such
additional capital, the Company may have to curtail its communications
operations.

         Competition. OnTera's three lines of business are highly competitive.
OnTera believes that it has a competitive advantage by offering a wider range of
choices than are currently available through any one provider. However, while
OnTera believes that its market and product plans acknowledge the current state
of competition in the consumer communications market and take advantage of the
latest technologies, OnTera cannot provide assurance that it will be able to
compete successfully with the companies providing all or some of the services
provided by the Company. Additionally, several of OnTera's competitors are much
larger, established companies, having significantly more resources than are
currently available to the Company.

         While OnTera believes that it will benefit from new and advanced
technologies for video, voice and data access that are in various stages of
development, these technologies are also being developed and supported by
entities having significantly greater financial and other resources than the
Company. New technologies and/or the competition faced by OnTera from one of the
types of competitors identified above could have a materially adverse affect on
the ability of OnTera to enter into access agreements with MDU owners. The
Company cannot assure that it will be able to compete successfully with existing
competitors or new entrants in the market for video, voice and data access
services.

PATENT, TRADEMARK, SERVICE MARK, COPYRIGHT AND PROPRIETARY RIGHTS.

         Seven service marks, Global Hiring Hall, CyberBuilding, CyberBuilders,
CyberCierge, DualStar Communications, DualStar and DualStar Technologies, were
registered with the U.S. Patent & Trademark Office ("USPTO") on July 29, 1997,
August 25, 1998, September 1, 1998, March 9, 1999, May 11, 1999, June 29, 1999
and July 13, 1999,respectively. Three trademarks, CyberBuilding, CyberView and
Building Area Network, were registered with the USPTO on August 4, 1998, July
20, 1999 and October 12, 1999, respectively.

         Two trademark applications (DualStar and DualStar Technologies) that
were pending with the USPTO were opposed by Dualstar Entertainment, an
unaffiliated entity. There was no dollar amount in controversy. The parties have
settled the oppositions by the withdrawal of oppositions by Dualstar
Entertainment in exchange for the abandonment of the two pending applications by
DualStar Technologies Corp. The withdrawals and the abandonments were both
without prejudice.



                                       6
<PAGE>

         The Company has registered several domain names on the Internet
relating to its businesses, including, without limitation, centma.com,
cyberbuilding.com, cyberbuilding.org, cybercierge.com, cyberresident.com,
cybertenant.com, dstr.net, dstr.org, dualstar.com, dualstar.net, dualstar.org,
gracesystems.com, high-riseelectric.com, integratedcontrols.com, ontera.net,
paracommonline.com and taghome.com.

         On June 30, 2000, OnTera filed with the USPTO a Provisional Patent
Application respecting the structure, applications and processes used in the
nation-wide network that OnTera has begun to build to deliver its Broadband
Access Services. On June 29, 2001 OnTera filed a patent application with
reference to the previously filed provisional application. All rights to the
patent have been assigned by the inventor, OnTera's current president, to
OnTera.

         The Company has the authority to and utilizes trademarks, logos and
other intellectual property owned or controlled by third parties in the
promotion of the Company's video offerings.

         The Company may in the future file patent or copyright applications, or
additional trademark or service mark applications, relating to certain of the
Company's mechanical, electrical, electronic, control, environmental,
information technology, security, entertainment and communications products and
services. Nevertheless, if patents are issued, or trademarks, service marks or
copyrights are registered, there can be no assurance as to the extent of the
protection that will be granted to the Company as a result of having such
patents, trademarks, service marks or copyrights, or that the Company will be
able to afford the expenses of any complex litigation which may be necessary to
enforce its proprietary rights. Failure of any future or existing patents,
trademark, service mark and copyright applications may have a material adverse
impact on the Company's business since the Company may not otherwise be able to
protect the proprietary or trade secret aspects of its business and operations,
thereby diluting the Company's ability to compete in the marketplace. Except as
may be required by the filing of patent, trademark, service mark and copyright
applications, the Company will attempt to keep all other proprietary information
secret and to take such actions as may be necessary to insure the results of its
development activities are not disclosed and are protected under the common law
concerning trade secrets. Such steps may include the execution of nondisclosure
agreements by key Company personnel and may also include the imposition of
restrictive agreements on purchasers of the Company's products and services.
There is no assurance that the execution of such agreements will be effective to
protect the Company, that the Company will be able to enforce the provisions of
such nondisclosure agreements or that technology and other information acquired
by the Company pursuant to its development activities will be deemed to
constitute trade secrets by any court of competent jurisdiction.

         CONSTRUCTION BUSINESSES REGULATION.

         Substantial environmental laws have been enacted in the United States
and in the New York Metropolitan area in response to public concern over the
environment. These federal, state and local laws and the implementing
regulations affect nearly every customer of the Company. Efforts to comply with
the requirements of these laws have increased demand for the Company's
construction services, and the Company believes there will be a trend toward
increasing regulation and government enforcement in the environmental area. The
necessity that the Company's clients comply with these laws and implementing
regulations subjects the Company to substantial liability. The Company believes
that, to the best of its information and knowledge, it is in compliance with all
material federal, state and local laws and regulations governing its
construction operations.

         COMMUNICATIONS BUSINESSES REGULATION.

         Overview. OnTera's services are subject to federal, state and sometimes
local government regulation. Federal regulation applies to OnTera's interstate
and international telephony services and, for all OnTera services, federal
regulation as well as state regulation affects OnTera's access to inside wiring
in the MDUs that make up primary target market. OnTera's access to inside wiring
can be affected by (1) definitions of the point dividing inside wiring ownership
between the traditional telephone company and the property owner or (2)
regulatory decisions regulating the telephone company's unbundled network
elements ("UNEs") (i.e., various portions of a traditional telephone company's
network that a CLEC needs to build or


                                       7
<PAGE>

fill in missing parts of its facilities network). OnTera's local telephony
services and facilities, which are provided only in New York State, are subject
to regulation by the New York Public Service Commission. OnTera is an authorized
by the FCC and the New York PSC as competitive local exchange carrier ("CLEC")
and provides its telephony services under state and federal tariffs. In
addition, local municipal government authorities in some cases may also assert
jurisdiction over OnTera's facilities and operations. The jurisdictional reach
of the various federal, state, and local authorities is subject to ongoing
controversy and judicial review. The outcome of such reviews cannot be
predicted.

         Federal Regulation. OnTera must comply with the requirements of the
Communications Act of 1934, as amended by the 1996 Telecommunications Act, as
well as applicable FCC regulations. The applicable FCC regulations impose on the
traditional telephone companies various requirements that are intended to foster
competition by entrants such as OnTera. OnTera's current retail, resold local
and long distance services have benefited to some degree from the FCC's
regulations under the 1996 Telecommunications Act. The desire of the traditional
telephone companies to enter long distance service markets and the FCC's local
competition criteria prerequisites have assisted the CLECs, such as OnTera, in
obtaining cooperation from the traditional telephone companies. The FCC is
showing a willingness to allow traditional telephone companies to enter the long
distance market, which may negatively affect the level of cooperation that
OnTera will receive from traditional telephone companies in securing timely and
cost-effective access to inside wiring.

          In October 2000, the FCC issued a ruling in FCC proceeding (Promotion
of Competitive Networks in Local Telecommunications Markets, NPRM, CC Docket No.
98-96, WT Docket No. 99-217). The ruling bans telecommunications providers from
entering into exclusive contracts with multi-tenant office building ("MTU")
owners for voice services and seeks comments on whether the FCC should extend
the ban to MDU's. OnTera has no contracts with MTU owners and if the ban is
extended to MDU's, OnTera does not anticipate any adverse effect from such an
extension.

         In January 2001, the FCC issued a ruling in Deployment of Wireline
Services Offering Advanced Telecommunications Capability (CC Docket No. 98-147)
and Implementation of Local Competition Provisions of the Telecommunications Act
of 1996 (CC Docket No. 96-98). The holding, which is potentially favorable to
OnTera, requires ILEC's to grant CLEC's (such as OnTera) access to the high
frequency portion of the ILEC's network for xDSL based high speed internet
service by allowing the CLEC to interconnect with the network at "remote
locations" and not just in the ILEC's central office. The right of
interconnection and the terms thereof are subject to good faith negotiations
between ILEC and CLEC. Depending on whether such negotiations are successful,
this could result in OnTera being able to connect to the ILEC's network in the
basement of the MDU where OnTera's equipment is located.

         Local Regulation. To the extent OnTera provides regulated intrastate
services or decides to otherwise submit itself to the jurisdiction of the
relevant state telecommunications regulatory commission, OnTera is and could be
subject to such jurisdiction. There are many state commission proceedings now
underway to determine the rates, charges and terms and conditions for UNEs and,
in some cases, owner control of inside wiring. If a decision increases the cost
of UNEs or restricts a property owner's ability to make inside wiring available
to OnTera, OnTera's business could be negatively affected. The effect of state
regulation on OnTera's business varies from state to state. For instance, states
(or municipalities) sometimes accord to the franchised cable companies (that are
OnTera's competitors not only for its television services but also potentially
for data, including Internet Access, and voice services) rights of access to
MDUs, which could reduce OnTera's penetration rates and may adversely affect its
business.

         Like OnTera, ParaComm's business is potentially affected by the state
or municipal actions granting rights of access to franchised cable companies and
by FCC and state regulation respecting inside wiring. Additionally, federal
legislation that confers rights on tenants to purchase and operate their own
satellite signal reception equipment can result in tenant bypass of ParaComm's
services and could, in some cases, adversely affect penetration rates.

         The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation affecting the
telecommunications industry or that could affect OnTera. Judicial review of
existing regulations, legislative hearings, legislation, and administrative
proposals could negatively influence U.S. communications companies' operations,
including OnTera's operations.


                                       8
<PAGE>

Additionally, OnTera cannot predict the impact, if any, that future regulation
or regulatory changes may have on its business and does not offer assurance that
such future regulation or regulatory changes will not harm OnTera's business.

EMPLOYEES.

         As of June 30, 2001, the Company employed 322 full-time employees, of
which 52 are engaged in administration and finance. Of the remaining full-time
employees, 250 are employed by the various construction subsidiaries of the
Company, with 248 engaged in manufacturing, engineering and production and 2 in
marketing and sales. The remaining 20 employees are engaged in the
communications business of the Company, with 11 engaged in network development,
6 in marketing and sales, and 3 in operations and development. Many of the
Company's employees have overlapping responsibilities in these job descriptions.

         The Company believes that its future success will depend, in part, upon
its continued ability to recruit and retain qualified management, technical and
communications personnel. Competition for qualified personnel is significant,
particularly in the geographic areas in which DualStar and its subsidiaries are
located. The Company depends upon its ability to retain the services of key
employees. The loss of services of one or more key employees could have a
material adverse impact on the Company. As of June 30, 2001, the Company had 242
employees that were represented by labor organizations. The Company has never
experienced a work stoppage. Management of the Company believes that it has a
healthy relationship with its employees.


                                  RISK FACTORS

AN INVESTMENT IN THE COMPANY'S SECURITIES INVOLVES A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE RISK OF LOSS OF THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS BEFORE INVESTING IN THE COMPANY'S SECURITIES. SEE ALSO "NOTE ON
FORWARD-LOOKING STATEMENTS."

OPERATING LOSSES AND CAPITAL REQUIREMENTS

    The Company incurred significant losses in the fiscal 2001 and 2000,
especially in the communications segment, and expects the communications segment
will continue to incur losses going forward. The communications segment has
implemented and will continue to implement cost reductions to minimize such
losses. There can be no assurance either that that the Company will be able to
raise and provide the capital resources to fund the expected communications
losses or that the construction segment will sustain profitability or positive
cash flow from future operations. In addition, in the event that additional
working capital becomes necessary to fund operations, there can be no assurance
the Company will be able to obtain financing on terms satisfactory to it. Should
the Company be unable to secure such financing, the Company may have to curtail
its communications operations.

NO ASSURANCE OF FUTURE PROFITABILITY OR PAYMENT OF DIVIDENDS

      No assurance can be given that the future operations of the Company will
be profitable. Should the future operations of the Company be profitable, it is
likely that the Company would retain much or all of its earnings in order to
finance future growth and expansion. As a result, the Company does not presently
intend to pay dividends and it is not likely that any dividends will be paid in
the foreseeable future.

SUBSTANTIAL COMPETITION

     Electrical and mechanical contracting, which represent the Company's core
businesses, are characterized by intense and substantial competition. As a
result of the competition in those areas, the bidding process whereby the
Company seeks to obtain new contracts has also become more competitive and the
profit margins capable of being achieved through such contracts fluctuate based
upon competitive and economic


                                       9
<PAGE>

conditions. There can be no assurance that the Company will continue to obtain
new contracts with satisfactory profit margins.

      The businesses of Company's communications subsidiaries involve rapid
technological change and are also characterized by intense and substantial
competition. In this communications segment, the Company has encountered
substantial competition from companies that are substantially larger and have
substantially greater financial, marketing and technical resources and greater
name recognition than the Company and which are established providers of these
services. The Company faces intense competition from local exchange carriers,
including the regional bell operating companies which currently dominate their
local telecommunications markets. The Company also competes with long distance
carriers in the provision of long distance services. Hundreds of other companies
also compete in the long distance marketplace. Other competitors of the Company
include cable and satellite television companies, competitive access providers,
Internet service providers, competitive local exchange carriers, integrated
communications providers, wireless, microwave and satellite carriers and private
networks owned by large end users. There can be no assurance that the Company,
with its more limited resources and experience, will be able to successfully
compete in these fields.

SOCIAL, POLITICAL AND ECONOMIC RISKS AFFECTING OPERATIONS

         The Company is exposed to the risk of changes in social, political and
economic conditions. In addition, the Company's operations may be affected
adversely by changes in the general economic climate in the New York
Metropolitan area There can be no assurance as to the future effect of changes
in social, political and economic conditions on the Company's business or
financial condition.

DEPENDENCE ON MAJOR CUSTOMERS

         The Company's customers include various general contractors, government
agencies, hospitals, hotels, insurance companies, securities exchanges and
subcontractors. For the year ended June 30, 2001, revenue derived from two
customers (Bovis Lend Lease, Inc. (f/k/a Lehrer McGovern Bovis, Inc.) and
Rockrose Construction Corp.) amounted to approximately 60% and 15% of the
Company's total revenue, respectively. The dependence on major customers
subjects the Company to significant financial risks in the operation of its
business should a major customer terminate, for any reason, its business
relationship with the Company. In such event, the financial condition of the
Company may be adversely affected and the Company may be required to seek
additional financing.

DEPENDENCE ON MANAGEMENT

         The Company's business is dependent upon a small number of key
executives. The loss of the services of key executives or the inability of the
Company to attract additional qualified personnel could have a material adverse
effect on the Company.

POTENTIAL LIABILITY AND INSURANCE

         The Company's operations involve electrical, mechanical, electronic,
control, environmental, information technology, security, telephone, Internet
and television infrastructure contracting of major residential, commercial and
institutional buildings and facilities. The Company is exposed to a significant
risk of liability for damage and personal injury. The Company maintains quality
control programs in an attempt to reduce the risk of potential damage to persons
and property and any associated potential liability. In addition, the Company
maintains general liability insurance covering damage resulting from bodily
injury or property damage to third parties. The policy, however, does not
include coverage for comprehensive environmental impairment or professional
liability which may be caused by the Company's actions.

         The Company endeavors contractually to limit its potential liability to
the amount and terms of its insurance policy and to be indemnified by its
clients from potential liability to third parties. However, the Company is not
always able to obtain such limitations on liability or indemnification, and such
provisions, when obtained, may not adequately shelter the Company from
liability. Consequently, a partially or


                                       10
<PAGE>

completely uninsured claim, if successful and of sufficient magnitude, may have
a material adverse effect on the Company and its financial condition.

ENVIRONMENTAL RISK FACTORS

         Substantial environmental laws have been enacted in the United States
and in the New York metropolitan area in response to public concern over the
environment. These federal, state and local laws and the implementing
regulations affect nearly every customer of the Company. Efforts to comply with
the requirements of these laws may increase demand for the Company's services,
and the Company believes that there will be a trend toward increasing regulation
and government enforcement in the environmental area. The necessity that the
Company's clients comply with these laws and implementing regulations subjects
the Company to substantial liability. The Company believes that, to the best of
its information and knowledge, it is in compliance with all material federal,
state and local laws and regulations governing its operations.

ITEM 2 - PROPERTIES

         In August 1996, PCI acquired real property, including a building
containing approximately 22,000 square feet of office and warehouse space, at
11-30 47th Avenue, Long Island City, New York 11101. The cost of the real
property was $1,109,000, of which $900,000 was financed by a mortgage loan. The
mortgage loan was refinanced on November 22, 1999, increasing the principal
amount outstanding under such loan to $1,750,000.

         CMA leases, on a month-to-month basis, approximately 5,000 square feet
of manufacturing and office space located at 141 47th Street, Brooklyn, New York
11232 from FIS Management, Inc. in which certain officers of the Company and CMA
own a majority interest.

          OnTera sublets, on a month-to-month basis, office space in New York,
NY from Starrett Corporation (of which the Company's president and CEO is
(non-director) chairman and the Company's CFO was director, president and CEO).
Starrett is majority owned by Blackacre and an affiliate of HRH Construction
Corporation. Additionally, OnTera and ParaComm lease, on a month-to-month basis,
office space in several cities.

         The Company believes that adequate office and warehouse space is
available in each of the markets in which it currently transacts its
construction and communications business and in the markets in which it intends
to transact business. The Company further believes that the productive use of
its current facilities represents approximately 70 percent of capacity. Total
rental expense for the Company for recent periods is as follows:

            PERIOD                                          EXPENSE
            -----------                                  -------------

            Year ended June 30, 2001.......................$502,000
            Year ended June 30, 2000.......................$ 47,000


ITEM 3 - LEGAL PROCEEDINGS

     (a) On August 11, 1999, Triangle Sheet Metal Works, Inc. ("Triangle"), a
subcontractor of Centrifugal/Mechanical Associates, Inc. ("CMA"), filed a
petition under Chapter 11 of Title 11 of the United States Code in the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). Triangle's Chapter 11 case was subsequently converted to a case under
Chapter 7 of the Bankruptcy Code and a Chapter 7 trustee was appointed to
administer Triangle's estate. Triangle was a sheet metal subcontractor for CMA
on six projects in New York City (the "Subcontractor Projects"). CMA was also
the subcontractor of Triangle on one additional project in New York City (the
"Contractor Project"). Prior to Triangle's Chapter 11 filing, Triangle ceased
operation and defaulted on its obligations under the Subcontractor Projects and
Contractor Project. In pleadings filed with the Bankruptcy Court prior to the
appointment of a Chapter 7 trustee, Triangle alleged, among other things, that
CMA is indebted


                                       11
<PAGE>

to Triangle in an amount ranging between $1,400,000 and $3,000,000. Triangle
also suggested in such pleadings that there may exist potential causes of action
by Triangle against the Company and/or CMA, including breach of contract,
tortious interference and unfair competition. Triangle did not commence any
formal legal actions or proceedings with respect to any of such allegations
(other than seeking to obtain discovery from CMA and DualStar). On or about
January 18, 2000, Triangle's Chapter 7 trustee made a written request on CMA
stating that Triangle's records reflected that CMA was indebted to Triangle in
the aggregate sum of $2,435,097 based upon work performed by Triangle on the
Subcontractor Projects. Triangle's Chapter 7 trustee stated CMA was not
entitled, under applicable law, to offset amounts owed to CMA on particular
Subcontractor Projects against amounts owed by CMA to Triangle on other
Subcontractor Projects. Triangle's Chapter 7 trustee stated its intention to
institute legal proceedings in the Bankruptcy Court against CMA and the owners
of the Subcontractor Projects to recover such funds. CMA and DualStar dispute
Triangle's and the Chapter 7 trustee's allegations and assertions and believe
that they are without merit.

     CMA has claims and counterclaims against Triangle for breaches, defaults,
completion costs and damages in respect of the Subcontractor Projects and the
Contractor Project. Although such claims and counterclaims are not fully
liquidated and cannot be fully ascertained at this time, CMA believes that it is
entitled setoff and/or recoup part of the damages by offsetting any monies owed
by CMA to Triangle. The Company can make no assurances, however, that such
offsets and recoupment will be either (a) allowed and that CMA will prevail in
any such litigation with Triangle's Chapter 7 trustee, or (b) sufficient to
cover all of CMA's damages resulting from Triangle's defaults under the
Subcontractor Projects and Contractor Project. Based upon currently available
information, it appears that all or substantially all of CMA's claims against
Triangle may not be recoverable after such setoff and/or recoupment.

     To date, Triangle's Chapter 7 trustee has commenced five (5) lawsuits
against CMA, Trident Mechanical Systems, Inc. ("Trident") (a dormant, wholly
owned subsidiary of the Company) and CMA's bonding company arising from the
various Subcontractor Projects and the Contractor Project. On June 1, 2000,
Triangle's Chapter 7 trustee commenced its first adversary proceeding in the
Bankruptcy Court against CMA and its bonding company claiming CMA owed it
$411,002 in connection with a project known as the Chelsea Mercantile Project,
and seeking to foreclose on a bonded lien. CMA and its bonding company filed a
motion to dismiss the complaint or have the Bankruptcy Court abstain from
exercising its jurisdiction. The Bankruptcy Court dismissed one of the two
claims for relief in the complaint and granted Triangle's Chapter 7 trustee
leave to amend the complaint with respect to the remaining claim. The Bankruptcy
Court denied CMA's motion to abstain. On or about September 28, 2000, Triangle's
Chapter 7 trustee filed and served its amended complaint. CMA and its bonding
company have filed an answer to the complaint and have asserted counterclaims
claiming damages in the aggregate amount of $9,610,647 arising from the
Subcontractor Projects. The parties are currently undertaking discovery. The
Bankruptcy Court has not set a final discovery cut-off date in this matter.

     On September 21, 2000, Triangle's Chapter 7 trustee commenced an adversary
proceeding against Trident claiming Trident received an avoidable preference
from Triangle in the ninety (90) days prior to Triangle's bankruptcy filing in
the amount of $56,890. Triangle's Chapter 7 trustee has stated that she intends
to increase the amount claimed in this proceeding by approximately $103,000.
Trident has not yet, however, been served with an amended complaint. Trident has
filed an answer and affirmative defenses to the complaint. The parties are
currently undertaking discovery. The Bankruptcy Court has not set a final
discovery cut-off date in this matter.

     On December 15, 2000, Triangle's Chapter 7 trustee commenced an adversary
proceeding in the Bankruptcy Court against CMA, Trident and its bonding company
claiming Trident owed it $750,623 in connection with a project known as the
Horace Mann Project, and seeking to foreclose on a bonded lien. CMA, Trident and
its bonding company have filed an answer to the Complaint and have asserted
counterclaims claiming damages in the aggregate amount of $1,353,894 arising
from the Subcontractor Projects and the Contractor Project. The parties are
currently undertaking discovery. The Bankruptcy Court has not set a discovery
cut-off date in this matter.



                                       12
<PAGE>

     On January 5, 2001, Triangle's Chapter 7 Trustee commenced an adversary
proceeding in the Bankruptcy Court against CMA and its bonding company claiming
CMA owed it $568,432 in connection with a project known as the Sotheby's
Project, and seeking to foreclose on a bonded lien. CMA and its bonding company
have filed an answer to the complaint and have asserted counterclaims claiming
damages in the aggregate amount of $9,610,647 arising from the Subcontractor
Projects. The parties have not yet started taking discovery. The Bankruptcy
Court has not set a discovery cut-off date in this matter.

     On January 9, 2001, Triangle's Chapter 7 Trustee commenced an adversary
proceeding in the Bankruptcy Court against CMA and its bonding company claiming
CMA owed it $1,122,526 in connection with a project known as the Two Broadway
Project, and seeking to foreclose on a bonded lien. CMA and its bonding company
have filed an answer to the complaint and have asserted counterclaims to the
complaint claiming damages in the aggregate amount of $9,610,647 arising from
the Subcontractor Projects. The parties are engaged in pre-trial discovery. The
Bankruptcy Court has not set a final discovery cut-off date in this matter.

     For the reasons discussed above, CMA believes it has no liability to
Triangle although the Company can make no assurances that CMA will prevail in
the litigation commenced by the Triangle's Chapter 7 trustee.

     (b) The Company and Trident Mechanical Systems, Inc. ("Trident"), a
dormant, wholly owned subsidiary of the Company, were defendants in a lawsuit
filed in January 2000. The plaintiff was seeking in excess of $30,000,000 for
claims related to property damage on a job site where Trident and other trades
were working. The claim, as constituted, exceeded the Company's general as well
as umbrella liability policy limits in the aggregate. In June 2001, the
Company's insurance company settled the lawsuit and all claims related to the
lawsuit with the plaintiff and agreed to pay the plaintiff an amount within the
Company's liability policy limits. Accordingly, no provision for loss was made
in the accompanying financial statements.

     (c) On September 29, 1997, Centrifugal filed a complaint in the Supreme
Court of the State of New York, Kings County, against DAK Electric Contracting
Corp. ("DAK") and two of DAK's officers, Donald Kopec and Al Walker, for breach
of contract in the amount of $4.1 million.

     In prior years, Centrifugal was a partner in a joint venture that performed
mechanical and electrical services for a general contractor on 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.
The joint venture's work on this project has been completed. The joint venture
received demands for payment from certain vendors used by the co-venturer of
Centrifugal. These vendors filed liens and/or made demands against the joint
venture payment bond amounting to approximately $1.7 million. Some of these
vendors also filed lawsuits against the joint venture, the joint venture
partners and related bonding companies, to secure payment on their claims. These
claims were based on the alleged failure of the joint venture partner to pay for
electrical goods provided to it as the electrical subcontractor of the joint
venture. The joint venture's bonding companies proposed settling with the
claimants; the bonding companies would then seek indemnification from the joint
venture. It was management's opinion that it would cost the Company less if this
settlement process was managed and completed by the Company.

     Based on these developments, the Company wrote off in fiscal 1996
approximately $2.3 million with respect to accounts and loans receivable, and
$1.4 million of claims and other costs that the Company incurred on behalf of
Centrifugal's co-venturer in fulfillment of the electrical co-venturer's
obligations under the contract on the Lincoln Square Project. Nevertheless, the
Company commenced the above identified action in an attempt to recover its
losses, expenses and costs as above set forth. As of the date of this report,
both the corporate defendant, DAK and Donald Kopec have defaulted, and motions
are being made for judgment against each.



                                       13
<PAGE>

     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 seeking an unspecified portion of the total
damages demanded relates to the Company. The Company has been informed that
plaintiff will assert that more than half of the total sums it seeks is due
under the bond which the Company provided, with the remainder of the sums
demanded due on the claims unrelated to the Company. The Company may also be
exposed for interest. Additionally, it may be exposed to such legal fees and
other expenses as the Company's bonding company may incur in its defense against
plaintiff's claims; however, many years into this matter, no demand for any of
these sums has been made. The bonding companies, Centrifugal and the Company
have asserted, among other defenses, that such contributions were not guaranteed
under the terms of the joint venture's bonds.

     (d) In the ordinary course of business, the Company is involved in claims
concerning personal injuries and other matters, all of which the Company refers
to its insurance carriers. The Company believes that no loss to the Company is
probable and the claims are covered under its general and umbrella liability
policies. No provision for such claims has been made in the accompanying
financial statements.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is currently traded on the NASD
Over-the-Counter ("OTC") Bulletin Board under the symbol "DSTR." Prior to June
13, 2001, the Company's Common Stock was traded on the Nasdaq National Market.
On June 13, 2001, the Company's Common Stock was de-listed from the Nasdaq
National Market and began trading on the OTC Bulletin Board.

         The following table sets forth, on a per share basis, the high and low
closing sale prices of the Company's Common Stock for the fiscal year ended June
30, 2000 and for the fiscal year ended June 30, 2001 (through June 13, 2001).
The following table also sets forth, on a per share basis, the range of reported
high and low bid quotations on the OTC Bulletin Board, as derived from the
National Association of Securities Dealers, Inc., for the period from June 13,
2001 to June 30, 2001 and for the first quarter (through September 27, 2001) of
the Company's fiscal year ending June 30, 2002. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily reflect actual transactions.


                                                             Closing Sale Prices
                                                             -------------------

                                                      High               Low
                                                      ----               ---
Fiscal 2000
-----------

First Quarter                                         $6.438             $3.875
Second Quarter                                        $9.25              $3,969
Third Quarter                                         $12.75             $5.938
Fourth Quarter                                        $7.797             $3.00

Fiscal 2001
-----------

First Quarter                                         $4.375             $1.1875
Second Quarter                                        $1.9375            $0.25
Third Quarter                                         $0.8125            $0.25
Fourth Quarter (through June 12, 2001)                $0.85              $0.3125

                                                                Bid Quotations
                                                                --------------

                                                      High               Low
                                                      ----               ---
Fiscal 2001
-----------

Fourth Quarter (June 13, 2001 through June 30, 2001)  $0.60              $0.30

Fiscal 2002
-----------

First Quarter (through September 27, 2001)            $0.34              $0.22


         As of September 18, 2001, there were 99 record holders of the Company's
Common Stock.

         The Company has not declared any dividends since its incorporation. The
Company does not anticipate the declaration or payment of dividends in the
foreseeable future. Future dividend policy will be subject to the discretion of
the Board of Directors and will be contingent upon future earnings, the
Company's financial condition, capital requirements, general business conditions
and other factors.



                                       14
<PAGE>


ITEM 6 - SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                               DUALSTAR TECHNOLOGIES CORPORATION
                                                                 SELECTED FINANCIAL DATA (1)
                                                           (Dollars in thousands, except per share data)

                                                                     YEAR ENDED JUNE 30,
                                      -----------------------------------------------------------------------------------
                                           2001             2000             1999            1998             1997
                                           ----             ----             ----            ----             ----
<S>                                      <C>               <C>              <C>             <C>              <C>
STATEMENT OF OPERATIONS DATA:
Revenue                                  $ 83,218          $87,285          $92,650         $94,280          $73,618
(Loss) income from operations             (14,176)          (8,583)             703             597           (6,468)
Net (loss) income                         (15,713)          (8,651)           1,322             556           (6,512)
Basic (loss) income per share              $(0.95)          $(0.67)           $0.14           $0.06           $(0.72)
Diluted (loss) income per share            $(0.95)          $(0.67)           $0.13           $0.06           $(0.72)

                                                                           JUNE 30,
                                      -----------------------------------------------------------------------------------
                                           2001             2000             1999            1998             1997
                                           ----             ----             ----            ----             ----
BALANCE SHEET DATA:
Working capital                           $13,836          $16,404         $  3,818         $   365          $   263
Total assets                               43,573           58,400           38,595          33,345           26,577
Long-term liabilities                      14,340            1,921            3,430             977            1,119
Stockholders' equity                        8,778           24,605            6,689           5,367            4,811
</TABLE>

(1) The Selected Financial Data represent the consolidated date for the years
    ended June 30, 2001, 2000, 1999, 1998 and 1997.


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

         DualStar, through its wholly owned subsidiaries, operates two separate
lines of business: (a) construction businesses; and (b) communications
businesses. Due to significantly increased demand for high-speed data access
fueled by the explosive growth of the Internet, DualStar had previously
announced its intention to expand its communications businesses aggressively.
Specifically, DualStar had sought to become principally an access provider of
broadband communications services to residential and commercial properties. The
expansion would have required significant capital expenditures to construct and
operate the infrastructure necessary to provide access services for broadband
communications services, and to acquire access rights to provide such services
in residential and commercial buildings. However, as a result of the limited
availability of capital and a significant change in market conditions, in
December 2000 the Company's board of directors adopted a plan to refocus its
communications business expansion efforts by concentrating on core
communications assets located in the New York City and Los Angeles areas and by
operating subscription video provider, ParaComm Inc. In connection with this
effort, the Company's communications subsidiaries have implemented and will
continue to implement cost reductions, including reductions in personnel,
infrastructure and capital expenditures.

         In connection with DualStar's prior plan to expand its communications
businesses, the DualStar board of directors had determined to divest most of
DualStar's construction-related businesses, and, in March 2000, had entered into
a stock purchase agreement (the "M/E Agreement") with M/E Contracting Corp.
("M/E"), an affiliate of Blackacre Capital Management L.L.C. ("Blackacre").
Under the M/E Agreement, DualStar would have sold High-Rise, Centrifugal and
Mechanical (as defined below) to M/E, subject to the approval of DualStar's
stockholders and the consummation of a previously-announced $46.2 million
investment by Blackacre (which investment was replaced by a $12.5 million loan
from Blackacre's affiliate, Madeleine L.L.C., to DualStar in November 2000). The
aggregate purchase price for such businesses would have been $11 million,
consisting of $1 million in cash and a $10 million secured 10-year note bearing
interest at 10% per annum. However, because of the refocus of its communications
business expansion efforts, in January 2001, the Company's board of directors
determined not to divest those construction-related businesses and determined to
terminate and not seek stockholder approval of the M/E Agreement. Under the M/E
Agreement, the Company could be liable for a $1 million "break-up" or
termination fee if, within six months from the termination, there is a 50%
change of control (as defined in the M/E Agreement) or, if within one year of
termination, the construction-related businesses' assets or stock are sold to
another party.

                                       15
<PAGE>

         Because of the Company's board of directors decision of not to divest
most of DualStar's construction-related businesses, the financial position of
such businesses as are no longer presented as the discontinued operations in the
accompanying audited consolidated financial statements. In addition, certain
reclassifications have been made to prior year amounts to conform to the June
30, 2001 presentation.



                                       16
<PAGE>


CAPITAL RESOURCES AND LIQUIDITY

         Cash balances at June 30, 2001 and 2000 were approximately $3.7 million
and $13.8 million, respectively. In fiscal 2001 and 2000, the Company used
approximately $12.7 million and $12.1 million, respectively, of net cash in its
operating activities. These net uses of cash were attributed primarily to pay
trade payables and fund operating losses incurred in the Company's
communications businesses. In fiscal 1999, the Company used approximately $3.9
million of net cash in its operating activities. The net use of cash was
attributed primarily to pay trade payables.

         During fiscal 2001, the Company acquired capital assets of
approximately $3.3 million, of which approximately $0.7 million was financed by
a note. During fiscal 2000, the Company acquired capital assets of approximately
$1.2 million, of which approximately $0.2 million was financed by capital
leases. During fiscal 1999, the Company acquired capital assets of approximately
$0.4 million, of which approximately $0.2 million was financed by capital
leases. The capital assets acquired during the periods were primarily for
investment in communications infrastructure systems for multiple dwelling unit
("MDU") buildings in return for rights to provide telephone, Internet,
television and other services to the buildings' residents.

Senior Secured Promissory Note

         On November 8, 2000, the Company consummated a $12.5 million senior
secured loan transaction with Madeleine L.L.C. ("Madeleine"), an affiliate of
Blackacre Capital Management L.L.C. The loan, which is due and payable on
November 8, 2007, bears interest at a fixed rate of 11% per annum. The loan is a
senior secured obligation of the Company and is guaranteed by certain
subsidiaries of the Company, including OnTera which have pledged substantially
all of their respective assets to collateralize such guarantee. In connection
with the 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, to an affiliate of Madeleine. A portion of the $12.5 million 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 loan. The remaining proceeds are being used for the Company's
working capital purposes. No value was allocated to the warrants because the
value was deemed immaterial.

         Under the terms of the loan agreement between the Company and
Madeleine, an additional loan of $7.5 million may be made to the Company by
Madeleine, on the same terms as the $12.5 million loan. This additional loan is
subject to certain conditions, including, without limitation, receipt of
approval by the Company's stockholders. The nature of the conditions precedent
to Madeleine's obligation to make the additional loan result in such additional
loan being available at Madeleine's sole discretion. The Company has no present
plan to hold a stockholder meeting for the purpose of seeking stockholder
approval for the additional loan. If Madeleine determines to waive the
conditions precedent and the loan is made, the Company will issue to Madeleine,
subject to stockholder approval, additional warrants to purchase 1,875,000
shares of its common stock at an exercise price of $4.00 per share. The Company
has no assurance that Madeleine will waive the conditions precedent to the
additional funding.

         Since March 2001, the Company has not made regularly scheduled interest
payments to Madeleine pursuant to the loan agreement. In addition, the delisting
of the Company's common shares from the Nasdaq National Market created a default
under the loan agreement. Madeleine has offered to amend the loan agreement
which will defer the interest payment and remove the listing requirement from
the loan agreement. The Company is currently reviewing the loan amendment
offered by Madeleine, and will continue to discuss with Madeleine the terms of
the loan agreement.


                                       17
<PAGE>


Mortgage payable

         In November 1999, the Company refinanced its mortgage loan and
increased the loan balance to $1.75 million, yielding approximately $1.0 million
of net cash. In fiscal 2001 and 2000, the Company repaid approximately $20,000
and $27,000, respectively, of the mortgage payable. As of June 30, 2001 and
2000, the Company had a mortgage payable of approximately $1.7 million of which
approximately $26,000 and $22,000, respectively, were classified as current
liabilities.

RECENT DEVELOPMENTS


         On June 13, 2001, DualStar was advised by Nasdaq that the Company's
common shares had been delisted from the Nasdaq National Market. The Company's
common shares now trade on the NASD Over-the-Counter (OTC) Bulletin Board and
its ticker symbol continues to be DSTR. The decision by the Nasdaq Listing
Qualifications Panel to delist DualStar's securities was based on the Company's
failure to maintain a minimum bid price of $1.00 per share.


INFLATION

         The Company has continued to experience the benefits of a low inflation
economy in the New York Metropolitan area. In general, the Company's
construction-related businesses enter into long-term fixed price contracts which
are largely labor intensive. Accordingly, future wage rate increases may affect
the profitability of its long-term contracts. Short-term contracts are less
susceptible to inflationary conditions.



                                       18
<PAGE>


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                  NET REVENUES BY SEGMENT
                                             2001                       2000                       1999
                                             ----                       ----                       ----
                                                      % of                      % of                      % of
  Segments                         ($ million)        Total    ($ million)      Total     ($ million)     Total
                                  --------------- ----------- -------------- ----------- --------------- ----------
  <S>                             <C>             <C>          <C>           <C>          <C>            <C>
  Construction                             79.8         95.9       85.3         97.7          90.4         97.6

  Communications                            3.4          4.1        2.0          2.3           2.2          2.4
                                  --------------- ----------- -------------- ----------- --------------- ----------

  Total revenues                           83.2        100.0       87.3        100.0          92.6        100.0
                                  =============== =========== ============== =========== =============== ==========

<CAPTION>

                                  OPERATING (LOSS) INCOME BY SEGMENT

                                             2001                       2000                        1999
                                             ----                       ----                        ----
                                                     % of                       % of                       % of
  Segments                         ($ million)       Total    ($ million)       Total      ($ million)      Total
                                  --------------- ----------- -------------- ----------- --------------- -----------
  <S>                             <C>             <C>          <C>           <C>          <C>            <C>
  Construction                             0.5        4.3             (1.0)        16.7            2.5     (147.1)
  Communications                         (12.1)    (104.3)            (5.0)        83.3           (0.8)      47.1
                                  --------------- ----------- -------------- ----------- --------------- -----------
  Total operating loss                   (11.6)     100.0             (6.0)       100.0           (1.7)     100.0
                                  =============== =========== ============== =========== =============== ===========
</TABLE>

Fiscal 2001 Compared to Fiscal 2000

         Construction revenue decreased $5.5 million or 6.4% from $85.3 million
in 2000 to $79.8 million in 2001. The decrease was primarily due to fewer
construction contracts started in 2001.

         Cost of construction revenue decreased $7.0 million or 8.9% from $78.8
million in 2000 to $71.8 million in 2001. In addition to the decrease in
construction revenue, the decrease in costs was due primarily to an additional
$2.6 million in costs incurred in 2000 on five projects in completing the work
of a sheetmetal subcontractor that filed for bankruptcy. Gross margin percentage
increased to 9.0% in 2001 from 7.6% in 2000. The improvement in gross margin
percentage was due primarily to favorable close-outs of several electrical
contracts in 2001 and the $2.6 million additional costs incurred in 2000 to
complete the failed sheetmetal subcontractor's work in 2000. Excluding the $2.6
million additional costs, the gross margin percentage would have been 8.9% in
2000.

         Construction operating income was $0.5 million in 2001, compared to
operating loss of $0.1 million in 2000. The improvement was due primarily to the
increase in gross profit margin in 2001. There can be no assurance that the
construction segment will sustain profitability or positive cash flow from
future operations.

         Communications revenue increased $1.4 million or 70% from $2.0 million
in 2000 to $3.4 million in 2001. The increase was primarily due an increase in
the numbers of cable television customers and additional revenue generated by
ParaComm. Revenue generated by ParaComm were $1.0 million in 2001, and $0.1
million for the period from May 11 to June 30, 2000.

         Cost of communications revenue increased $0.7 million or 46.7% from
$1.5 million in 2000 to $2.2 million in 2001. The increase was primarily due to
increases in communications revenue. Gross profit margin percentage increased to
35.3% in 2001 from 25.0% in 2000. The increase in gross profit margin percentage
was primarily due to the higher profit margin in cable television revenue. Cost
of revenue generated by ParaComm was $0.4 million in 2001 and immaterial for the
period from May 11 to June 30, 2000, and gross profit margin percentage was
63.6% in 2001 and 85.2% for the period from May 11 to June 30, 2000.

         Operating loss of the communications segment increased $7.1 million or
142.0% from ($5.0) million in 2000 to ($12.1) million in 2001. The increase was
due primarily to a write-down of intangible


                                       19
<PAGE>


assets and increases in operating expenses in connection to the implementation
of the newly developed wholesale market model commenced in the third quarter of
fiscal 2000. Those operating expenses include payroll and related expenses,
professional fees, travel and entertainment. The Company expects the
communications segment will continue to incur operating losses going forward.
The communications segment has implemented and will continue to implement cost
reductions to minimize such losses. 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. Should the Company be unable to secure such financing, the
Company may have to curtail its communications operations. Operating loss of
ParaComm was ($1.5) million and ($0.2) million for the year ended June 30, 2001
and the period from May 11 to June 30, 2000, respectively.

         Due to increased costs associated with the previous expansion of the
communications businesses, on the consolidated basis, the Company's general and
administrative expenses increased $7.0 million or 53.8% from $13.0 million in
2000 to $20.0 million in 2001. As a result of the limited availability of
capital and current market conditions, in December 2000, the Company's board of
directors adopted a plan to refocus OnTera's communication business expansion
efforts by concentrating on core assets located in the New York City and Los
Angeles areas and by operating ParaComm. In connection with this effort, OnTera
has implemented company-wide cost reductions, including reductions in personnel,
infrastructure and capital expenditures in non-core markets. A restructuring
charge of $1.0 million reflecting the impact of such reductions and refocus of
markets was recorded in 2001. A benefit from a reversal of bonus accruals of
$0.9 million was also recorded in 2001 because those bonuses would no longer be
paid due to the restructuring.

         In addition to the $0.1 million restructuring charge, net of the
reversal of bonus accruals in 2001, the increase in general and administrative
expenses included a $5.0 million increase in payroll and related costs, a $0.8
million increase in professional fee, a $0.7 million increase in rent and
operating leases, a $0.3 million increase in telephone and office supplies, and
a $0.2 million increase in insurance.

         Depreciation and amortization increased $1.2 million or 120.0% from
$1.0 million in 2000 to $2.2 million in 2001. The increase was primarily due to
additional property, equipment and infrastructure acquired during the current
and prior fiscal years in connection with the expansion of the communications
businesses.

         In fiscal 2001, due to the expected future losses in the communications
businesses and the decreasing market values of subscriber list and access
rights, accordingly, the Company wrote down the carrying values of goodwill,
subscriber list and access rights capitalized in May 2000 in connection with the
purchase of ParaComm by $1.2 million. In fiscal 2000, due to the expansion of
the Company's communications business model, certain telephone equipment
deployed in 1997 may not be utilized under the new delivery strategy and may be
sold. Accordingly, in fiscal 2000, the Company wrote down the carrying value of
the equipment by $0.3 million to $0.4 million to reflect the estimated resale
value of the equipment.

         In March 2000, options to purchase 975,000 shares of the Company's
common stock were granted to employees with an exercise price lower than the
closing price of the Company stock. One-third of the options vested at the date
of the grants and the remaining two-thirds would vest ratably on a monthly basis
beginning on the last day of each of the 24 calendar months following March
2001. As a result of the grants, a compensation charge of $1.8 million was
incurred, of which $0.6 million, or one-third, was recognized in 2000. In
February 2001, the employees resigned and forfeited the stock options, and the
unamortized deferred compensation was reversed.

         Interest income increased $0.3 million or 100% from $0.3 million in
2000 to $0.6 million in 2001. The increase was due to investment of the
Company's excess cash in an institutional money market mutual fund and
marketable securities.

                                       20
<PAGE>

         Interest expense increased $0.6 million or 42.9% from $0.8 million in
2000 to $1.4 million in 2001. The increases were due primarily to the Company's
issuance of a $7.0 million secured promissory note and a $12.5 million senior
secured promissory note to Madeleine L.L.C. in December 1999 and November 2000,
respectively. A portion of the $12.5 million loan proceeds was used to repay the
$7.0 million note.

         Based on the refocus of its core markets and recent restructuring in
the Company's communications businesses, in addition to the substantial losses
incurred in current fiscal year, management believes that the Company will more
than likely generate sufficient taxable earnings or utilize tax planning
opportunities to ensure realization of the deferred tax benefits of $1.1
million, reduced from $1.8 million as June 30, 2000, but will less than likely
realize the benefit on the balance of the deferred taxes assets, and therefore,
has increased its valuation allowance by $15.1 million to $21.8 million as June
30, 2001. Accordingly, a provision for deferred income taxes of $0.7 million was
recorded in 2001.

Fiscal 2000 Compared to Fiscal 1999

         Construction revenue decreased $5.1 million or 5.6% from $90.4 million
in 2000 to $85.3 million in 2001. The decrease was primarily due to the
cancellation of a $24 million project, which was originally planned to start in
November 1999 and to be completed in mid 2001. The cancellation of the project
was caused by a sheetmetal subcontractor that filed for bankruptcy and the
Company's decision to limit its potential loss on the project because of such
subcontractor's bankruptcy.

         Cost of construction revenue decreased $1.5 million or 1.9% from $80.3
million in 1999 to $78.8 million in 2000. The decrease in costs was due
primarily to the decrease in revenues. The Company recorded an additional $2.6
million in costs on five projects in completing the failed sheetmetal
subcontractor's work in 2000. Gross margin percentage decreased to 7.6% in 2000
from 11.2% in 1999. Excluding the $2.6 million additional costs, the
construction businesses' gross profit margin would have been 10.7% in 2000.

         Operating loss from the construction segment was ($1.0) in 2000,
compared with operating income of $2.5 million in 1999. In addition to the $2.6
million additional costs to complete the failed sheetmetal subcontractor's work
in 2000, the decrease was due primarily to the decrease in construction revenue.

         Due to the adoption of the newly developed wholesale market model,
communications revenue decreased $0.2 million or 9.1% from $2.2 million in 1999
to $2.0 million in 2000. The decrease was primarily due to the communications
subsidiary's reduced efforts to sign up new retail customers since the latter
part of the fiscal 2000. The subsidiary sought to offer communications services
providers a variety of communications services on a wholesale basis, provided
over platforms owned and operated by the subsidiary to and within a multiple
tenant building.

         Cost of communications revenue increased $0.3 million or 16.7% from
$1.8 million in 1999 to $2.1 million in 2000. The increase was primarily due to
increases in the number of communications employees and in supply costs incurred
in connection with the buildup of communication platforms for the newly
developed wholesale market approach. Due to the increase in costs in building up
the new business platforms and the decrease in revenues, the gross margin
percentage was break-even in 2000, compared to 14.3% in 1999. The Company
expects gross margin percentage to increase after the buildup of such platforms.



                                       21
<PAGE>

         Operating loss of the communications segment increased $4.2 million or
525% from ($0.8) million in 1999 to ($5.0) million in 2000. The increase was due
primarily to increases in operating expenses in connection to the implementation
of the newly developed wholesale market model. Those operating expenses included
payroll and related expenses, amortization of deferred compensation (as
discussed below), professional fees, travel and entertainment, and impairment of
fixed assets (as discussed below).

         On a consolidated basis, the Company's general and administrative
expenses increased $3.8 million or 42.4% from $9.2 million in 1999 to $13.0
million in 2000. The increase was primarily attributed to the Company's refocus
from the construction businesses to the communications businesses, and included
a $2.1 million increase in payroll and related costs, a $1.2 million increase in
professional fees, a $0.3 million increase in travel and entertainment expense,
and write-offs of bad debts totaling $0.3 million.

         Depreciation and amortization increased $0.4 million or 66.7% from $0.6
million in 1999 to $0.1 million in 2000. The increase was primarily due to
additional capital expenditures acquired during the year in connection with the
expansion of the Company's communications businesses.

         The Company recorded a $0.6 million deferred compensation charge for
stock options granted to officers in March 2000 with an exercise price lower
than the closing price of the Company's stock on the dates on which such options
were granted.

         The Company's communications business was originally launched as a
retail provider of integrated communications services to the MDU market
exclusively in the metropolitan New York area. The Company had planned on
expanding its communication businesses and a new management team was hired at
the communications subsidiary for the purpose of devising, implementing and
operating a wholesale broadband access business focusing on the MDU market in
major metropolitan areas. Due to the expansion of the Company's communications
business model, certain telephone equipment deployed in 1997 may not be utilized
under the new delivery strategy and may be sold. Accordingly, in fiscal 2000,
the Company wrote down the carrying value of the equipment by $0.3 million to
$0.4 million to reflect the estimated resale value of the equipment.

         Interest income was $0.3 million in 2000 and was insignificant in 1999.
The increase was due primarily to investment of the Company's excess cash in an
institutional money-market mutual fund in 2000.

         Interest expense increased $0.4 million or 100% from $0.4 million in
1999 to $0.8 million in 2000. The increase was due primarily to additional
interest expense in connection with the $7.0 million Madeleine Bridge Loan.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to market risk from changes in interest rates.
As of June 30, 2001, the Company had debt of $15.0 million with various fixed
interest rates from 8.5% to 11.0%. The fixed rate debt may have its fair value
adversely affected if interest rates decline; however, the amount is not
expected to be material. The Company's cash is primarily invested in an
institutional money market mutual fund. The Company does not have any derivative
financial instruments as of June 30, 2001. The Company believes that the
interest rate risk associated with its investments is not material to the
results of operations of the Company.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Financial Statements following Item 14 herein.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.


                                       22
<PAGE>

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information concerning each of
the Company's directors and executive officers:

<TABLE>
<CAPTION>
         NAME                    AGE      POSITION WITH THE COMPANY
<S>                             <C>       <C>


   Jared E. Abbruzzese            47      Director(1)(2)
   Gregory Cuneo                  42      President, Chief Executive Officer and Director
   Raymond Steele                 66      Director(1)(2)
   Robert J. Birnbach             36      Executive Vice President, Chief Financial Officer and Secretary
   Joseph C. Chan                 40      Vice President and Chief Accounting Officer
   Ronald Fregara                 52      President - CMA
   Stephen Yager                  49      Vice President - CMA
   Barry Halpern                  49      President - High-Rise
   Nicholas Ahel                  58      Vice President - High-Rise
   Vincent D'Onofrio              41      President - OnTera
</TABLE>

(1) Member of the Compensation and Governance Committee. The Compensation and
Governance Committee (the "Compensation Committee") review and approves
management's recommendations as to executive compensation, reviews, approves and
administers executive compensation and DualStar's 1994 Stock Option Plan, as
amended, reviews and approves management's recommendation for organizational
structure and recommends to the DualStar board nominees for election as
directors of DualStar, including nominees recommended by stockholders.

(2) Member of the Audit Committee. The Audit Committee recommends to the
DualStar board independent auditors to serve DualStar, reviews the scope and
results of the annual audit, assures that the independent auditors act
independently, reviews with management and the independent auditors DualStar's
internal accounting controls, and reviews DualStar's annual and quarterly
reports.

         Jared E. Abbruzzese has been a director of DualStar since September
1999 and he has served as Chairman from February 2000 to June 2001. Mr.
Abbruzzese is a founder and Chairman of TechOne Capital Group LLC, a consulting
and private investment firm concentrating in the telecommunications and
technology sectors. Mr. Abbruzzese was the founder and served as Chairman and
Chief Executive Officer of CAI Wireless Systems, Inc., an MMDS operator located
in Albany, New York, from August 1991 until CAI's acquisition by WorldCom, Inc.
in August 1999 (Mr. Abbruzzese served in such capacities for CAI during CAI's
1998 Chapter 11 proceeding). He is also a co-founder of Crest Communications
LLC, a private communications fund; a member of the governing board of
VenInfoTel LLC, a Venezuelan telephone and cable company.

         Gregory Cuneo has been President and Chief Executive Officer of
DualStar since the Company was founded in August 1994. He has also served as a
director since August 1994 and served as Chairman of the Company from December
1998 until February 2000. Mr. Cuneo is also (non-director) Chairman of Starrett
Corporation, a position he has held since August 1999, and Chief Executive
Officer of HRH Construction Corp., an affiliate of Starrett. Mr. Cuneo and Mr.
Birnbach are first cousins.

         Raymond Steele, a retired businessman, has been a director of the
Company since December 1998. In addition to the Company, Mr. Steele has been a
member of the board of directors of ICH Corp. since June 1997. From August 1997
until October 2000, Mr. Steele served as a board member of Video Services Corp.
Prior to his retirement, Mr. Steele held various senior positions such as
Executive Vice President of Pacholder Associates, Inc. (from August 1990 until
September 1993), Executive Advisor at the Nickert Group (from 1989 through
1990), and Vice President, Trust Officer and Chief Investment Officer of the
Provident Bank (from 1984 through 1988).



                                       23
<PAGE>

         Robert J. Birnbach, a founder of the Company, has been Chief Financial
Officer of DualStar since December 1996, Executive Vice President since July
1999 and Secretary since February 2000. He was a member of DualStar's board of
directors from September 1999 until February 2000. From December 1996 until July
1999, Mr. Birnbach served as Vice President of DualStar and from August 1994
until December 1996, he was DualStar's Director of Corporate Development/Mergers
& Acquisitions. Mr. Birnbach was President and Chief Executive Officer and a
member of the board of directors of Starrett Corporation from January 2000 until
November 2000. He was also a member of the board of directors of HRH
Construction Corp., an affiliate of Starrett. Prior to joining DualStar, Mr.
Birnbach was an advisor with the financial advisory and accounting firm of
Coopers & Lybrand from 1991 to August 1994.

         Joseph C. Chan has been Vice President and Chief Accounting Officer of
DualStar since December 1996. He was controller of DualStar from November 1994
until December 1996. Prior to joining the Company, Mr. Chan was a certified
public accountant with Konigsberg, Wolf & Co. P.C. from October 1987 to November
1994.

         Ronald Fregara, a founder of the Company, served as an Executive Vice
President of the Company from December 1996 until February 2000, and served as a
Vice President from August 1994 until December 1996. Mr. Fregara has been
President of CMA since December 1996. Mr. Fregara was a member of the Company's
board of directors from August 1994 until February 2000.

         Stephen Yager, a founder of the Company, served as an Executive Vice
President of the Company from August 1994 until February 2000, and served as
Secretary of the Company from August 1994 until February 2000. Mr. Yager was the
Company's Chief Financial Officer from August 1994 until November 1996. Mr.
Yager has been Vice President of CMA since December 1996. Mr. Yager was a member
of the Company's board of directors from August 1994 until February 2000.

         Barry Halpern has served as President of High-Rise since July 1995.

         Nicholas Ahel has served as Vice President of High-Rise since July
1995.

         Vincent M. D'Onofrio has served as President and Chief Technology
Officer of OnTera since February 2001 and is responsible for the day to day
operations of OnTera. From March 2000 to February 2001, Mr. D'Onofrio served as
OnTera's Executive Vice President and Chief Technology Officer. From March 1996
until February 2000, Mr. D'Onofrio served as President and Chief Executive
Officer of OnTera. Mr. D'Onofrio is also President of ParaComm.

ITEM 11 - EXECUTIVE COMPENSATION

         The following table sets forth certain summary information concerning
the compensation paid or awarded for each of DualStar's last three completed
fiscal years to DualStar's Chief Executive Officer and its four most highly
compensated officers (the "Named Executives") at June 30, 2001.

<TABLE>
<CAPTION>
                                                                         Long Term
                                                                       Compensation
                                             Annual Compensation          Awards
                                         ---------------------------- ----------------
             (a)                 (b)         (c)           (d)              (g)              (i)
                                                                        Securities
                               Fiscal                                   Underlying        All Other
 Name and Principal Position   Period      Salary         Bonus         options (#)      compensation
------------------------------ --------- ------------ --------------- ---------------- -----------------
<S>                            <C>         <C>          <C>           <C>                   <C>     <C>
Gregory Cuneo                  2001        $275,000      $25,000                 -          $33,238 (2)
Chief Executive Officer        2000        $270,961            -           200,000 (1)      $35,038 (2)
                               1999        $150,000      $67,500                 -           $5,794 (2)

Barry Halpern                  2001        $260,000     $966,712                 -          $1,954 (2)
President - High-Rise          2000        $230,000     $251,065           100,000 (3)      $1,954 (2)
                               1999        $156,600     $180,000                 -          $2,947 (2)


                                       24
<PAGE>

Nicholas Ahel                  2001        $260,000     $966,712                 -          $1,652 (2)
Vice President - High-Rise     2000        $230,000     $251,065           100,000 (3)      $1,652 (2)

                               1999        $156,600     $180,000                 -          $2,618 (2)

Robert Birnbach                2001        $219,703     $125,000                 -          $1,872 (2)
Chief Financial Officer        2000        $225,015            -            25,000 (4)      $1,872 (2)
                               1999        $147,810            -                 -          $1,872 (2)

Vincent D'Onofrio              2001        $208,366      $50,000                 -          $2,260 (2)
President - OnTera             2000        $173,942      $33,333            50,000 (1)      $2,260 (2)
                               1999        $119,873      $50,000                 -          $2,543 (2)
</TABLE>

(1) Consists of options granted under the Company's 1994 Stock Option Plan, as
amended (the "Plan"), to purchase 200,000 shares granted on August 12, 1999 at
an exercise price of $4.00 per share and vest in five installments on each of
December 31, 1999, 2000, 2001, 2002 and 2003.
(2) Includes the value of personal benefits, such as disability insurance,
automobile expenses and/or director fees, pursuant to each officer's employment
agreement. See "Employment Agreements." (3) Consists of options granted under
the Plan on February 15, 2000. The options have an exercise price of $5.25 per
share and were 100% vested on February 15, 2000.
(4) Consists of options granted under the Plan on March 8, 2000. The options
have an exercise price of $10.25 per share and were 100% vested on March 8,
2000.

COMPENSATION OF DIRECTORS

         Directors of the Company are paid an annual fee of $25,000 and a fee of
$1,000 per board meeting attended in person, and $600 per telephonic meeting or
committee meeting (regardless of attendance in person or by telephone), plus, in
all cases, reimbursement of out-of-pocket expenses. For the year ended June 30,
2001, the Company paid each of Messrs. Abbruzzese, Cuneo and Steele $29,200 in
director fees.

OPTION GRANTS IN LATEST FISCAL YEAR

         No stock options were granted to any of the Named Executives during
fiscal 2001.

Aggregate Option Exercises in Latest Fiscal Year and Fiscal Year-End Values

         The following table sets forth certain information with regard to the
outstanding options to purchase DualStar Common Stock as of the end of the
fiscal year ended June 30, 2001 for the five Named Executives in the Summary
Compensation Table above.

<TABLE>
<CAPTION>
          (a)                  (b)           (c)                    (d)                               (e)
                             Shares         Value          Number of Securities              Value of Unexercised
                           Acquired on    Realized    Underlying Unexercised Options   In-the-Money Options at June 30,
          Name            Exercise (#)       ($)             at June 30, 2001                        2001
                                                       Exercisable     Unexercisable     Exercisable      Unexercisable
<S>                       <C>             <C>          <C>             <C>               <C>              <C>
Gregory Cuneo                   -             -           80,000          120,000            $ -               $ -
Barry Halpern                   -             -          301,000             -               $ -               $ -
Nicholas Ahel                   -             -          226,000             -               $ -               $ -
Robert Birnbach                 -             -          666,000             -               $ -               $ -
Vincent D'Onofrio               -             -          221,000           30,000            $ -               $ -
</TABLE>

Employment Agreements

         Effective August 1994, DualStar entered into employment agreements with
Messrs. Cuneo, Yager and Fregara. The employment agreements expired in August
1997 and have been renewed for two additional three-year terms through August
2003. Mr. Cuneo's current salary is $275,000, with a guaranteed minimum bonus of
$25,000, up to a maximum of $100,000 based on certain performance objectives
which are to be determined by the Board and the Compensation Committee. Messrs.
Fregara and Yager's current salaries are each $235,000, with a guaranteed
minimum bonus of $25,000, up to a maximum of $100,000 based on certain
performance objectives which


                                       25
<PAGE>

are to be determined by the Board and the Compensation Committee. The salaries
under these executive's employment agreements, as amended, may be increased to
reflect annual cost of living increases and may be supplemented by discretionary
merit and performance increases as determined by the Compensation Committee.

         The employment agreements provide, among other things, for
participation in an equitable manner in any profit-sharing or retirement plan
for employees or executives and for participation in other employee benefits
applicable to employees and executives of the Company. The employment agreements
provide that the Company will establish a performance incentive bonus plan
providing each executive the opportunity to earn an annual bonus of up to five
percent of the increase, if any, in the Company's pretax income, based upon the
attainment of performance goals to be established by the Compensation Committee.
The employment agreements further provide for the use of an automobile and other
fringe benefits commensurate with their duties and responsibilities, and for
benefits in the event of disability.

         Pursuant to the employment agreements, employment may be terminated by
the Company with cause or by the executive with or without good reason.
Termination by the Company without cause, or by the executive for good reason,
would subject the Company to liability for liquidated damages in an amount equal
to the terminated executive's current salary for the remainder of the scheduled
term of employment and bonuses for the remainder of the scheduled term of
employment based upon the prior year's annual bonus and the maximum incentive
bonus payable. Such amounts shall be payable in equal monthly installments,
without any set-off for compensation received from any new employment. In
addition, the terminated executive would be entitled to continue to participate
in and accrue benefits under all employee benefit plans and to receive
supplemental retirement benefits to replace benefits under any qualified plan
for the remaining term of the employment agreements to the extent permitted by
law.

         The employment agreements provide for the purchase by the Company of
insurance policies in the amount of $1,000,000 on the lives of each of Messrs.
Cuneo, Yager and Fregara. The Company will pay the premiums under these
policies, and a portion of the payment will be treated as taxable income to the
insured executive. Upon the death of any of the insureds, the Company would be
paid from the insurance proceeds an amount equal to the total premiums it paid
under the policy, with the remaining proceeds to be paid to the deceased
executive's designated beneficiary. To date, each of Messrs. Cuneo, Yager and
Fregara has declined to have the Company purchase such insurance.

         On June 1, 2000, the Company entered into employment agreements with
each of Barry Halpern and Nicholas Ahel, President and Vice President,
respectively, of High-Rise. Pursuant to Mr. Halpern's agreement, Mr. Halpern has
agreed to serve as President of High-Rise at a current annual base salary of
$260,000. Mr. Ahel's employment agreement contemplates that he will serve as
Vice President of High-Rise at a current annual base salary of $260,000. Each of
Messrs. Halpern and Ahel are also entitled to an annual bonus equal to 10% of
the net income before taxes of High-Rise, calculated on a consolidating basis in
a manner consistent with past practices and in accordance with generally
accepted accounting practices. The employment agreements also provide Messrs.
Halpern and Ahel with such other benefits, including medical, disability,
pension and severance plans, as are made generally available to executive
employees of the Company from time to time, and a life insurance benefit in the
amount of one times such executive's current annual base salary.

         Pursuant to the employment agreements for each of Messrs. Halpern and
Ahel, employment may be terminated by the Company with Cause (as defined in the
agreements) or by the executive with or without good reason (as defined in the
agreements). Termination of employment by the Company without Cause, or by the
executive with good reason would entitle the executive to severance in the
amount of executive's then annual base salary, plus a pro rata portion of the
bonus that would be payable in the year of termination. Additionally, all
unvested options to purchase DualStar common stock issued to the executive shall
vest immediately, and be exercisable for a period of 9 months following the date
of termination. Certain other benefits continue for a period of 6 months
following the date of termination. In the event of a termination of employment
by the Company with Cause, the executive is entitled to receive all base salary
through the date of termination. Options held by such executive that are vested
on the date of termination remain exercisable for a period of 90 days from the
date of termination. All unvested options lapse. In the


                                       26
<PAGE>

event of a voluntary termination of employment by the executive, the executive
is entitled to receive her or his annual base salary through the date of
termination and be eligible for a pro rata portion of any bonus. Options held by
an executive who voluntarily terminates his employment that are vested remain
exercisable for a period of 90 days from the date of termination. Upon a
termination of employment as a result of an executive's death or disability, all
vested options remain exercisable for a period of 18 months following the date
of termination.

         In connection with Robert J. Birnbach's role as the Company's Executive
Vice President, Chief Financial Officer and Secretary, the Company and Mr.
Birnbach entered into an employment agreement dated June 7, 2000, but effective
as of June 1, 1999. Under the terms of the Birnbach employment agreement, Mr.
Birnbach has agreed to serve as Executive Vice President, Chief Financial
Officer and Secretary of the Company at a current base salary of $220,000. Mr.
Birnbach's agreement contemplates that he is eligible for a bonus of up to 50%
of his annual base salary upon the achievement by the Company and Mr. Birnbach
of performance targets agreed-upon by the Board of Directors and Mr. Birnbach.
Mr. Birnbach's annual base salary and bonus percentage may be increased, but not
decreased by the Company's Board of Directors.

         Mr. Birnbach's employment with the Company may be terminated by the
Company with Cause (as defined in the agreement) or by Mr. Birnbach with or
without good reason (as defined in the agreement). Upon termination, all vested
options remain exercisable for the duration of the option. Termination of
employment by the Company without cause, or by Mr. Birnbach with good reason
would entitle Mr. Birnbach to severance in the amount of two times Mr.
Birnbach's annual base salary, plus other perquisites for the one-year period
following the date of termination; additionally, all unvested options to
purchase Company Common Stock would vest immediately.

         In fiscal 2000, OnTera entered into an employment agreement with
Vincent D'Onofrio, currently President and Chief Technology Officer, at a
current annual base salary of $225,000; in addition, he is eligible for a bonus
of up to 40% of his annual base salary, upon the achievement of specified
performance targets. Annual base salary and bonus percentage may be increased,
but not decreased, by the OnTera board of directors.

         Pursuant to the OnTera employment agreement, employment may be
terminated by OnTera with Cause (as defined in the agreements) or by Mr.
D'Onofrio with or without good reason (as defined in the agreements).
Termination of employment by OnTera without Cause, or by Mr. D'Onofrio with good
reason would entitle the executive to severance in the amount of executive's
then annual base salary, plus a pro rata portion of the bonus that would be
payable in the year of termination. In the event of a termination of employment
by OnTera with Cause, the Mr. D'Onofrio is entitled to receive all base salary
through the date of termination. All unvested options lapse. In the event of a
voluntary termination of employment by the executive, the executive is entitled
to receive her or his annual base salary through the date of termination and be
eligible for a pro rata portion of any bonus.

THE 1994 STOCK OPTION PLAN

         On October 17, 1994, the Board of Directors adopted, and the
stockholders subsequently approved and amended, the 1994 Stock Option Plan (as
amended, the "1994 Plan") pursuant to which officers, directors, employees and
consultants of the Corporation and its affiliates are eligible to be granted
stock option awards ("Awards"). Stockholders approved the amendments to the 1994
Plan at the 1998 Annual Meeting of Stockholders. On April 13, 2000, the
Company's Board of Directors approved an amendment to the 1994 Plan providing
that for all Awards granted under the 1994 Plan from and after April 13, 2000,
the Compensation Committee shall determine the definition of "Change of Control"
and the treatment of such Awards upon a Change of Control, in the Committee's
sole and absolute discretion. This amendment does not require stockholder
approval. The 1994 Plan is currently being administered by the Compensation
Committee, which has the authority to grant awards, including Stock Options,
Stock Appreciation Rights, Restricted Stock, or any combination of the
foregoing, and to determine the terms and conditions of the Awards.

         Options under the 1994 Plan generally shall be exercisable for a term
fixed by the Compensation Committee, not to exceed 10 years from date of grant,
unless any such options are terminated earlier


                                       27
<PAGE>

pursuant to the terms of the 1994 Plan. The total number of shares of Company
Common Stock presently reserved for such Awards and available for distribution
under the 1994 Plan is 3,500,000. As of June 30, 2001, 3,218,225 options were
outstanding under the 1994 Plan. The outstanding options have exercise prices
ranging from $0.75 to $10.25 per share. No stock options were exercised by any
executive officer during fiscal 2001.

401(K) PLAN

         The Company maintains a retirement savings plan, effective as of
January 1995, in which eligible employees of the Company may elect to
participate. The plan is an individual account plan providing for deferred
compensation as defined in Section 401(k) of the Internal Revenue Code, and is
subject to, and intended to comply with, the Employee Retirement Income Security
Act of 1974. Each eligible employee is permitted to defer receipt of up to 15%
of eligible compensation, subject to maximum statutory limits and
nondiscrimination testing prescribed by the Internal Revenue Code. The Company
may, in its discretion, match employee deferrals in cash of DualStar stock, or
make discretionary profit sharing plan contributions in cash or DualStar stock,
subject to current IRS limits and nondiscrimination testing. For the year ended
June 30, 2001, DualStar made no contribution to the plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         No Compensation Committee interlock relationship existed during the
fiscal year ended June 30, 2001.














                                       28
<PAGE>

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information with respect to beneficial
ownership of DualStar Common Stock as of September 18, 2001 by each stockholder
of the Company who, based on public filings, is known to the Company to be the
beneficial owner of more than 5% of DualStar Common Stock.

<TABLE>
<CAPTION>
            NAME AND ADDRESS OF             AMOUNT AND NATURE OF
             BENEFICIAL OWNER               BENEFICIAL OWNERSHIP    PERCENT OF CLASS
   -------------------------------------- ------------------------- -----------------
   <S>                                    <C>                       <C>
   Technology Investors Group, LLC
   25 Coligni Avenue
   New Rochelle, NY 10801                        1,791,000               10.9%
</TABLE>

         The following table sets forth certain information with respect to
beneficial ownership of DualStar Common Stock as of September 18, 2001 by all
directors and all Named Executives identified in the Summary Compensation Table
above in "Item 11. Executive Compensation," individually, and by all directors
and all executive officers of DualStar as a group.

                                      AMOUNT AND NATURE OF     PERCENT OF
          BENEFICIAL OWNER            BENEFICIAL OWNERSHIP       CLASS
------------------------------------- ---------------------- ---------------

Gregory Cuneo                                 515,000(1)           2.6%
Jared E. Abbruzzese                                --                *
Raymond Steele                                115,000(2)             *
Robert Birnbach                               669,000(3)           3.4%
Barry Halpern                                 301,000(2)           1.5%
Nicholas Ahel                                 226,000(2)           1.1%
Vincent D'Onofrio                             221,000(2)           1.1%
All directors and executive
officers as a group (10 persons)            3,327,000(4)          16.9%

*     Less than 1%.

(1) Consists of (i) options to purchase 80,000 shares of Company common stock
granted under the Company's 1994 Stock Option Plan, as amended (the "Plan"),
exercisable within 60 days of September 18, 2001 and (ii) 435,000 shares of
Company common stock.
(2) Consists of options granted under the Plan, exercisable within 60 days of
September 18, 2001.
(3) Consists of (i) options to purchase 666,000 shares of Company common stock
granted under the Plan, exercisable within 60 days of September 18, 2001 and
(ii) 3,000 shares of Company common stock.
(4) Consists of (i) options to purchase 2,019,000 shares of Company common stock
granted under the Plan, exercisable within 60 days of September 18, 2001, and
(ii) 1,308,000 shares of Company common stock.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     (a) The Company's mechanical contracting business leases shop space, on a
month-to-month basis, from a company in which certain officers own a majority
interest. No written lease agreement is signed. Rent expense for the years ended
June 30, 2001, 2000 and 1999 was $46,000, $34,000 and $46,000, respectively.

     (b) The Company's communications business sublets office space in New York,
NY from Starrett Corporation (of which the Company's president and CEO is
(non-director) chairman and the Company's CFO was director, president and CEO
until November 2000). Starrett had billed OnTera $16,340 for office improvements
associated with the property in fiscal 2000. Rent expense for the year ended
June 30, 2001 was $99,000.


                                       29
<PAGE>

     (c) TechOne Capital Group LLC ("TechOne"), a private consulting and
investment firm of which Jared E. Abbruzzese, a director of the Company, is a
principal, has provided consulting services to the Company since August 12,
1999, pursuant to letter agreements dated August 12, 1999 and March 24, 2000.
Currently, the Company is a party to a consulting agreement dated June 1, 2000
with TechOne. The consulting fee payable under the consulting agreement is
$30,000 per month, plus reimbursement of expenses. The consulting agreement
provides, among other things, that other than termination as a result of a
material breach by TechOne, the Company may terminate this consulting agreement
only by giving written notice to TechOne of the Company's intention to terminate
this consulting agreement accompanied by payment of (i) all unpaid amounts due
hereunder from the Company to TechOne for the consulting services rendered
through the date of termination, plus all reimbursable amounts for which TechOne
has delivered to the Company an invoice on or before the termination date, (ii)
$25,000, which will be used by TechOne for reimbursable expenses incurred prior
to the termination date and not yet invoiced, and (iii) an amount equal to the
product of $30,000 times the greater of (A) the number of months remaining in
the 3-year term thereof, and (B) 24. For the year ended June 30, 2001 and 2000,
consulting expense in connection with the agreement was $360,000 and $180,000,
respectively.

     Subject to stockholder approval and other conditions, Class D Warrants to
purchase 750,000 shares of Company Common Stock were granted to TechOne on April
13, 2000. The Class D Warrants are exercisable for $4.063 per share and vest and
become fully exercisable when the 30-day average closing price of the Company
Common Stock has been at or above $14.00, and a material third party acquisition
or merger, material equity investment in the Company or joint venture or other
material third party transaction having a substantially similar economic effect
as the foregoing has been effected (excluding, in each instance, the
transactions contemplated by the Blackacre Securities Purchase Agreement).
Additionally, regardless of the vesting requirement discussed above, the Class D
Warrants vest and become fully exercisable upon a change of control regardless
of the satisfaction of the vesting requirements set forth above (excluding the
transactions contemplated by the Blackacre Securities Purchase Agreement). The
Warrants will expire on the seventh anniversary of issuance. The Company has no
present plan to hold a stockholder meeting for the purpose of seeking
stockholder approval for the Class D Warrants.

     (d) The Company is a party to a consulting agreement dated June 1, 2000
with Hades Advisors LLC, an affiliate of TIG. The consulting fee payable under
the consulting agreement is $20,000 per month, plus reimbursement of expenses.
The consulting agreement provides that other than termination as a result of a
material breach by Hades, the Company may terminate this consulting agreement
only by giving written notice to Hades of the Company's intention to terminate
this consulting agreement accompanied by payment of (i) all unpaid amounts due
hereunder from the Company to Hades for the consulting services (as defined
therein) rendered through the date of termination, plus all reimbursable amounts
for which Hades has delivered to the Company an invoice on or before the
termination date, (ii) $25,000, which will be used by Hades for reimbursable
expenses incurred prior to the termination date and not yet invoiced, and (iii)
an amount equal to the product of $20,000 times the greater of (A) the number of
months remaining in the 3-year term thereof, and (B) 24. For the year ended June
30, 2001 and 2000, consulting expense in connection with the agreement was
$240,000 and $20,000, respectively.

     (e) Subject to stockholder approval and other conditions, Class D Warrants
to purchase 625,000 shares of Company Common Stock were granted to TIG on April
13, 2000, on the same terms and conditions discussed above in paragraph (c). The
Company has no present plan to hold a stockholder meeting for the purpose of
seeking stockholder approval for the Class D Warrants.

     (f) The Company's electrical contracting subsidiary obtained consulting
services from M & E Advisors, LLC, an affiliate of TIG. For the year ended June
30, 2001, consulting fee for the services was $170,000.

     (g) At June 30, 2001, the Company had loans to two officers in the amounts
of $96,000 and $60,000, respectively:


                                       30
<PAGE>

         (i) An original loan of $171,000 was due on demand, with an unstated
         interest rate. In September 2000, the loan amount was reduced by
         $75,000 to offset bonuses earned by the officer in the prior periods
         and a promissory note was signed by the officer for the remaining loan
         balance of $96,000. The note bears interest rate of 7.75% per annum and
         is due in August 2006. In addition, the officer provided all stock
         options granted to the officer by the Company as the collateral and
         security of the note.

         (ii) The $60,000 loan is due on demand, with an interest rate of 7.75%
         per annum. The officer had also borrowed $350,000 from the Company in
         June 2001 and repaid the loan with interest in June 2001. In addition,
         the officer had purchased various services from the Company totaling
         $134,000 during fiscal 2001, of which $84,000 has been paid through
         September 2001.

     (h) ParaComm, Inc. purchases various marketing and business consulting
services from two companies, which ParaComm's former president, who resigned in
May 2001, holds equity interests. For the year ended June 30, 2001,
approximately $45,000 of expense was incurred for the services provided by these
two companies. For the period from May 11, 2000, the date the Company acquired
ParaComm, to June 30, 2000, approximately $12,000 of expense was incurred for
the services provided by these two companies.

     (i) On October 26, 1999, CMA borrowed $1 million from TIG. The loan was
evidenced by a promissory note made by CMA in favor of TIG, providing for
interest at a per annum rate of 10% and a maturity date of December 15, 1999.
The loan was guaranteed by DualStar and collateralized by certain of DualStar's
assets. The promissory note was paid in full in December 1999 from the proceeds
of the Madeleine Bridge Loan.

     (j) For the fiscal years ended June 30, 2001 and 2000, approximately 2.0%
and 16% of the Company's total revenues were derived from HRH Construction
Corp., respectively. DualStar's President and Chief Executive Officer is also
the President and Chief Executive Officer of HRH Construction Corp.

     In addition, DualStar's President and Chief Executive Officer is
(non-Director) Chairman of Starrett Corporation, which is an affiliate of HRH
Construction Corp. Mr. Cuneo is compensated as Chairman of Starrett under a
consulting agreement between Starrett Corporation and Starrett Consulting,
L.L.C. (of which Mr. Cuneo is a 50% member). The remaining interest in Starrett
Consulting, L.L.C. is held by Mr. Brad Singer, a member of TIG. In exchange for
various services, including management services, Starrett Consulting, L.L.C.
receives an annual fee of $750,000 in equal monthly installments, plus an
additional fee may be earned in certain circumstances. (Mr. Brad Singer, a 25%
member of TIG, is also an independent contractor for HRH Construction Corp.
Hades Advisors, LLC may be deemed an affiliate of TIG.) DualStar's Executive
Vice President and Chief Financial Officer was Director, President and Chief
Executive Officer of Starrett Corporation. Since these two DualStar officers
became officers of HRH Construction Corp. and/or Starrett Corporation, DualStar
has been awarded one new contract in the amount of approximately $1.0 million
from HRH Construction Corp.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)      DOCUMENTS FILED AS PART OF THIS REPORT:

         1.  Financial Statements and Financial Statement Schedules

         See the Index to Financial Statements appearing on page F-1 of this
Report following this Item 14. No financial statement schedules are included in
this Report.

         2.  Exhibits

         Set forth below is a list of exhibits being filed with this Report.



                                       31
<PAGE>

Exhibit No. and Description in the Exhibit List for this Report

<TABLE>
<CAPTION>
NUMBER                              TITLE
------                              -----
<S>     <C>
 2.1     Securities Purchase Agreement dated as of March 28, 2000 by and among the Registrant,
         Cereberus Capital Management, L.P. and Blackacre Capital Management, L.L.C. (2)
 2.2     Stock Purchase Agreement dated as of March 28, 2000 between the Registrant and M/E
         Contracting Corp.  (2)
 2.3     Agreement and Plan of Merger dated as of May 11, 2000 between the Registrant, DCI
         Acquisition Co. and ParaComm, Inc. (2)
 2.4     Securities Purchase Agreement dated as of November 8, 2000 by and among Registrant,
         DSTR Warrant Co., LLC and Madeleine L.L.C. (4)
 3.1     Certificate of Incorporation, filed June 14, 1994, as restated. (1)
 3.2     Amended and Restated Bylaws. (2)
 4.1     Specimen Copy of Common Stock Certificate. (1)
 4.2     DualStar Technologies Corporation 1994 Stock Option Plan, as amended. (1)
 4.3     1994 Stock Option Plan Amendment. (3)
 10.1    Employment Agreement between the Registrant and Gregory Cuneo, dated August 31, 1994.
         (1)
 10.2    Employment Agreement between the Registrant and Stephen J. Yager, dated August 31,
         1994. (1)
 10.3    Employment Agreement between the Registrant and Ronald Fregara, dated August 31,
         1994. (1)
 10.4    Employment Agreement between the Registrant and Robert J. Birnbach dated June 7,
         2000. (3)
 10.5    Employment Agreement between the Registrant and Nicholas Ahel dated June 1, 2000. (3)
 10.6    Employment Agreement between the Registrant and Barry Halpern dated June 1, 2000. (3)
 10.5    Second Amended and Restated Note, having an original issued dated as of December 1,
         1999, made by Registrant in favor of Madeleine L.L.C. (5)
 10.6    Stockholders Agreement dated March 28, 2000 among DualStar Technologies Corporation,
         Blackacre Capital Management L.L.C., Cerberus Capital Management, L.P., Gregory Cuneo
         and Robert J. Birnbach. (2)
 10.7    Stockholders Agreement dated as of November 8, 2000 by and among Registrant, DSTR
         Warrant Co., LLC, Technology Investors Group, LLC and certain members of Registrant's
         management. (5)
 10.8    Class E Warrant Agreement dated as of November 8, 2000 by and between Registrant and
         DSTR Warrant Co., LLC. (4)
 10.9    Registration Rights Agreement dated as of November 8, 2000 by and among Registrant,
         DSTR Warrant Co., LLC and Technology Investors Group, LLC. (5)
 10.10   Master Surety Agreement dated November 3, 1997 by the Company and its subsidiaries in
         favor of United States Fidelity and Guaranty Company, Fidelity and Guaranty Insurance
         Company, Fidelity and Guaranty Insurance Underwriters, Inc. (3)
 10.11   Registration Rights and Lock-Up Agreement dated as of May 10, 2000 by and among the
         Company and the former ParaComm stockholders.(3)
 10.12   Voting Agreement dated as of May 10, 2000 by and among the Company, Donald Johnson,
         Mark Mayhook and Geneva Associates Merchant  Banking Partners I, LLC. (3)
 10.13   Consulting Agreement dated as of June 1, 2000 between the Company and TechOne. (3)
 10.14   Consulting Agreement dated as of June 1, 2000 between the Company and Hades Advisors,
         LLC. (3)
 21.1    Subsidiaries of the Registrant.
 23.1    Consent of Grant Thornton LLP.
 27.1    Financial Data Schedule (electronic filings only).
</TABLE>




                                       32

<PAGE>


----------
(1) Incorporated herein by reference to Registrant's Registration Statement on
    Form S-1, File No. 33-83722, ordered effective by the Securities and
    Exchange Commission on February 13, 1995.

(2) Incorporated herein by reference to Registrant's Quarterly Report on Form
    10-Q (File No. 0-25552) for the quarter ended March 31, 2000.

(3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
    (File No. 0-25552) for the period ended June 30, 2000.

(4) Incorporated herein by reference to Registrant's Form 13D filed by Stephen
    Feinberg on November 21, 2000.

(5) Incorporated herein by reference to Registrant's Quarterly Report on Form
    10-Q (File No. 0-25552) for the quarter ended December 31, 2000.


(B)      REPORTS ON FORM 8-K

          NO CURRENT REPORTS ON FORM 8-K WERE FILED DURING THE LAST QUARTER OF
THE PERIOD COVERED BY THIS REPORT.

(C)      EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K

         The exhibits listed under (a)(2) of this Item 14 are filed with this
Report.


(D)      FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X WHICH ARE
EXCLUDED FROM THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED JUNE 30, 2001

         None.





                                       33
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS


                                                                PAGE

Report of Independent Certified Public Accountants               F-2
Financial Statements
   Consolidated Balance Sheets                                   F-3
   Consolidated Statements of Operations                         F-4
   Consolidated Statement of Shareholders' Equity             F-5 - F-6
   Consolidated Statements of Cash Flows                      F-7 - F-9
   Notes to Consolidated Financial Statements                F-10 - F-36



                                       F-1



<PAGE>

                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS




         Board of Directors and Shareholders
         DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES


         We have audited the accompanying consolidated balance sheets of
         DualStar Technologies Corporation and Subsidiaries as of June 30, 2001
         and 2000, and the related consolidated statements of operations,
         shareholders' equity and cash flows for each of the three years in the
         period ended June 30, 2001. These financial statements are the
         responsibility of the Company's management. Our responsibility is to
         express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
         accepted in the United States of America. Those standards require that
         we plan and perform the audits to obtain reasonable assurance about
         whether the financial statements are free of material misstatement. An
         audit includes examining, on a test basis, evidence supporting the
         amounts and disclosures in the financial statements. An audit also
         includes assessing the accounting principles used and significant
         estimates made by management, as well as evaluating the overall
         financial statement presentation. We believe that our audits provide a
         reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
         fairly, in all material respects, the consolidated financial position
         of DualStar Technologies Corporation and Subsidiaries as of June 30,
         2001 and 2000 and the consolidated results of their operations and
         their consolidated cash flows for each of the three years in the period
         ended June 30, 2001, in conformity with accounting standards generally
         accepted in the United States of America.




         GRANT THORNTON LLP


         New York, New York
         September 28, 2001



                                       F-2
<PAGE>


<TABLE>
<CAPTION>
               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                                                                      June 30,
                                                                                       -----------------------------------------
                                                                                              2001                 2000
                                                                                          -------------        --------
                                       ASSETS
<S>                                                                                          <C>                 <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                                  $3,711,287          $14,800,310
  Accounts receivable - net of allowance for doubtful accounts of
     $586,000 and $646,000 in 2001 and 2000, respectively                                    23,761,367           23,864,625
  Retainage receivable                                                                        3,926,902            6,690,023
  Costs and estimated earnings in excess of billings on uncompleted contracts                 1,236,557            2,095,711
  Deferred tax asset                                                                            377,000              178,000
  Prepaid expenses and other current assets                                                   1,278,469              649,217
                                                                                       -------------------- --------------------
         TOTAL CURRENT ASSETS                                                                34,291,582           48,277,886

Property and equipment - net of accumulated depreciation and amortization                     7,621,297            5,803,757
Other Assets:
  Deferred tax asset                                                                            699,000            1,574,000
  Intangible assets - net of accumulated amortization                                           365,219            2,056,036
  Other                                                                                         595,883              688,731
                                                                                       -------------------- --------------------
            TOTAL ASSETS                                                                    $43,572,981          $58,400,410
                                                                                       ==================== ====================

                        LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                                          $12,437,911          $17,074,725
  Billings in excess of costs and estimated earnings on uncompleted contracts                 3,572,160            3,989,801
  Accrued expenses and other current liabilities                                              4,445,041            3,809,745
  Promissory note payable                                                                             -            7,000,000
                                                                                       -------------------- --------------------
         TOTAL CURRENT LIABILITIES                                                           20,455,112           31,874,271

Senior secured promissory note payable                                                       12,500,000                    -
Mortgage payable - net of current portion                                                     1,691,744            1,715,948
Other liabilities                                                                               148,613              205,112
                                                                                       -------------------- --------------------
            TOTAL LIABILITIES                                                                34,795,469           33,795,331
                                                                                       -------------------- --------------------

Commitments and contingencies

SHAREHOLDERS' EQUITY:
  Common stock - par value, $.01 per share; 25,000,000 shares authorized; 16,501,568
    and 16,476,568 shares issued and outstanding in 2001 and 2000, respectively                 165,016              164,766
  Additional paid-in capital                                                                 41,575,421           42,613,550
  Accumulated deficit                                                                       (32,760,425)         (17,047,237)
  Other comprehensive loss                                                                     (202,500)                   -
  Deferred compensation                                                                               -           (1,126,000)
                                                                                       -------------------- --------------------
          TOTAL SHAREHOLDERS' EQUITY                                                          8,777,512           24,605,079
                                                                                       -------------------- --------------------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $43,572,981          $58,400,410
                                                                                       ==================== ====================
</TABLE>


The accompanying notes are an integral part of these statements.



                                       F-3
<PAGE>

<TABLE>
<CAPTION>
               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                              Years ended June 30,

                                                                             2001                 2000               1999
                                                                         -------------        -------------      --------------

<S>                                                                       <C>                  <C>                 <C>
Revenues earned                                                           $83,217,978          $87,284,513         $92,649,578
Costs of revenues earned, excluding depreciation and
  amortization of $1,236,652, $437,996 and $141,302 in 2001,
  2000 and 1999, respectively                                              73,946,373           80,305,881          81,750,668
                                                                   -------------------- ------------------- -------------------

Gross profit                                                                9,271,605            6,978,632          10,898,910
                                                                   -------------------- ------------------- -------------------
Operating expenses:
  General and administrative expenses, excluding amortization
    of deferred compensation of $637,428 in 2000, and
    depreciation and amortization of
    $977,810, $427,617 and $211,313 in 2001,
    2000 and 1999, respectively                                            20,043,044           13,049,411           9,191,860
  Depreciation and amortization                                             2,214,462            1,047,323             561,261
  Amortization of deferred compensation                                             -              637,428                   -
  Impairment of fixed and intangible assets                                 1,190,000              300,000                   -
                                                                   -------------------- ------------------- -------------------
Total operating expenses                                                   23,447,506           15,034,162           9,753,121
                                                                   -------------------- ------------------- -------------------

Operating (loss) income                                                   (14,175,901)          (8,055,530)          1,145,789
Other (income) expense:
  Interest income                                                            (578,484)            (264,580)                  -
  Interest expense                                                          1,364,984              791,868             442,541
                                                                   -------------------- ------------------- -------------------
Other expense - net                                                           786,500              527,288             442,541
                                                                   -------------------- ------------------- -------------------

(Loss) income before provision
  (benefit) for income taxes                                              (14,962,401)          (8,582,818)            703,248

Provision (benefit) for income taxes
    Current tax provision                                                      74,787               68,000              31,000
    Deferred tax provision (benefit)                                          676,000                    -            (650,000)
                                                                   -------------------- ------------------- -------------------

Net (loss) income                                                        $(15,713,188)         $(8,650,818)         $1,322,248
                                                                   ==================== =================== ===================

Basic (loss) income per share:
   Net (loss) income per share                                                 $(0.95)              $(0.67)              $0.15
   Weighted average shares outstanding                                     16,497,255           12,824,121           9,000,000

Diluted (loss) income per share:
   Net (loss) income per share                                                 $(0.95)              $(0.67)              $0.13
   Weighted average shares outstanding                                     16,497,255           12,824,121          10,993,860
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                    Years ended June 30, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                      Additional
                                             Common Stock               paid-in          Accumulated         Deferred
                                        Shares         Amount           Capital             Deficit        Compensation
                                        ------         -------          -------             -------        ------------

<S>                                     <C>              <C>           <C>               <C>                <C>
Balance - June 30, 1998                 9,000,000        $90,000       $14,995,836       $(9,718,667)               -

Net income for the year ended June
  30, 1999                                      -              -                 -          1,322,248               -
                                     -------------- -------------- ------------------ ------------------ -----------------

Balance - June 30, 1999                 9,000,000         90,000        14,995,836         (8,396,419)              -

Net loss for the year ended June
  30, 2000                                      -              -                 -         (8,650,818)              -
Exercise of Class A warrants            4,510,571         45,106        17,997,178                  -               -
Exercise of Underwriter unit option       400,000          4,000         2,306,000                  -               -
Conversion of convertible note          1,791,000         17,910         2,455,419                  -               -
Costs in connection with                        -              -           (21,824)                 -               -
Issuance of common stock and              774,997          7,750         3,117,513                  -               -
Issuance of compensatory stock
  options                                       -              -         1,763,428                  -     $(1,126,000)
                                     -------------- -------------- ------------------ ------------------ -----------------

Balance - June 30, 2000                16,476,568       $164,766       $42,613,550      $ (17,047,237)    $(1,126,000)
<CAPTION>


                                          Other
                                      Comprehensive
                                          Loss               Total
                                          ----               -----

<S>                                      <C>              <C>
Balance - June 30, 1998                                   $5,367,169

Net income for the year ended June
  30, 1999                                                 1,322,248
                                   -------------------- -----------------

Balance - June 30, 1999                       -            6,689,417

Net loss for the year ended June
  30, 2000                                                (8,650,818)
Exercise of Class A warrants                              18,042,284
Exercise of Underwriter unit option                        2,310,000
Conversion of convertible note                             2,473,329
Costs in connection with                                     (21,824)
Issuance of common stock and                               3,125,263
Issuance of compensatory stock
  options                                                    637,428
                                   -------------------- -----------------

Balance - June 30, 2000                       -          $24,605,079
</TABLE>


                                      F-5
<PAGE>



<TABLE>
<CAPTION>
                                                                          DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                                                                       CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)

                                                                                 Years ended June 30, 2001, 2000 and 1999


                                                                      Additional
                                             Common Stock               paid-in          Accumulated         Deferred
                                        Shares         Amount           Capital             Deficit        Compensation
                                        ------         -------          -------             -------        ------------

<S>                                     <C>              <C>            <C>              <C>                 <C>
Balance - June 30, 2000                 16,476,568       $164,766       $42,613,550      $(17,047,237)       $(1,126,000)
Net loss for the year ended June
  30, 2001                                                                                (15,713,188)
Issuance of common stock and                25,000            250            87,871
Reversal of deferred compensation                                        (1,126,000)                           1,126,000
Unrealized loss on marketable
  securities
                                     -------------- -------------- ------------------ ------------------ -----------------

Balance - June 30, 2001                 16,501,568       $165,016       $41,575,421      $(32,760,425)                 -
                                     ============== ============== ================== ================== =================
<CAPTION>

                                         Other
                                     Comprehensive
                                         Loss               Total
                                         ----               -----

<S>                                     <C>                <C>
Balance - June 30, 2000                         -          $24,605,079
Net loss for the year ended June
  30, 2001                                                 (15,713,188)
Issuance of common stock and                                    88,121
Reversal of deferred compensation                                    -
Unrealized loss on marketable
  securities                              $(202,500)          (202,500)
                                  -------------------- -----------------

Balance - June 30, 2001                   $(202,500)        $8,777,512
                                  ==================== =================
</TABLE>

The accompanying notes are an integral part of this statement.



                                      F-6
<PAGE>




               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                              Years ended June 30,


<TABLE>
<CAPTION>
                                                                              2001               2000               1999
                                                                              ----               ----               ----


Cash flows from operating activities:
<S>                                                                         <C>                  <C>                 <C>
  Net (loss) income                                                         $(15,713,188)        $(8,650,818)        $1,322,248
  Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities
     Depreciation and amortization                                             2,214,462           1,047,323            561,261
     Deferred income taxes                                                       676,000                   -           (650,000)
     Accrued interest  converted to common stock                                       -             124,385                  -
     Impairment of fixed and intangible assets                                 1,190,000             300,000                  -
     Amortization of deferred compensation                                             -             637,428                  -
        (Increase) decrease in assets, net of assets acquired
            Accounts receivable                                                  103,258            (132,986)        (4,332,198)
            Retainage receivable                                               2,763,121            (545,435)        (1,638,949)
            Costs and estimated earnings in excess of billings on
           uncompleted contracts                                                 859,154            (735,299)           147,059
            Prepaid expenses and other current assets                            111,664            (254,753)           124,012
            Other assets                                                         (65,544)           (606,395)           189,396
         Increase (decrease) in liabilities, net of liabilities
           Accounts payable                                                   (4,636,817)         (4,309,577)         1,966,591
           Billings in excess of costs and estimated earnings on
           uncompleted contracts                                                (417,641)            994,805           (887,801)
           Accrued expenses and other current liabilities                        174,637               9,006           (663,757)
                                                                       ------------------- ------------------ ------------------

Net cash used in operating activities of continuing operations               (12,740,894)        (12,122,316)        (3,862,138)
                                                                       ------------------- ------------------ ------------------

Cash flows from investing activities:
   Capital expenditures                                                       (2,667,323)         (1,020,434)          (265,851)
    Purchase of marketable securities                                           (892,500)                  -                  -
    ParaComm, Inc.'s cash at purchase date                                             -             264,853                  -
   Costs in connection with purchase of ParaComm, Inc.                                 -             (54,984)                 -
                                                                       ------------------- ------------------ ------------------

    Net cash used in investing activities                                    $(3,559,823)          $(810,565)         $(265,851)
                                                                       ------------------- ------------------ ------------------
</TABLE>




                                      F-7
<PAGE>


               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                              Years ended June 30,


<TABLE>
<CAPTION>
                                                                              2001               2000               1999
                                                                              ----               ----               ----

<S>                                                                            <C>                 <C>                  <C>
Cash flows from financing activities
   Proceeds from senior secured promissory note payable                        $5,500,000          $7,000,000                  -
   Principal payments of loan and lease payables                                 (268,226)         (1,150,431)          $(95,494)
   Principal payment of mortgage payable                                          (20,080)            (27,084)           (48,750)
   Exercise of Class A warrants and underwriter unit option                             -          20,352,285                  -
   Net proceeds  from refinancing of mortgage payable                                   -             996,250                  -
   Costs in connection with conversion of convertible note                              -             (21,824)                 -
   Proceeds from subordinated convertible note                                          -                   -          2,500,000
   Proceeds from subordinated note                                                      -                   -          1,000,000
                                                                       ------------------- ------------------ ------------------

   Net cash provided by financing activities                                    5,211,694          27,149,196          3,355,756
                                                                       ------------------- ------------------ ------------------

Net (decrease) increase in cash and cash equivalents                          (11,089,023)         14,216,315           (772,233)

Cash and cash equivalent at beginning of year                                  14,800,310             583,995          1,356,228
                                                                       ------------------- ------------------ ------------------

Cash and cash equivalents at end of year                                       $3,711,287         $14,800,310           $583,995
                                                                       =================== ================== ==================

Supplemental disclosures of cash flow information:
   Cash paid during the year for
      Interest                                                                   $641,038            $719,449           $330,757
      Income taxes                                                                 71,503              87,986             14,910
</TABLE>


Non-cash investing and financing transactions:

     (1) In connection with an agreement in exchange for access rights, the
     Company issued 25,000 shares of Company common stock and warrants to
     purchase 2,676 shares of Company common stock in the year ended June 30,
     2001. The warrants are non-forfeitable, fully vested and immediately
     exercisable at a price of $4.446 per share. Accordingly, the Company's
     common stock was increased by $250 and additional paid-in capital was
     increased by $87,871.

     (2) In November 2000, the Company sold to Madeleine L.L.C. a $12.5 million
     senior secured promissory note. The note, due and payable on November 8,
     2007, bears interest at a fixed rate of 11% per annum. A portion of the
     proceeds was used to retire existing indebtedness of the Company in the
     principal amount of $7.0 million owed to Madeleine L.L.C.



                                      F-8
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                            Years ended June 30, 2001

Non-cash investing and financing transactions:

     (3) In August 1996, the Company acquired real property which was financed
     by a $900,000 mortgage loan. In November 1999, the Company refinanced the
     mortgage loan and increased the loan balance to $1,750,000. The unpaid
     balance of $754,044 of the original mortgage loan was paid off from the
     proceeds of the refinancing.

     (4) The Company acquired equipment related to the delivery of
     communications services which was financed by a note in the amount of
     $668,265 in the year ended June 30, 2001. The Company acquired equipment
     related to the delivery of Internet access which was financed by capital
     leases in the total amount of $193,546 and $156,792 during the fiscal years
     ended June 30, 2000 and 1999, respectively.

     (5) In May 2000, the Company issued 774,997 shares of common stock and
     25,000 warrants with an exercise price of $15 per common stock in exchange
     for all of the outstanding stock of ParaComm, Inc. In the transaction, the
     Company acquired total assets of $1,871,740 and assumed total liabilities
     of $572,868. The Company recorded the consideration of the transaction by
     increasing common stock and additional-paid-in capital by $7,750 and
     $3,117,513, respectively. In addition, since the transaction amount
     exceeded the net assets of ParaComm, Inc. on the purchase date, the Company
     allocated the excess to subscriber list, access rights and goodwill in the
     amounts of $1,165,732, $444,875 and $518,978, respectively.

     (6) In July 1999, Technology Investors Group, LLC ("TIG") converted its
     $2.5 million convertible note and a portion of unpaid interest into
     1,791,000 shares of the Company's common stock at the conversion price of
     $1.40 per share. In addition, the Company issued a promissory note in the
     amount of $120,000 representing the remaining indebtedness to TIG. In
     connection with the conversion, the Company incurred costs of $41,471 which
     have been charged to additional paid-in capital. As a result of the
     transaction, the Company's common stock (in par value) was increased by
     $17,910 and additional paid-in capital was increased by $2,455,419.

     (7) In March 2000, options to purchase 617,500 shares of the Company's
     common stock were granted to employees with an exercise price lower than
     the closing price of the Company stock. One-third of the options vested at
     the date of the grants and the remaining two-thirds would have vested
     ratably on a monthly basis beginning on the last day of each of the 24
     calendar months following March 2001. As a result of the grants, a
     compensation charge of $1,763,428 was incurred, of which $637,428 was
     recognized in the year of grant. Accordingly, additional paid-in capital
     was increased by $1,763,428, deferred compensation was increased by
     $1,126,000, and $637,428 was charged to fiscal 2000 operating result. In
     February 2001, the employees resigned and forfeited the stock options, and
     the unamortized deferred compensation was reversed. Accordingly, both
     additional paid-in capital and deferred compensation were decreased by
     $1,126,000.



The accompanying notes are an integral part of these statements.


                                      F-9
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - COMPANY BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

     Background and Financial Statement Presentation

     DualStar Technologies Corporation ("DualStar") is a holding company which
     was incorporated on June 17, 1994. Effective August 1, 1994, DualStar
     entered into share acquisition agreements with Centrifugal Associates, Inc.
     ("Associates") and Centrifugal Service, Inc. ("Service") (collectively,
     "Centrifugal"), and Mechanical Associates, Inc. ("Mechanical"), whereby
     2,610,000 shares of DualStar were issued to the shareholders of Centrifugal
     and Mechanical in exchange for all of the stock of Centrifugal and
     Mechanical and these companies became wholly owned subsidiaries of
     DualStar. Subsequently, DualStar formed new wholly owned subsidiaries,
     including Centrifugal/Mechanical Associates, Inc., Property Control, Inc.,
     High-Rise Electric, Inc., OnTera, Inc. (formerly known as DualStar
     Communications, Inc.), Integrated Controls Enterprises, Inc. and BMS
     Electric, Inc. In May 2000, the Company issued 774,997 shares of common
     stock and 25,000 warrants with an exercise price of $15 per common stock in
     exchange for all of the outstanding stock of ParaComm, Inc. (see Note P).

     The accompanying financial statements for the years ended June 30, 2001,
     2000 and 1999 reflect the consolidated operations of DualStar Technologies
     Corporation and subsidiaries (collectively the "Company"). All significant
     intercompany accounts and transactions have been eliminated in
     consolidation.

     DualStar, through its wholly owned subsidiaries, operates two separate
     lines of business: (a) construction businesses; and (b) communications
     businesses. Due to significantly increased demand for high-speed data
     access fueled by the explosive growth of the Internet, DualStar had
     previously announced its intention to expand its communications businesses
     aggressively. Specifically, DualStar had sought to become principally an
     access provider of broadband communications services to residential and
     commercial properties. The expansion would have required significant
     capital expenditures to construct and operate the infrastructure necessary
     to provide access services for broadband communications services, and to
     acquire access rights to provide such services in residential and
     commercial buildings. However, as a result of the limited availability of
     capital and a significant change in market conditions, in December 2000 the
     Company's board of directors adopted a plan to refocus its communications
     business efforts by concentrating on core communications assets located in
     the New York City and Los Angeles areas and by operating subscription video
     provider, ParaComm Inc (as defined herein). In connection with this effort,
     the Company's communications subsidiaries have implemented and will
     continue to implement cost reductions, including reductions in personnel,
     infrastructure and capital expenditures.



                                      F-10
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A (CONTINUED)

     In connection with DualStar's prior plan to expand its communications
     businesses, the DualStar board of directors had determined to divest most
     of DualStar's construction-related businesses, and, in March 2000, had
     entered into a stock purchase agreement (the "M/E Agreement") with M/E
     Contracting Corp. ("M/E"), an affiliate of Blackacre Capital Management
     L.L.C. ("Blackacre"). Under the M/E Agreement, DualStar would have sold
     High-Rise, Centrifugal and Mechanical (as defined herein) to M/E, subject
     to the approval of DualStar's stockholders and the consummation of a
     previously-announced $46.2 million investment by Blackacre (which
     investment was replaced by a $12.5 million loan from Blackacre's affiliate,
     Madeleine L.L.C., to DualStar in November 2000). However, because of the
     refocus of its communications business expansion efforts, in January 2001,
     the Company's board of directors determined not to divest those
     construction-related businesses and determined to terminate and not seek
     stockholder approval of the M/E Agreement. Under the M/E Agreement, the
     Company could be liable for a $1 million "break-up" or termination fee if,
     within six months from the termination of the M/E Agreement, there is a 50%
     change of control (as defined in the M/E Agreement) or, if within one year
     of such termination, the construction-related businesses' assets or stock
     are sold to another party.

     In addition, on June 15, 2000, the Company announced that it had entered
     into letters of intent with Exelon Capital Partners, Inc. ("Exelon") and
     Blackacre Capital Management L.L.C. ("Blackacre") with respect to an
     investment by both parties in newly-created preferred stock of the Company.
     Under the letter of intent with Exelon, subject to definitive
     documentation, stockholder and regulatory approval, Exelon would make a $55
     million preferred stock investment in the Company. Blackacre's letter of
     intent contemplated a $20 million preferred stock investment in the
     Company, and further contemplated that if the Exelon transaction did not
     close, that Blackacre would lend $20 million to the Company on a senior
     secured basis, which loan would be convertible into DualStar common stock
     at the option of Blackacre at the conversion price of $4.00 per share.

     On September 27, 2000, the Company announced that Blackacre had extended
     its commitment to lend the Company $20 million, and that Exelon had
     notified the Company that Exelon had decided not to move forward with their
     proposed preferred stock investment. In November 2000, the Company
     consummated a $12.5 million senior secured loan transaction with Madeleine
     L.L.C. ("Madeleine"), an affiliate of Blackacre Capital Management L.L.C.
     (see Note E(1))

     The Company expects the communications segment will continue to incur
     operating losses going forward. The communications segment has implemented
     and will continue to implement cost reductions to minimize such losses.
     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.
     Should the Company be unable to secure such financing, the Company may have
     to curtail its communications operations.

     On June 13, 2001, DualStar was advised by Nasdaq that the Company's common
     shares had been de-listed from the Nasdaq National Market. The Company's
     common shares now trade on the NASD Over-the-Counter (OTC) Bulletin Board
     and its ticker symbol continues to be DSTR. The decision by the Nasdaq
     Listing Qualifications Panel to de-list DualStar's securities was based on
     the Company's failure to maintain a minimum bid price of $1.00 per share.



                                      F-11
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A (CONTINUED)

     A summary of the significant accounting policies consistently applied in
     the preparation of the accompanying consolidated financial statements
     follows:

     (1) Revenue and Cost Recognition

         Revenues on long-term contracts are accounted for by the
         percentage-of-completion method, whereby revenue is recognized based on
         the estimated percentage of costs incurred to date to the estimated
         total costs of each individual contract. This method is used because
         management considers costs to be the best available measure of progress
         on these contracts. Revenue on service contracts is recorded on the
         accrual basis as services are performed.

         Contract costs include all direct materials, direct labor and other
         indirect costs such as tools, supplies and site office expenses.
         General and administrative costs are charged to expense as incurred.
         Provisions for estimated losses on uncompleted contracts are made in
         the period in which such losses are determined. Changes in job
         performance, job conditions, and estimated profitability, including
         those arising from final contract settlements, may result in revisions
         to costs and income, and such changes are recognized in the period in
         which the revisions are determined. An amount equal to costs incurred
         attributable to pending change orders is included in revenues when
         recovery is probable.

         Communication services revenue includes data, video and voice
         communication and installations services. Data and video are
         subscription based services generally provided to customers under month
         to month contracts. Voice communications include recurring and usage
         based fees. Revenues are recognized in the month in which the services
         are provided. All expenses related to services provided are recognized
         as incurred.

     (2) Use of Estimates in Financial Statements

         In preparing financial statements in conformity with generally accepted
         accounting principles, management makes estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosures
         of contingent assets and liabilities at the date of the financial
         statements, as well as the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

     (3) Fair Value of Financial Instruments

         The carrying amount of cash, marketable securities, contracts and
         retainage receivable, accounts payable and current debt approximates
         fair value, principally because of the short-term maturity of these
         items. The fair value of the Company's long-term debt approximates
         carrying value as the interest rates on the related debt approximate
         the Company's current borrowing rate.


                                      F-12
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A (CONTINUED)

     (4) Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation
         and amortization. Depreciation and amortization are provided for, on a
         straight-line basis, in amounts sufficient to relate the cost of
         depreciable assets to operations over their estimated service lives,
         which range from three to fifteen years.

     (5) Impairment of Long-term Assets

         On an ongoing basis, the Company reviews the valuation and amortization
         of long-term assets. As part of this review, the Company estimates the
         undiscounted future cash flow expected to be generated by the related
         assets to determine whether an impairment has occurred. In the fourth
         quarter of fiscal 2001, the carrying value of intangible assets was
         written down by $1,190,000 as a result of the Company's consideration
         of the estimated undiscounted future cash flow of ParaComm, Inc, a
         communications subsidiary (see Note P). In determining the amount of
         impairment loss, the Company considered the estimated market value of
         the subsidiary's subscriber list, access rights and related equipment.
         In the fourth quarter of fiscal 2000, the carrying value of certain
         communication equipment was written down by $300,000 as a result of the
         Company's anticipated change in strategy of delivering its
         communications services. In determining the amount of the impairment
         loss, the Company considered the present value of the amount that could
         be recovered upon the sale of the assets.

     (6) Intangible Assets

         Subscriber list, access rights and goodwill derived from the purchase
         of ParaComm, Inc. are stated at an estimated value at the closing of
         the purchase less accumulated amortization. Subscriber list,
         capitalized access rights and goodwill were being amortized on a
         straight-line basis over three, five and ten years, respectively (see
         Note A (5)).

     (7) 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 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 years ended June 30, 2001 and 2000, stock options and warrants
         (see Notes E, F, I, K and P) have been excluded from the calculation of
         diluted loss per share as their effect would have been antidilutive. In
         1999, warrants to purchase 4,600,000 shares of common stock were not
         included in the computation of diluted net income per share because the
         exercise price of those warrants was greater than the average market
         price of the common stock.



                                      F-13
<PAGE>

<TABLE>
<CAPTION>
               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A (CONTINUED)

         The weighted average number of shares and earnings (loss) per share for
         the years presented is as follows:
                                                        (LOSS)INCOME               SHARES               PER SHARE
                                                        (NUMERATOR)            (DENOMINATOR)             AMOUNT
                                                     -------------------    ---------------------    ----------------
         <S>                                         <C>                    <C>                      <C>
                 Year Ended June 30, 2001:
         BASIC LOSS PER SHARE
         Net loss                                    $(15,713,188)                16,497,255              $(0.95)
                                                     ----------------------------------------------------------------
         DILUTED LOSS PER SHARE
         Net loss                                    $(15,713,188)                16,497,255              $(0.95)
                                                     ================================================================

                 Year Ended June 30, 2000:
         BASIC LOSS PER SHARE
         Net loss                                      $(8,650,818)               12,824,121              $(0.67)
                                                     ----------------------------------------------------------------
         DILUTED LOSS PER SHARE
         Net loss                                      $(8,650,818)               12,824,121              $(0.67)
                                                     ================================================================

                 Year Ended June 30, 1999:
         BASIC EARNING PER SHARE
         Net income                                     $1,322,248                 9,000,000               $0.15
         EFFECT OF DILUTIVE SECURITIES
         Options                                                                     949,110
         Subordinated convertible note                     112,663                 1,044,750
                                                     ----------------------------------------------------------------
         DILUTED EARNING PER SHARE
         Net income                                     $1,434,911                10,993,860               $0.13
                                                     ================================================================
</TABLE>

     (8) Income Taxes

         The Company files consolidated federal, state and local income tax
         returns. Deferred income taxes are principally the result of net
         operating loss carryforwards and differences related to different bases
         of accounting for financial accounting and tax reporting purposes.

     (9) Cash and Cash Equivalents

         The Company considers its money market funds with an original maturity
         of three months or less to be cash equivalents. At June 30, 2001 and
         2000, the Company has approximately $0.6 million and $13.2 million,
         respectively, in money market funds in the United States which are
         uninsured. The Company has not experienced any losses on these funds
         and believes it is not exposed to any significant credit risk on these
         cash equivalents.




                                      F-14
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A (CONTINUED)

    (10) Reclassification

         In January 2001, the Company's board of directors determined not to
         divest most of DualStar's construction-related businesses. Accordingly,
         the financial position of such businesses as of June 30, 2001 and 2000,
         and their financial results and cash flows for the fiscal years ended
         June 30, 2001, 2000 and 1999 are no longer presented as discontinued
         operations in the accompanying audited consolidated financial
         statements. In addition, certain reclassifications have been made to
         prior year amounts to conform to the June 30, 2001 presentation.

    (11) Other Comprehensive Income (Loss)

         Other comprehensive income (loss) includes unrealized gains and losses
         on marketable securities classified as available-for-sale. The
         marketable securities were acquired in March 2001 for $892,500. As of
         June 30, 2001, the unrealized loss on the Company's available-for-sale
         securities is $202,500 and has been reported as a component of
         shareholders' equity. Comprehensive loss for the year ended June 30,
         2001 is $15,915,688.

NOTE B - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
                                                                                       June 30,
                                                                   --------------------------------------------------
                                                                            2001                       2000
                                                                        -------------            ----------
<S>                                                                         <C>                      <C>
       Compensation                                                         $1,661,634               $1,807,646
       Current portion of mortgage and lease payables                          648,914                  188,253
       Unearned revenues                                                       411,168                   94,446
       Interest                                                                414,527                   36,155
       Professional fees                                                       311,856                  673,577
       Communication taxes payable                                             201,503                  392,958
       Other                                                                   795,439                  616,710
                                                                   ------------------------ ------------------------
                                                                            $4,445,041               $3,809,745
                                                                   ======================== ========================
</TABLE>

NOTE C - INTANGIBLE ASSETS

<TABLE>
<CAPTION>
     Intangible assets consist of the following:
                                                                                       June 30,
                                                                   -------------------------------------------------
                                                                            2001                       2000
                                                                        -------------            ----------

<S>                                                                         <C>                    <C>
       Subscriber list                                                      $683,492               $1,165,732
       Access rights                                                         249,579                  444,875
       Goodwill                                                                 -                     518,978
                                                                   ------------------------ ------------------------
                                                                             933,071                2,129,585
       Less accumulated amortization                                        (567,852)                 (73,549)
                                                                   ------------------------ ------------------------
                                                                            $365,219               $2,056,036
                                                                   ======================== ========================
</TABLE>



                                      F-15
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                          -----------------------------------------------
                                                                                   2001                      2000
                                                                               -------------           ----------

<S>                                                                                <C>                     <C>
       Network infrastructure and equipment                                        $7,596,381              $4,582,488
       Building and building improvements                                           1,596,719               1,596,719
       Computer equipment                                                           1,158,273                 860,941
       Office furniture and equipment                                                 367,322                 265,726
       Automobiles                                                                    282,941                 282,941
       Machinery and equipment                                                        100,898                 100,898
                                                                          ----------------------- -----------------------

                                                                                   11,102,534               7,689,713
       Less accumulated depreciation and amortization                              (3,796,237)             (2,200,956)
                                                                          ----------------------- -----------------------

                                                                                    7,306,297               5,488,757
       Land                                                                           315,000                 315,000
                                                                          ----------------------- -----------------------

                                                                                   $7,621,297              $5,803,757
                                                                          ======================= =======================
</TABLE>

NOTE E - DEBT

     (1) Senior Secured Promissory Note

         On November 8, 2000, the Company consummated a $12.5 million senior
         secured loan transaction with Madeleine, an affiliate of Blackacre. The
         loan, which is due and payable on November 8, 2007, bears interest at a
         fixed rate of 11% per annum. The loan is a senior secured obligation of
         the Company and is guaranteed by certain subsidiaries of the Company,
         including OnTera which have pledged substantially all of their
         respective assets to collateralize such guarantee. In connection with
         the loan, the Company issued warrants to purchase 3,125,000 shares of
         common stock at an exercise price of $4.00 per share, expiring in
         December 2007 and subject to antidilution provisions, to an affiliate
         of Madeleine. A portion of the $12.5 million loan proceeds was used to
         retire existing indebtedness of the Company in the principal amount of
         $7 million owed to Madeleine (see Note E (4)) and to pay expenses of
         obtaining the loan. The remaining proceeds are being used for the
         Company's working capital purposes. No value was allocated to the
         warrants because the value was deemed immaterial.

         Under the terms of the loan agreement between the Company and
         Madeleine, an additional loan of $7.5 million may be made to the
         Company by Madeleine, on the same terms as the $12.5 million loan. This
         additional loan is subject to certain conditions, including, without
         limitation, receipt of approval by the Company's stockholders. The
         nature of the conditions precedent to Madeleine's obligation to make
         the additional loan results in such additional loan being available at
         Madeleine's sole discretion. The Company has no present plan to hold a
         stockholder meeting for the purpose of seeking stockholder approval for
         the additional loan. If Madeleine were to waive the conditions
         precedent and the loan is made, the Company will issue to Madeleine
         additional warrants to purchase 1,875,000 shares of its common stock at
         an exercise price of $4.00 per share. The Company has no assurance that
         Madeleine will waive the conditions precedent to the additional
         funding.




                                      F-16
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E (CONTINUED)


         Since March 2001, the Company has not made regularly scheduled interest
         payments to Madeleine pursuant to the $12.5 million loan agreement. In
         addition, the de-listing of the Company's common shares from the Nasdaq
         National Market created a default under the loan agreement. Madeleine
         has offered to amend the loan agreement to defer the interest payment
         and remove the listing requirement from the loan agreement. The Company
         is currently reviewing the loan amendment language offered by
         Madeleine, and will continue to discuss with Madeleine the terms of the
         amendment.


     (2) Mortgage Payable

         On November 22, 1999, the Company refinanced its mortgage loan,
         borrowing an additional $996,000. The new mortgage loan will expire on
         December 1, 2004 and can be renewed for an additional five years. The
         mortgage loan bears interest at a fixed rate of 8.5% per annum.
         Interest during the renewal term will be paid at a fixed rate per annum
         equal to the prime rate in effect on November 1, 2004. Principal of the
         loan is amortized on a 25-year basis. As of June 30, 2001, the mortgage
         balance was approximately $1.72 million. For the years ended June 30,
         2001, 2000 and 1999, interest expense of approximately $124,000,
         $115,000 and $81,000, respectively, was recorded for the mortgage
         loans.

         At June 30, 2001, principal payments under the mortgage loan are as
         follows:

                          2002                               $     26,092
                          2003                                     26,306
                          2004                                     28,631
                          2005                                  1,636,807
                                                            ---------------
                                                                1,717,836
                          Less current portion                    (26,092)
                                                            ---------------
                                                               $1,691,744
                                                            ===============

         The mortgage loan agreement requires the Company to comply with certain
         covenants, including maintaining certain net working capital and
         tangible net worth amounts. If the Company fails to meet any of the
         requirements, the loan shall become immediately due and payable. At
         June 30, 2001 and 2000, the Company met both the net working capital
         and the tangible net worth amounts.

     (3) Subordinated Convertible Note

         In November 1998, the Company sold to Technology Investors Group, LLC
         ("TIG") a subordinated convertible note in the principal amount of $2.5
         million, due and payable on May 25, 2001. The note had an interest rate
         of 7.5% per annum and was payable semi-annually at the option of the
         Company. The note was subordinated to the first mortgage on the
         Company's building and to the rights of financial lenders and sureties
         of the Company.



                                      F-17
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E (CONTINUED)

         In accordance with the terms of the note, on July 7, 1999, the Company
         exercised its right to require TIG to convert the note into 1,791,000
         shares of the Company's common stock at a conversion price of $1.40 per
         share. In addition, the Company issued a promissory note in the amount
         of $120,000 (the "TIG Stub Loan") representing the remaining
         indebtedness to TIG. The TIG Stub Loan was repaid in full in December
         1999.

         For the year ended June 30, 2000, interest expense of approximately
         $128,000 was recorded for the note.

     (4) Promissory Note

         On December 16, 1999, the Company sold a $7 million secured convertible
         promissory note (the "Madeleine Bridge Loan") to Madeleine. The note
         has an interest rate of 11% per annum and was due on May 31, 2000. The
         due date of the note was extended to the closing date of the Blackacre
         investment. In November 2000, the Madeleine Bridge Loan was retired
         from the proceeds of the Senior Secured Promissory Note (see Note E
         (1)). The Company was advised that contemporaneous with the advance of
         the Madeleine Bridge Loan, TIG purchased from Blackacre a $2 million
         participation interest in such loan, which was subsequently resold to
         Blackacre in March 2000.

         For the year ended June 30, 2000, interest expense of approximately
         $451,000 was recorded for the loan.

NOTE F - SHAREHOLDERS' EQUITY

     In February 1995, in connection with the Company's initial public offering,
     the Company issued 4,600,000 Class A warrants to shareholders. During
     January and February 2000, a total of 4,510,571 shares of the Company's
     common stock were issued pursuant to the exercise of the Company's Class A
     Warrants which prior to its expiration on February 14, 2000. The Class A
     Warrants entitled holders to acquire one share of the Company's common
     stock at a purchase price of $4.00 per share. In addition, at a purchase
     price of $5.78 per share, 400,000 shares of the Company's common stock were
     issued upon exercise of a purchase option previously granted to an
     underwriter in connection with the Company's February 1995 initial public
     offering. The aggregate proceeds to the Company from the exercise of the
     warrants and the option were $20,352,284 during fiscal 2000.


     In March 2000, options to purchase 617,500 shares of the Company's common
     stock were granted to employees with an exercise price lower than the
     closing price of the Company stock. One-third of the options vested at the
     date of the grants and the remaining two-thirds would have vested ratably
     on a monthly basis beginning on the last day of each of the 24 calendar
     months following March 2001. As a result of the grants, a compensation
     charge of $1,763,428 was incurred, of which $637,428 was recognized in the
     year of grant. Accordingly, additional paid-in capital was increased by
     $1,763,428, deferred compensation was increased by $1,126,000, and general
     and administrative expenses were increased by $637,428 for the year ended
     June 30, 2000. In February 2001, such employees resigned and forfeited the
     stock options, and the unamortized deferred compensation was reversed.
     Accordingly, both additional paid-in capital and deferred compensation were
     decreased by $1,126,000 for the year ended June 30, 2001.



                                      F-18
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F (CONTINUED)

     In January 2000, the Company, subject to stockholder approval and other
     conditions, granted a total of 400,000 Class C warrants to two officers of
     the Company. The original exercise price of the warrants was $6.50 per
     share, which was reduced by the Company's Board of Directors in June 2000
     to $5.25 per share. The Company has no present plan to hold a stockholder
     meeting for the purpose of seeking stockholder approval for the Class C
     warrants.

NOTE G - INCOME TAXES

     Deferred income taxes reflect the impact of "temporary differences" between
     the amounts of assets and liabilities for financial reporting purposes and
     such amounts as measured by tax laws, and relate primarily to the net
     operating loss carryforward, allowance for doubtful accounts and
     accumulated depreciation.

     Management believes that the Company will more than likely generate
     sufficient taxable earnings or utilize tax planning opportunities to ensure
     realization of the tax benefits of $1,076,000, but will less than likely
     realize the benefit on the balance of the deferred tax assets, and
     therefore, has recorded a valuation allowance.

     The following is a summary of the items giving rise to deferred tax
     benefits at June 30, 2001 and 2000:

                                                             June 30,
                                                -------------------------------
                                                     2001               2000
                                                     -----              ----
     Current
         Allowance for doubtful accounts         $   377,000        $  178,000
                                                ----------------- -------------

     Long-term
         Net operating loss carryforward          15,892,000         8,209,000
         Accumulated depreciation                    105,000            20,000
                                                ----------------- -------------
                                                  15,997,000         8,229,000
                                                ----------------- -------------

     Total deferred tax assets                    16,374,000         8,407,000
     Less valuation allowance                    (15,298,000)       (6,655,000)
                                                ----------------- -------------

     Net deferred tax assets                      $1,076,000        $1,752,000
                                                ================= =============


                                      F-19
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G (CONTINUED)

     The provision (benefit) for income taxes differs from the amount computed
     by applying the statutory federal income tax rate to income (loss) before
     provision (benefit) for income taxes due to the following:



<TABLE>
<CAPTION>
                                                                   June 30,
                                              ----------------------------------------------------
                                                    2001               2000             1999
                                                    ----               ----             ----

     <S>                                       <C>                <C>                  <C>
     Statutory federal income tax                $(5,342,000)       $(2,839,000)         $239,000
     State and local income taxes                 (2,357,000)        (1,995,000)           31,000
     Net operating loss carryforward                       -                  -          (239,000)
     Valuation allowance                           8,375,000          4,834,000          (650,000)
     State capital taxes                              74,787             68,000                 -
                                              ------------------ ----------------- ---------------

                                                    $750,787            $68,000         $(619,000)
                                              ================== ================= ===============
</TABLE>

     The Company has net operating losses of approximately $30.0 million
     available for federal income tax purposes, and net operating losses of
     approximately $31.2 million for state and local tax purposes, expiring in
     the years 2011 to 2019. The Company's ability to utilize net operating
     losses to offset future taxable income may be limited if the Company
     changes control as defined in Internal Revenue Code Section 382.

     In 2001 and 2000, no federal income tax expense was recorded due to the net
     loss. In 1999, no federal income tax expense was recorded as a result of a
     benefit of $239,000 for the utilization of a portion of the net operating
     loss carryforward for financial accounting purposes.

NOTE H - COMMITMENTS AND CONTINGENCIES

     (1) The Company leases certain equipment under operating leases expiring at
     various dates through June 2005. At June 30, 2001, minimum rental
     commitments under noncancellable operating leases are as follows:


                 2002                                   $145,000
                 2003                                     88,000
                 2004                                     53,000
                 2005                                     20,000
                                             ----------------------

                                                        $306,000
                                             ======================

     Equipment rent for the years ended June 30, 2001, 2000 and 1999 was
     $369,000, $179,000 and $126,000, respectively.

     (2) The Company contributes to multiemployer pension plans for employees
     covered by collective bargaining agreements. These plans are not
     administered by the Company and contributions are determined in accordance
     with provisions of the agreements. Information with respect to the
     Company's proportionate share of the excess, if any, of the actuarially
     computed value of vested benefits over the total of the pension plans' net
     assets is not available from the plans' administrators. For the years ended
     June 30, 2001, 2000 and 1999, the Company contributed $13.6 million, $14.2
     million and $12.0 million, respectively, for various union employee
     benefits, including pension benefit, and medical and workers' compensation
     insurance.


                                      F-20
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H (CONTINUED)

     The Multiemployer Pension Plan Administration Act of 1980 (the "Act")
     significantly increased the pension responsibilities of participating
     employers. Under the provisions of the Act, if the plans are terminated or
     the Company withdraws, the Company could be subject to a substantial
     "withdrawal liability."

     (3) In connection with its construction-related businesses, the Company is
     contingently liable to sureties under a general indemnity agreement. The
     Company agrees 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 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. Management
     believes that all such contingent liabilities will be satisfied by
     performance on the specific bonded contracts.

     (4) On August 11, 1999, Triangle Sheet Metal Works, Inc. ("Triangle"), a
     subcontractor of Centrifugal/Mechanical Associates, Inc. ("CMA"), filed a
     petition under Chapter 11 of Title 11 of the United States Code in the
     United States Bankruptcy Court for the Southern District of New York (the
     "Bankruptcy Court"). Triangle's Chapter 11 case was subsequently converted
     to a case under Chapter 7 of the Bankruptcy Code and a Chapter 7 trustee
     was appointed to administer Triangle's estate. Triangle was a sheet metal
     subcontractor for CMA on six projects in New York City (the "Subcontractor
     Projects"). CMA was also the subcontractor of Triangle on one additional
     project in New York City (the "Contractor Project"). Prior to Triangle's
     Chapter 11 filing, Triangle ceased operation and defaulted on its
     obligations under the Subcontractor Projects and Contractor Project. In
     pleadings filed with the Bankruptcy Court prior to the appointment of a
     Chapter 7 trustee, Triangle alleged, among other things, that CMA is
     indebted to Triangle in an amount ranging between $1,400,000 and
     $3,000,000. Triangle also suggested in such pleadings that there may exist
     potential causes of action by Triangle against the Company and/or CMA,
     including breach of contract, tortious interference and unfair competition.
     Triangle did not commence any formal legal actions or proceedings with
     respect to any of such allegations (other than seeking to obtain discovery
     from CMA and DualStar). On or about January 18, 2000, Triangle's Chapter 7
     trustee made a written request on CMA stating that Triangle's records
     reflected that CMA was indebted to Triangle in the aggregate sum of
     $2,435,097 based upon work performed by Triangle on the Subcontractor
     Projects. Triangle's Chapter 7 trustee stated CMA was not entitled, under
     applicable law, to offset amounts owed to CMA on particular Subcontractor
     Projects against amounts owed by CMA to Triangle on other Subcontractor
     Projects. Triangle's Chapter 7 trustee stated its intention to institute
     legal proceedings in the Bankruptcy Court against CMA and the owners of the
     Subcontractor Projects to recover such funds. CMA and DualStar dispute
     Triangle's and the Chapter 7 trustee's allegations and assertions and
     believe that they are without merit.


                                      F-21
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H (CONTINUED)

     CMA has claims and counterclaims against Triangle for breaches, defaults,
     completion costs and damages in respect of the Subcontractor Projects and
     the Contractor Project. Although such claims and counterclaims are not
     fully liquidated and cannot be fully ascertained at this time, CMA believes
     that it is entitled setoff and/or recoup part of the damages by offsetting
     any monies owed by CMA to Triangle. The Company can make no assurances,
     however, that such offsets and recoupment will be either (a) allowed and
     that CMA will prevail in any such litigation with Triangle's Chapter 7
     trustee, or (b) sufficient to cover all of CMA's damages resulting from
     Triangle's defaults under the Subcontractor Projects and Contractor
     Project. Based upon currently available information, it appears that all or
     substantially all of CMA's claims against Triangle may not be recoverable
     after such setoff and/or recoupment.

     To date, Triangle's Chapter 7 trustee has commenced five (5) lawsuits
     against CMA, Trident Mechanical Systems, Inc. ("Trident") (a dormant,
     wholly owned subsidiary of the Company) and CMA's bonding company arising
     from the various Subcontractor Projects and the Contractor Project. On June
     1, 2000, Triangle's Chapter 7 trustee commenced its first adversary
     proceeding in the Bankruptcy Court against CMA and its bonding company
     claiming CMA owed it $411,002 in connection with a project known as the
     Chelsea Mercantile Project, and seeking to foreclose on a bonded lien. CMA
     and its bonding company filed a motion to dismiss the complaint or have the
     Bankruptcy Court abstain from exercising its jurisdiction. The Bankruptcy
     Court dismissed one of the two claims for relief in the complaint and
     granted Triangle's Chapter 7 trustee leave to amend the complaint with
     respect to the remaining claim. The Bankruptcy Court denied CMA's motion to
     abstain. On or about September 28, 2000, Triangle's Chapter 7 trustee filed
     and served its amended complaint. CMA and its bonding company have filed an
     answer to the complaint and have asserted counterclaims claiming damages in
     the aggregate amount of $9,610,647 arising from the Subcontractor Projects.
     The parties are currently undertaking discovery. The Bankruptcy Court has
     not set a final discovery cut-off date in this matter.

     On September 21, 2000, Triangle's Chapter 7 trustee commenced an adversary
     proceeding against Trident claiming Trident received an avoidable
     preference from Triangle in the ninety (90) days prior to Triangle's
     bankruptcy filing in the amount of $56,890. Triangle's Chapter 7 trustee
     has stated that she intends to increase the amount claimed in this
     proceeding by approximately $103,000. Trident has not yet, however, been
     served with an amended complaint. Trident has filed an answer and
     affirmative defenses to the complaint. The parties are currently
     undertaking discovery. The Bankruptcy Court has not set a final discovery
     cut-off date in this matter.

     On December 15, 2000, Triangle's Chapter 7 trustee commenced an adversary
     proceeding in the Bankruptcy Court against CMA, Trident and its bonding
     company claiming Trident owed it $750,623 in connection with a project
     known as the Horace Mann Project, and seeking to foreclose on a bonded
     lien. CMA, Trident and its bonding company have filed an answer to the
     Complaint and have asserted counterclaims claiming damages in the aggregate
     amount of $1,353,894 arising from the Subcontractor Projects and the
     Contractor Project. The parties are currently undertaking discovery. The
     Bankruptcy Court has not set a discovery cut-off date in this matter.




                                      F-22
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H (CONTINUED)

     On January 5, 2001, Triangle's Chapter 7 Trustee commenced an adversary
     proceeding in the Bankruptcy Court against CMA and its bonding company
     claiming CMA owed it $568,432 in connection with a project known as the
     Sotheby's Project, and seeking to foreclose on a bonded lien. CMA and its
     bonding company have filed an answer to the complaint and have asserted
     counterclaims claiming damages in the aggregate amount of $9,610,647
     arising from the Subcontractor Projects. The parties have not yet started
     taking discovery. The Bankruptcy Court has not set a discovery cut-off date
     in this matter.

     On January 9, 2001, Triangle's Chapter 7 Trustee commenced an adversary
     proceeding in the Bankruptcy Court against CMA and its bonding company
     claiming CMA owed it $1,122,526 in connection with a project known as the
     Two Broadway Project, and seeking to foreclose on a bonded lien. CMA and
     its bonding company have filed an answer to the complaint and have asserted
     counterclaims to the complaint claiming damages in the aggregate amount of
     $9,610,647 arising from the Subcontractor Projects. The parties are engaged
     in pre-trial discovery. The Bankruptcy Court has not set a final discovery
     cut-off date in this matter.

     For the reasons discussed above, CMA believes it has no liability to
     Triangle although the Company can make no assurances that CMA will prevail
     in the litigation commenced by the Triangle's Chapter 7 trustee.


     (5) The Company and Trident Mechanical Systems, Inc. ("Trident"), a
     dormant, wholly owned subsidiary of the Company, were defendants in a
     lawsuit filed in January 2000. The plaintiff was seeking in excess of
     $30,000,000 for claims related to property damage on a job site where
     Trident and other trades were working. The claim, as constituted, exceeded
     the Company's general as well as umbrella liability policy limits in the
     aggregate. In June 2001, the Company's insurance company settled the
     lawsuit and all claims related to the lawsuit with the plaintiff and agreed
     to pay the plaintiff an amount within the Company's liability policy
     limits. Accordingly, no provision for loss was made in the accompanying
     financial statements.


     (6) On September 29, 1997, Centrifugal filed a complaint in the Supreme
     Court of the State of New York, Kings County, against DAK Electric
     Contracting Corp. ("DAK") and two of DAK's officers, Donald Kopec and Al
     Walker, for breach of contract in the amount of $4.1 million.

     In prior years, Centrifugal was a partner in a joint venture that performed
     mechanical and electrical services for a general contractor on 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. The joint venture's work on this project has been completed. The
     joint venture received demands for payment from certain vendors used by the
     co-venturer of Centrifugal. These vendors filed liens and/or made demands
     against the joint venture payment bond amounting to approximately $1.7
     million. Some of these vendors also filed lawsuits against the joint
     venture, the joint venture partners and related bonding companies, to
     secure payment on their claims. These claims were based on the alleged
     failure of the joint venture partner to pay for electrical goods provided
     to it as the electrical subcontractor of the joint venture. The joint
     venture's bonding companies proposed settling with the claimants; the
     bonding companies would then seek indemnification from the joint venture.
     It was management's opinion that it would cost the Company less if this
     settlement process was managed and completed by the Company.



                                      F-23
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H (CONTINUED)

     Based on these developments, the Company wrote off in fiscal 1996
     approximately $2.3 million with respect to accounts and loans receivable,
     and $1.4 million of claims and other costs that the Company incurred on
     behalf of Centrifugal's co-venturer in fulfillment of the electrical
     co-venturer's obligations under the contract on the Lincoln Square Project.
     Nevertheless, the Company commenced the above identified action in an
     attempt to recover its losses, expenses and costs as above set forth. As of
     the date of this report, both the corporate defendant, DAK and Donald Kopec
     have defaulted, and motions are being made for judgment against each.

     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 seeking an unspecified portion of the total damages
     demanded relates to the Company. The Company has been informed that
     plaintiff will assert that more than half of the total sums it seeks is due
     under the bond which the Company provided, with the remainder of the sums
     demanded due on the claims unrelated to the Company. The Company may also
     be exposed for interest. Additionally, it may be exposed to such legal fees
     and other expenses as the Company's bonding company may incur in its
     defense against plaintiff's claims; however, many years into this matter,
     no demand for any of these sums has been made. The bonding companies,
     Centrifugal and the Company have asserted, among other defenses, that such
     contributions were not guaranteed under the terms of the joint venture's
     bonds.

     (7) In the ordinary course of business, the Company is involved in claims
     concerning personal injuries and other matters, all of which the Company
     refers to its insurance carriers. The Company believes that no loss to the
     Company is probable and the claims are covered under its general and
     umbrella liability policies. No provision for such claims has been made in
     the accompanying financial statements.

NOTE I - RELATED PARTY TRANSACTIONS

     (1) The Company's mechanical contracting business leases shop space, on a
     month-to-month basis, from a company in which certain officers own a
     majority interest. No written lease agreement is signed. Rent expense for
     the years ended June 30, 2001, 2000 and 1999 was $46,000, $34,000 and
     $46,000, respectively.

     (2) The Company's communications business sublets office space in New York,
     NY from Starrett Corporation (of which the Company's president and CEO is
     (non-director) chairman and the Company's CFO was director, president and
     CEO until November 2000). Starrett had billed OnTera $16,340 for office
     improvements associated with the property in fiscal 2000. Rent expense for
     the year ended June 30, 2001 was $99,000.



                                      F-24
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I (CONTINUED)

     (3) TechOne Capital Group LLC ("TechOne"), a private consulting and
     investment firm of which Jared E. Abbruzzese, a director of the Company, is
     a principal, has provided consulting services to the Company since August
     12, 1999, pursuant to letter agreements dated August 12, 1999 and March 24,
     2000. Currently, the Company is a party to a consulting agreement dated
     June 1, 2000 with TechOne. The consulting fee payable under the consulting
     agreement is $30,000 per month, plus reimbursement of expenses. The
     consulting agreement provides, among other things, that other than
     termination as a result of a material breach by TechOne, the Company may
     terminate this consulting agreement only by giving written notice to
     TechOne of the Company's intention to terminate this consulting agreement
     accompanied by payment of (i) all unpaid amounts due hereunder from the
     Company to TechOne for the consulting services rendered through the date of
     termination, plus all reimbursable amounts for which TechOne has delivered
     to the Company an invoice on or before the termination date, (ii) $25,000,
     which will be used by TechOne for reimbursable expenses incurred prior to
     the termination date and not yet invoiced, and (iii) an amount equal to the
     product of $30,000 times the greater of (A) the number of months remaining
     in the 3-year term thereof, and (B) 24. For the year ended June 30, 2001
     and 2000, consulting expense in connection with the agreement was $360,000
     and $180,000, respectively.

     Subject to stockholder approval and other conditions, Class D Warrants to
     purchase 750,000 shares of Company Common Stock were granted to TechOne on
     April 13, 2000. The Class D Warrants are exercisable for $4.063 per share
     and vest and become fully exercisable when the 30-day average closing price
     of the Company Common Stock has been at or above $14.00, and a material
     third party acquisition or merger, material equity investment in the
     Company or joint venture or other material third party transaction having a
     substantially similar economic effect as the foregoing has been effected
     (excluding, in each instance, the transactions contemplated by the
     Blackacre Securities Purchase Agreement). Additionally, regardless of the
     vesting requirement discussed above, the Class D Warrants vest and become
     fully exercisable upon a change of control regardless of the satisfaction
     of the vesting requirements set forth above (excluding the transactions
     contemplated by the Blackacre Securities Purchase Agreement). The Warrants
     will expire on the seventh anniversary of issuance. The Company has no
     present plan to hold a stockholder meeting for the purpose of seeking
     stockholder approval for the Class D Warrants. In connection with the
     consummation of the November 8, 2000 financing transaction with Madeleine
     L.L.C. to ensure that DualStar had a sufficient number of authorized but
     unissued shares of DualStar common stock for issuance to DSTR Warrant Co.,
     LLC (an affiliate of Madeleine, L.L.C. that received, at the direction of
     Madeleine L.L.C., warrants to purchase DualStar common stock in connection
     with the Madeleine L.L.C. financing transaction) upon the exercise of the
     warrants issued to DSTR Warrant Co., LLC, Mr. Abbruzzese informed the
     DualStar board of directors that TechOne irrevocably surrendered any rights
     it had to Class D Warrants to purchase 375,000 shares of DualStar common
     stock.

     (4) The Company is a party to a consulting agreement dated June 1, 2000
     with Hades Advisors LLC, an affiliate of TIG. The consulting fee payable
     under the consulting agreement is $20,000 per month, plus reimbursement of
     expenses. The consulting agreement provides that other than termination as
     a result of a material breach by Hades, the Company may terminate this
     consulting agreement only by giving written notice to Hades of the
     Company's intention to terminate this consulting agreement accompanied by
     payment of (i) all unpaid amounts due hereunder from the Company to Hades
     for the consulting services (as defined therein) rendered through the date
     of termination, plus all reimbursable amounts for which Hades has delivered
     to the Company an invoice on or before the termination date, (ii) $25,000,
     which will be used by Hades for reimbursable expenses incurred prior to the
     termination date and not yet invoiced, and (iii) an amount equal to the
     product of $20,000 times the greater of (A) the number of months remaining
     in the 3-year term thereof, and (B) 24. For the year ended June 30, 2001
     and 2000, consulting expense in connection with the agreement was $240,000
     and $20,000, respectively.


                                      F-25
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I (CONTINUED)

     (5) Subject to stockholder approval and other conditions, Class D Warrants
     to purchase 625,000 shares of Company Common Stock were granted to TIG on
     April 13, 2000, on the same terms and conditions discussed above in
     paragraph (3). The Company has no present plan to hold a stockholder
     meeting for the purpose of seeking stockholder approval for the Class D
     Warrants.

     (6) The Company's electrical contracting subsidiary obtained consulting
     services from M & E Advisors, LLC, an affiliate of TIG. For the year ended
     June 30, 2001, consulting fee for the services was $170,000.

     (7) At June 30, 2001, the Company had loans to two officers in the amounts
     of $96,000 and $60,000, respectively.

         (a) An original loan of $171,000 was due on demand, with an unstated
         interest rate. In September 2000, the loan amount was reduced by
         $75,000 to offset bonuses earned by the officer in the prior periods
         and a promissory note was signed by the officer for the remaining loan
         balance of $96,000. The note bears interest rate of 7.75% per annum and
         is due in August 2006. In addition, the officer provided all stock
         options granted to the officer by the Company as the collateral and
         security of the note.

         (b) The $60,000 loan is due on demand, with an interest rate of 7.75%
         per annum. The officer had also borrowed $350,000 from the Company in
         June 2001 and repaid the loan with interest in June 2001. In addition,
         the officer had purchased various services from the Company totaling
         $134,000 during fiscal 2001, of which $84,000 has been paid through
         September 2001.

     (8) ParaComm, Inc. purchases various marketing and business consulting
     services from two companies, which ParaComm's former president, who
     resigned in May 2001, holds equity interests. For the year ended June 30,
     2001, approximately $45,000 of expense was incurred for the services
     provided by these two companies. For the period from May 11, 2000, the date
     the Company acquired ParaComm, to June 30, 2000, approximately $12,000 of
     expense was incurred for the services provided by these two companies.

     (9) On October 26, 1999, CMA borrowed $1 million from TIG. The loan was
     evidenced by a promissory note made by CMA in favor of TIG, providing for
     interest at a per annum rate of 10% and a maturity date of December 15,
     1999. The loan was guaranteed by DualStar and collateralized by certain of
     DualStar's assets. The promissory note was paid in full in December 1999
     from the proceeds of the Madeleine Bridge Loan.


     (10) For the fiscal years ended June 30, 2001 and 2000, approximately 2.0%
     and 16% of the Company's total revenues were derived from HRH Construction
     Corp., respectively. DualStar's President and Chief Executive Officer is
     also the President and Chief Executive Officer of HRH Construction Corp.



                                      F-26
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I (CONTINUED)

     In addition, DualStar's President and Chief Executive Officer is
     (non-Director) Chairman of Starrett Corporation, which is an affiliate of
     HRH Construction Corp. Mr. Cuneo is compensated as Chairman of Starrett
     under a consulting agreement between Starrett Corporation and Starrett
     Consulting, L.L.C. (of which Mr. Cuneo is a 50% member). The remaining
     interest in Starrett Consulting, L.L.C. is held by Mr. Brad Singer, a
     member of TIG. In exchange for various services, including management
     services, Starrett Consulting, L.L.C. receives an annual fee of $750,000 in
     equal monthly installments, plus an additional fee may be earned in certain
     circumstances. (Mr. Brad Singer, a 25% member of TIG, is also an
     independent contractor for HRH Construction Corp. Hades Advisors, LLC may
     be deemed an affiliate of TIG.) DualStar's Executive Vice President and
     Chief Financial Officer was Director, President and Chief Executive Officer
     of Starrett Corporation. Since these two DualStar officers became officers
     of HRH Construction Corp. and/or Starrett Corporation, DualStar has been
     awarded one new contract in the amount of approximately $1.0 million from
     HRH Construction Corp.

NOTE J - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

     Financial instruments which potentially expose the Company to
     concentrations of credit risk consist primarily of cash, marketable
     securities, trade accounts receivable and retainage receivable.

     The Company maintains its cash in accounts which exceed federally insured
     limits. It has not experienced any losses to date resulting from this
     policy.

     The Company performs construction contracts for, and extends credit to,
     private owners and general contractors located generally in the New York
     Tri-State area. The Company is directly affected by the well-being of these
     entities and the construction industry as a whole. For the year ended June
     30, 2001, revenue from two customers (Bovis Lend Lease, Inc. (formerly
     Lehrer McGovern Bovis, Inc.) and Rockrose Construction Corp.) amounted to
     approximately 60% and 15% of the Company's total revenues, respectively.
     For the year ended June 30, 2000, revenue from two customers (Bovis Lend
     Lease, Inc. and HRH Construction Corp.) amounted to approximately 49% and
     16% of the Company's total revenue, respectively. For the year ended June
     30, 1999, revenue from three customers (Bovis Lend Lease, Inc., HRH
     Construction Corp. and Tishman Construction Corp. of NY) amounted to
     approximately 19%, 19% and 12% of the Company's total revenue,
     respectively.

NOTE K - STOCK OPTION PLAN

     In 1994, the Company adopted a stock option plan accounted for under the
     intrinsic value method of APB No. 25. The plan allows the Company to grant
     options to employees for up to 2.2 million shares of common stock. In
     December 1998, the Company's shareholders approved an amendment of the
     stock option plan to increase the number of shares available for grant to
     3.5 million, and to add directors of the Company as persons eligible for
     grant of options.

     In general, the options have a term of ten years from the date of grant and
     vest over two to five years, and the exercise price of each option is
     higher than the market price of the Company's stock on the date of grant.

     Pursuant to certain officers' employment agreements, such officers may be
     given options under the plan, which will be shared equally, to purchase
     shares of the Company's common stock at fair market value on the date of
     grant, if Company pretax earning criteria are met. Through June 30, 2001,
     no stock options were granted to the officers based on the criteria.


                                      F-27
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K (CONTINUED)

     Effective July 1, 1996, the Company adopted the provisions of Statement No.
     123, Accounting for Stock-Based Compensation. As permitted by the
     Statement, the Company has chosen to continue to account for stock-based
     compensation using the intrinsic value method. Accordingly, no compensation
     cost has been recognized for the plan under the fair value method of SFAS
     123. Had compensation cost of the plan been determined based on the fair
     value of the options at the grant dates consistent with the method of SFAS
     123, the Company's net income (loss) and income (loss) per share would have
     been:

<TABLE>
<CAPTION>
                                                                  2001                 2000                 1999
                                                              -------------        -------------        --------------

<S>                                      <C>                  <C>                   <C>                   <C>
     Net (loss) income                   As reported          $(15,713,188)         $(8,650,818)          $1,322,248
                                         Pro forma            $(16,738,375)        $(11,027,353)          $1,322,248

     Basic and diluted (loss) income
       per share                         As reported                $(0.95)              $(0.68)               $0.15
                                         Pro forma                  $(1.01)              $(0.81)               $0.15
</TABLE>

     This pro forma impact only takes into account options granted since July 1,
     1994 and is likely to increase in future years as additional options are
     granted and amortized ratably over the vesting periods. The fair market
     value of each option grant is estimated on the date of granting using the
     Black-Scholes options-pricing model with the following weighted-average
     assumptions used for grants in fiscal 2001, 2000 and 1999: risk-free
     interest rate of approximately 5.0%, expected life of seven years,
     volatility of 100% and no dividend yield.

     A summary of information relative to the Company's stock option plan
follows:

<TABLE>
<CAPTION>
                                                                                          Weighted Average
                                                                  Number of Shares             Price
                                                               ----------------------- -----------------------

<S>                                                                      <C>                   <C>
      Outstanding at June 30, 1998                                       2,072,000             $0.94
      Forfeited as of June 30, 1999                                       (396,000)            $0.75
                                                               -----------------------

      Outstanding at June 30, 1999                                       1,676,000             $0.99
      Granted in fiscal 2000 net of  grants subject to
        stockholder approval                                             1,824,000             $5.41
                                                               -----------------------

      Outstanding at June 30, 2000                                       3,500,000             $3.29
      Granted in fiscal 2001                                               663,225             $6.27
      Forfeited in fiscal 2001                                            (945,000)            $5.52
                                                               -----------------------

      Outstanding at June 30, 2001                                       3,218,225             $2.88
                                                               =======================
</TABLE>

     Weighted average fair values of option grants in fiscal 2001 and 2000 were
     $0.32 and $5.96, respectively.




                                      F-28
<PAGE>

               DualStar Technologies Corporation and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K (CONTINUED)

     The Plan provides for 3,500,000 shares of Company common stock to be
     reserved and available for distribution as grants under the Plan. On
     February 18, 2000, subject to stockholder approval, the Company's Board of
     Directors approved an amendment to the Plan to increase the number of
     shares reserved and available for distribution as awards under the Plan
     from 3,500,000 to 6,000,000. Options granted in excess of the number of
     shares of Company common stock currently authorized by the Company's
     stockholders as being reserved and available for distribution as awards
     under the Plan and identified above are subject to such stockholder
     approval. The Company has no present plan to seek such stockholder
     approval. At June 30, 2000, 1,282,500 options with exercise prices ranging
     from $5.25 to $7.06 had been granted subject to stockholder approval of the
     amendment of the Plan; however, many of the options were forfeited due to
     the termination of related employees. At June 30, 2001, no options have
     been granted subject to stockholder approval of the amendment of the Plan.

     In fiscal 2000, to the extent that such stockholder approval was not
     obtained, the Company had agreed to provide certain officers with the same
     economic benefit as would have been provided by the options. For the year
     ended June 30, 2000, no compensation expense was recorded as the market
     price of the Company's common stock did not exceed the exercise price. For
     the year ended June 30, 2001, no compensation expense was recorded as those
     officers had resigned and forfeited their stock options in February 2001.

     In March 2000, options to purchase 617,500 shares of the Company's common
     stock were granted to employees with an exercise price lower than the
     closing price of the Company stock. One-third of the options vested at the
     date of the grants and the remaining two-thirds would have vested ratably
     on a monthly basis beginning on the last day of each of the 24 calendar
     months following March 2001. As a result of the grants, a compensation
     charge of $1,763,428 was incurred, of which $637,428 was recognized in the
     year of grant. Accordingly, additional paid-in capital was increased by
     $1,763,428, deferred compensation was increased by $1,126,000, and general
     and administrative expenses were increased by $637,428. In February 2001,
     the employees resigned and forfeited the stock options, and the unamortized
     deferred compensation was reversed. Accordingly, both additional paid-in
     capital and deferred compensation were decreased by $1,126,000.

     The following information applies to options outstanding and exercisable at
June 30, 2001:

<TABLE>
<CAPTION>
         RANGE OF EXERCISE                             WEIGHTED-AVERAGE REMAINING         WEIGHTED-AVERAGE
              PRICES           NUMBER OUTSTANDING       CONTRACTUAL LIFE (YEARS)           EXERCISE PRICE
       ---------------------- ---------------------- -------------------------------- --------------------------

<S>    <C>                          <C>                            <C>                          <C>
       $0.75                        1,484,000                      6.0                          $0.75
       $3.00                          177,000                      3.4                          $3.00
       $4.00                          814,000                      7.1                          $4.00
       $5.25-$10.25                   743,225                      9.1                          $5.87

                              ----------------------
                                    3,218,225
                              ======================
</TABLE>



                                      F-29
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K (CONTINUED)

     <TABLE>
     <CAPTION>
         RANGE OF EXERCISE                            WEIGHTED-AVERAGE EXERCISE
              PRICES           NUMBER EXERCISABLE               PRICE
       ---------------------- ---------------------- -----------------------------

       <S>                         <C>                          <C>
       $0.75                       1,484,000                    $0.75
       $3.00                         177,000                    $3.00
       $4.00                         343,600                    $4.00
       $5.25-$10.25                  449,000                    $5.94

                              ----------------------
                                   2,453,600
                              ======================
     </TABLE>

NOTE L - EMPLOYEE BENEFIT PLAN

     In 1995, the Company adopted a defined contribution retirement plan
     (commonly referred to as a 401(k) plan) which satisfies the requirements
     for qualification under Section 401(k) of the Internal Revenue Code. The
     Company's contribution to the plan is based entirely on management's
     discretion. For the years ended June 30, 2001, 2000 and 1999, the Company
     made no contribution to the plan.

NOTE M - SEGMENT INFORMATION


     The Company has the following two reportable segments: construction and
     communications. The construction segment primarily engages in electrical
     and mechanical contracting services in the New York Metropolitan area. The
     communications segment primarily installs communication systems and
     provides telephone, Internet, cable television and other services to
     buildings in the New York City and Los Angeles areas, and cable television
     and Internet services to buildings in Florida and Texas.


     The accounting policies used to develop segment information correspond to
     those disclosed in these financial statements (see Note A). The Company
     does not allocate certain corporate expenses to its segments. Segment
     profit (loss) is based on profit (loss) from operations before income taxes
     (benefits). The communications segment loss for the year ended March 31,
     2000 includes the $637,428 charge for stock options granted in March, 2000
     which were granted with an exercise price lower than the closing price of
     the Company stock, as reported by Nasdaq, on the dates on which such
     options were granted. 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.

<TABLE>
<CAPTION>
                REPORTABLE SEGMENT INFORMATION              CONSTRUCTION            COMMUNICATIONS             TOTALS
     -----------------------------------------------------------------------------------------------------------------------
                          FISCAL 2001
     <S>                                                    <C>                     <C>                       <C>
     Revenues from external customers                              $79,753,232                $3,464,746        $83,217,978
     Intersegment revenues                                                   -                    15,000             15,000
     Depreciation and amortization                                     166,650                 1,874,494          2,041,144
     Interest expense                                                        -                    49,410             49,410
     Segment (loss) profit                                             519,339              (12,062,161)       (11,542,822)
     Segment assets                                                 31,377,606                 7,805,246         39,182,852
     Expenditure for segment assets                                     40,406                 2,626,917          2,667,323
</TABLE>


                                      F-30
<PAGE>


               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M (CONTINUED)

<TABLE>
<CAPTION>
                 REPORTABLE SEGMENT INFORMATION              CONSTRUCTION            COMMUNICATIONS             TOTALS
      -----------------------------------------------------------------------------------------------------------------------
                           FISCAL 2000
<S>                                                                 <C>                        <C>               <C>
      Revenues from external customers                              $85,254,572                $2,029,941        $87,284,513
      Intersegment revenues                                                   -                    30,000             30,000
      Depreciation and amortization                                     184,797                   567,201            751,998
      Interest expense                                                   50,365                    21,610             71,975
      Segment profit (loss)                                            (955,178)               (5,028,990)         (5,984,168)
      Segment assets                                                 34,173,808                 7,429,240         41,603,048
      Expenditure for segment assets                                     64,940                 1,149,040          1,213,980
                           FISCAL 1999
      Revenues from external customers                              $90,444,936                $2,204,642         92,649,578
      Intersegment revenues                                             160,725                    55,000            215,725
      Depreciation and amortization                                     244,016                   154,070            398,086
      Interest expense                                                   88,440                    86,857            175,297
      Segment profit (loss)                                           2,472,486                 (813,573)          1,658,913

           RECONCILIATION TO CONSOLIDATED AMOUNTS
                                                                                       FISCAL
                                                         -------------------------------------------------------------------
                                                                        2001                   2000                1999
                                                                        ----                   ----                ----
          REVENUES
     Total revenues for reportable segments                          $83,232,978            $87,314,513         $92,865,303
     Elimination of intersegment revenues                                (15,000)               (30,000)           (215,725)
                                                         -------------------------------------------------------------------
     Total consolidated revenues                                     $83,217,978            $87,284,513         $92,649,578
                                                         ===================================================================

          LOSS
     Total (loss) profit for reportable segments                    $(11,542,822)           $(5,984,168)         $1,658,913
     Elimination of intersegment profits                                       -                      -             (30,391)
     Unallocated amounts:
       Corporate                                                      (3,419,579)            (2,598,650)           (925,274)
                                                         -------------------------------------------------------------------
     Total consolidated (loss) income before provision
       (benefit) for income taxes                                   $(14,962,401)           $(8,582,818)           $703,248
                                                         ===================================================================

                      RECONCILIATION TO CONSOLIDATED AMOUNTS
                                                                                                FISCAL
                                                                               -----------------------------------------
                                                                                           2001                2000
                                                                                           ----                ----
          ASSETS
     Total assets for reportable segments                                               $39,182,852         $41,603,048
     Elimination of intersegment profits on capitalized assets                            (257,300)           (257,300)
     Unallocated amounts:
       Corporate                                                                          4,647,429          17,054,662
                                                                               -----------------------------------------
     Total consolidated assets                                                          $43,572,981         $58,400,410
                                                                               =========================================
</TABLE>


                                      F-31
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M (CONTINUED)

          OTHER SIGNIFICANT ITEMS:
<TABLE>
<CAPTION>
                                                   SEGMENT                            CONSOLIDATED
                                                    TOTALS           CORPORATE           TOTALS
                                              --------------------------------------------------------
                   FISCAL 2001
<S>                                                <C>                  <C>             <C>
     Depreciation and amortization                 $2,041,144           $173,318        $2,214,462
     Interest expense                                  49,410          1,315,574         1,364,984
                   FISCAL 2000
     Depreciation and amortization                   $715,998           $295,325        $1,047,323
     Interest expense                                  71,975            719,893           791,868
                   FISCAL 1999
     Depreciation and amortization                    398,086            163,175           561,261
     Interest expense                                 175,297            267,244           442,541
</TABLE>

    The unallocated corporate amounts primarily include certain expenses that
    are unrelated to or cannot be reasonably allocated to the Company's business
    segments. These expenses include interest expenses, payroll and related
    expenses of corporate employees, professional fees, investor relation
    expenses and insurance.

NOTE N - EMPLOYMENT AGREEMENTS

     (1) The Company has entered into employment agreements with three
     executives of the Company that expire in August 2003. The agreements are
     for annual base salaries ranging from $235,000 to $275,000. The agreements
     provide, among other things, for participation in an equitable manner of
     any profit sharing or retirement plan for employees or executives of the
     Company. There are certain guaranteed bonuses with maximum amounts to be
     based upon performance objectives that are determined by the Company's
     Board of Directors and Compensation Committee.

     Pursuant to the employment agreements, employment may be terminated by the
     Company with cause or by the executive with or without good reason.
     Termination by the Company without cause, or by the executive for good
     reason, would subject the Company to certain liabilities for liquidation
     damages, as defined in the agreements.

     (2) The Company has entered into an employment agreement with another
     executive of the Company that provides for annual base salary of $220,000
     plus a bonus up to 50% of the annual base salary based upon certain
     performance targets as defined in the agreement. In addition, the executive
     will be entitled to severance in the amount of two times the then annual
     base salary if the executive is terminated by the Company without cause.

     (3) The Company has entered into employment agreements with two executives
     of the Company's electrical contracting subsidiary that provide for annual
     base salary of $260,000 each. In addition, the agreements provide for
     performance bonuses equal to 10% of the subsidiary's net income before
     taxes. The executives will be entitled to severance in the amount of their
     annual base salary plus the pro-rata portion of the performance bonuses in
     the year of termination if they are terminated as defined in the
     agreements.



                                      F-32
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N (CONTINUED)

     (4) In connection with enhancing DualStar's communications business, in
     fiscal 2000, OnTera entered into employment agreements with six senior
     officers of OnTera. The agreements are for annual base salaries ranging
     from $200,000 to $250,000. In addition to the annual base salaries, the
     officers are eligible for bonuses of 40% to 50% of the annual base salaries
     upon achievement of specified targets, as defined in the agreements. The
     officers will be entitled to severance in the amount of their annual base
     salary plus the pro-rata portion of the performance bonuses in the year of
     termination if they are terminated as defined in the agreements. Given the
     reduced focus of OnTera, there was a reduced requirement for the time of
     OnTera's senior executives guiding the company. Accordingly, in February
     2001, the Company accepted the resignations from five of the six OnTera
     senior officers and terminated their respective employment agreements. In
     conjunction with such resignations, the Company entered into a consulting
     agreement with REO Consulting Group, LLC (whose founding members include
     the aforementioned former OnTera officers) to continue to support and guide
     OnTera. The term of the consulting agreement was one year with an annual
     consulting fee of $250,000. The consulting agreement was subsequently
     terminated in July 2001. Consulting expense in connection with the
     agreement was $83,000 for the year ended June 30, 2001.

     In September 2000, OnTera entered into an employment agreement with an
     officer of OnTera. The agreement was for annual base salary of $240,000. In
     addition to the annual base salary, the OnTera executive was eligible for
     bonuses of 40% of the annual base salary upon achievement of specified
     targets, as defined in the agreements. The officer would have been entitled
     to severance in the amount of the annual base salary plus the pro-rata
     portion of the performance bonus in the year of termination if he was
     terminated as defined in the agreements. In January 2001, as a result of
     the refocus and cost reduction strategies, OnTera reached an agreement with
     the officer to terminate the employment agreement. Severance associated
     with this termination was $60,000.

     (5) In May 2000, ParaComm, Inc. ("ParaComm") entered into an employment
     agreement with an officer of ParaComm. The agreement was for annual base
     salary of $155,000. In addition to the annual base salary, the ParaComm
     officer was eligible for bonuses of 25% of the annual base salary upon
     achievement of specified targets, as defined in the agreements. The officer
     would be entitled to severance in the amount of the annual base salary plus
     the pro-rata portion of the performance bonus in the year of termination if
     he was terminated as defined in the agreements. In April 2001, as a result
     of the refocus and cost reduction strategies, ParaComm had reached an
     agreement with the officer to terminate the employment agreement. Severance
     associated with this termination was $53,000.

NOTE O - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

     Costs and estimated earnings on uncompleted contracts consist of the
     following:
<TABLE>
<CAPTION>
                                                                                      June 30,
                                                                  ---------------------------------------------------
                                                                            2001                        2000
                                                                       -------------             -----------------

<S>                                                                       <C>                       <C>
       Costs incurred on uncompleted contracts                            $41,508,255               $66,831,588
       Estimated earnings                                                   6,507,684                 8,038,004
                                                                  ------------------------- -------------------------

                                                                           48,015,939                74,869,592
       Less billings to date                                               50,351,542                76,763,682
                                                                  ------------------------- -------------------------

                                                                          $(2,335,603)              $(1,894,090)
                                                                  ========================= =========================
</TABLE>




                                      F-33
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O (CONTINUED)

     Costs and estimated earnings on uncompleted contracts are included in the
     accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
                                                                                      June 30,
                                                                  ---------------------------------------------------
                                                                           2001                        2000
                                                                       -------------             ----------------

<S>                                                                        <C>                       <C>
       Costs and estimated earnings in excess of billings on
         uncompleted contacts                                              $1,236,557                $2,095,711
       Billings in excess of costs and estimated earnings on
         uncompleted contracts                                             (3,572,160)               (3,989,801)
                                                                  ------------------------- -------------------------

                                                                          $(2,335,603)              $(1,894,090)
                                                                  ========================= =========================
</TABLE>

NOTE P - ACQUISTION


     On May 11, 2000, the Company issued 774,997 shares of common stock and
     25,000 warrants with an exercise price of $15 per common stock in exchange
     for all of the outstanding stock of ParaComm, Inc. ParaComm was
     incorporated in July 1999 and is a private cable operating company based in
     Clermont, Florida, providing video entertainment services to MDU
     communities in Florida and Texas. The acquisition has been accounted for as
     a purchase and ParaComm's financial results for the period from May 11 to
     June 30, 2000 have been included in the accompanying financial statements.
     In the transaction, the Company acquired total assets of $1,871,740 and
     assumed total liabilities of $572,868. The Company recorded the
     consideration of the transaction by increasing common stock and
     additional-paid-in capital by $7,750 and $3,117,513, respectively. In
     addition, since the transaction amount exceeded the net assets of ParaComm,
     Inc. on the purchase, the Company allocated the excess to subscriber list,
     capitalized access rights and goodwill in the amounts of $1,165,732,
     $444,875 and $518,978, respectively. Subscriber list was calculated based
     on the number of ParaComm's subscribers, multiplied by a per subscriber
     valuation factor. Capitalized access rights was calculated based on the
     number of MDUs of MDU communities that are comprised of at least 50 units
     and ParaComm has access to, multiplied by a per unit valuation factor. The
     excess of the consideration given, i.e., common stock and warrants, over
     the net assets acquired, subscriber list and capitalized access rights as
     of May 11, 2000 was assigned to goodwill. Subscriber list, capitalized
     access rights and goodwill are being amortized on a straight-line basis
     over three, five and ten years, respectively (see Note A (5)).


     The following unaudited pro forma consolidated results of continuing
     operations assume that the purchase occurred on July 1, 1999:

                                           Year Ended June 30,
                                                  2000
                                         ------------------------

        Revenues                                $5,478,534
        Loss                                     7,712,805
        Loss per share                              $(0.57)



                                      F-34
<PAGE>


               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE Q - PURCHASE AGREEMENT

     Effective July 28, 2000, OnTera entered into an equipment/software Master
     Purchase and License Agreement (MPLA) with Nokia who will provide the
     primary components for OnTera's network infrastructure. The term of the
     MPLA was three (3) years during which a minimum purchase commitment of $30
     million was to have been met. OnTera's obligation to meet the minimum
     commitment was expressly contingent on obtaining vendor supported financing
     and if such financing was not obtained by January 2001, either party could
     terminate the MPLA. Such vendor supported equipment financing has not been
     arranged.

     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 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.

NOTE R - ACCESS AGREEMENT

     In August 2000, OnTera entered into an agreement with Casden Properties,
     Inc. (in which Blackacre is a substantial investor) and Casden Properties
     Operating Partnership L.P. to provide broadband services to up to 45
     buildings encompassing approximately 9,000 units within Casden's portfolio
     of nationwide properties. Pursuant to this agreement, OnTera would pay
     access fees to Casden Properties Operating Partnership, L.P., in the form
     of cash payments, shares of Company stock and stock warrants for each
     individual Casden property for which OnTera agrees to provide service.
     Under the agreement, OnTera has rights to provide services to Casden
     properties but OnTera is not obligated to do so. As of March 31, 2001 total
     shares and warrants issued under this agreement were 25,000 and 2,676
     respectively.

     In September 2001, OnTera and Casden amended their prior agreements to,
     among other things, (a) eliminate the payment in stock and warrants by
     OnTera (b) reduce the amount of cash payments by OnTera and (c) forgive any
     indebtedness of OnTera for unpaid cash, stock or warrants under the prior
     agreement. Also in September 2001 OnTera and Casden entered into a right of
     entry agreement giving OnTera access to a third Casden property containing
     1,381 units.

NOTE S - RESTRUCTURING


     As a result of the limited availability of capital and a significant change
     in market conditions, in December 2000 the Company's board of directors
     adopted a plan to refocus its communications business efforts by
     concentrating on core communications assets located in the New York City
     and Los Angeles areas and by operating subscription video provider,
     ParaComm Inc. In connection with this effort, the Company's communications
     subsidiaries have implemented and will continue to implement cost
     reductions, including reductions in personnel, infrastructure and capital
     expenditures. A restructuring charge of $1.0 million reflecting the impact
     of such reductions and refocus of markets was recorded in 2001. A benefit
     from a reversal of bonus accruals of $0.9 million was also recorded in 2001
     because those bonuses would no longer be paid due to the restructuring.


                                      F-35
<PAGE>

               DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE T - UNAUDITED QUARTERLY DATA

                                          Selected Quarterly Financial Data
                                   (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                               FOR THE QUARTER ENDED
                           Sept.30,     Sept.30,      Dec.31,     Dec.31,     Mar.31,     Mar.31,     Jun.30,     Jun.30,
                             1999         2000         1999        2000        2000        2001        2000        2001
                          ------------ ------------ ----------- ----------- ----------- ----------- ----------- -----------

<S>                         <C>          <C>          <C>         <C>         <C>         <C>         <C>         <C>
Revenue earned              $24,889      $21,966      $19,242     $20,670     $18,876     $23,563     $24,277     $17,019
Gross profit                  2,802        2,462         (249)      1,626       1,483       4,637       2,942         547
Net (loss) income               205       (3,408)      (3,731)     (5,530)     (2,715)       (883)     (2,410)     (5,892)
Basic and diluted
  (loss) income per
  share                        0.02        (0.21)       (0.35)      (0.34)      (0.20)      (0.05)      (0.14)      (0.35)
</TABLE>

     NOTE U - NEW ACCOUNTING STANDARDS NOT YET ADOPTED

     On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards (SFAS) 141, Business
     Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
     effective for all business combinations completed after June 30, 2001. SFAS
     142 is effective for fiscal years beginning after December 15, 2001;
     however, certain provisions of this Statement apply to goodwill and other
     intangible assets acquired between July 1, 2001 and the effective date of
     SFAS 142. Major provisions of these Statements and their effective dates
     for the Company are as follows:
     - All business combinations initiated after June 30, 2001 must use the
     purchase method of accounting. The pooling of interest method of accounting
     is prohibited except for transactions initiated before July 1, 2001.
     - Intangible assets acquired in a business combination must be recorded
     separately from goodwill if they arise from contractual or other legal
     rights or are separable from the acquired entity and can be sold,
     transferred, licensed, rented or exchanged, either individually or as part
     of a related contract, asset or liability
     - Goodwill, as well as intangible assets with indefinite lives, acquired
     after June 30, 2001, will not be amortized. Effective January 1, 2002, all
     previously recognized goodwill and intangible assets with indefinite lives
     will no longer be subject to amortization.
     - Effective January 1, 2002, goodwill and intangible assets with indefinite
     lives will be tested for impairment annually and whenever there is an
     impairment indicator
     - All acquired goodwill must be assigned to reporting units for purposes of
     impairment testing and segment reporting.

     Although it is still reviewing the provisions of these Statements,
     management's preliminary assessment is that these Statements will not have
     a material impact on the Company's financial position or results of
     operations.



                                      F-36
<PAGE>

                                   SIGNATURES

                  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                             DUALSTAR TECHNOLOGIES CORPORATION


                                       By /s/ GREGORY CUNEO
                                            -----------------------------------
                                              Gregory Cuneo
                                              President and
                                              Chief Executive Officer

Dated: September 28, 2001

                  Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Company and in the capacities and on the date indicated.


<TABLE>
<CAPTION>
Signature                                Title                            Date
-----------                              -----                            ------

<S>                                   <C>                                 <C>
/s/ GREGORY CUNEO                     President and Chief                 September 28, 2001
                                      Executive Officer
-----------------------
Gregory Cuneo


/s/ ROBERT J. BIRNBACH                Executive Vice President and        September 28, 2001
                                      Chief Financial Officer
-----------------------               [Principal Financial
Robert J. Birnbach                    Officer]

/s/ JOSEPH C. CHAN                    Vice President and Chief            September 28, 2001
                                      Accounting Officer
-----------------------               [Principal Accounting
Joseph C. Chan                        Officer]


/s/ RAYMOND L. STEELE                 Director                            September 28, 2001

-----------------------
Raymond L.
Steele


/s/ JARED E. ABBRUZZESE               Director                            September 28, 2001

------------------------
Jared E. Abbruzzese
</TABLE>



                                       27
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   EXHIBITS TO

                                    FORM 10-K


                         COMMISSION FILE NUMBER 0-25552


                        DUALSTAR TECHNOLOGIES CORPORATION
             (Exact name of registrant as specified in its charter)

                    DELAWARE                           13-3776834
          (State or other jurisdiction                (IRS Employer
       of incorporation or organization)           Identification No.)


               11-30 47TH AVENUE, LONG ISLAND CITY, NEW YORK 11101
               (Address of principal executive offices) (Zip Code)


                                 (718) 340-6655
              (Registrant's telephone number, including area code)



                                       28
<PAGE>

<TABLE>
<CAPTION>
                                  EXHIBIT INDEX
       Number                                                 Title
<S>                   <C>
 2.1     Securities Purchase Agreement dated as of March 28, 2000 by and among the Registrant,
         Cereberus Capital Management, L.P. and Blackacre Capital Management, L.L.C. (2)
 2.2     Stock Purchase Agreement dated as of March 28, 2000 between the Registrant and M/E
         Contracting Corp.  (2)
 2.3     Agreement and Plan of Merger dated as of May 11, 2000 between the Registrant, DCI
         Acquisition Co. and ParaComm, Inc. (2)
 2.4     Securities Purchase Agreement dated as of November 8, 2000 by and among Registrant,
         DSTR Warrant Co., LLC and Madeleine L.L.C. (4)
 3.1     Certificate of Incorporation, filed June 14, 1994, as restated. (1)
 3.2     Amended and Restated Bylaws. (2)
 4.1     Specimen Copy of Common Stock Certificate. (1)
 4.2     DualStar Technologies Corporation 1994 Stock Option Plan, as amended. (1)
 4.3     1994 Stock Option Plan Amendment. (3)
 10.1    Employment Agreement between the Registrant and Gregory Cuneo, dated August 31, 1994.
         (1)
 10.2    Employment Agreement between the Registrant and Stephen J. Yager, dated August 31,
         1994. (1)
 10.3    Employment Agreement between the Registrant and Ronald Fregara, dated August 31,
         1994. (1)
 10.4    Employment Agreement between the Registrant and Robert J. Birnbach dated June 7,
         2000. (3)
 10.5    Employment Agreement between the Registrant and Nicholas Ahel dated June 1, 2000. (3)
 10.6    Employment Agreement between the Registrant and Barry Halpern dated June 1, 2000. (3)
 10.5    Second Amended and Restated Note, having an original issued dated as of December 1,
         1999, made by Registrant in favor of Madeleine L.L.C. (5)
 10.6    Stockholders Agreement dated March 28, 2000 among DualStar Technologies Corporation,
         Blackacre Capital Management L.L.C., Cerberus Capital Management, L.P., Gregory Cuneo
         and Robert J. Birnbach. (2)
 10.7    Stockholders Agreement dated as of November 8, 2000 by and among Registrant, DSTR
         Warrant Co., LLC, Technology Investors Group, LLC and certain members of Registrant's
         management. (5)
 10.8    Class E Warrant Agreement dated as of November 8, 2000 by and between Registrant and
         DSTR Warrant Co., LLC. (4)
 10.9    Registration Rights Agreement dated as of November 8, 2000 by and among Registrant,
         DSTR Warrant Co., LLC and Technology Investors Group, LLC. (5)
 10.10   Master Surety Agreement dated November 3, 1997 by the Company and its subsidiaries in
         favor of United States Fidelity and Guaranty Company, Fidelity and Guaranty Insurance
         Company, Fidelity and Guaranty Insurance Underwriters, Inc. (3)
 10.11   Registration Rights and Lock-Up Agreement dated as of May 10, 2000 by and among the
         Company and the former ParaComm stockholders.(3)
 10.12   Voting Agreement dated as of May 10, 2000 by and among the Company, Donald Johnson,
         Mark Mayhook and Geneva Associates Merchant  Banking Partners I, LLC. (3)
 10.13   Consulting Agreement dated as of June 1, 2000 between the Company and TechOne. (3)
 10.14   Consulting Agreement dated as of June 1, 2000 between the Company and Hades Advisors,
         LLC. (3)
 21.1    Subsidiaries of the Registrant.
 23.1    Consent of Grant Thornton LLP.
 27.1    Financial Data Schedule (electronic filings only).
</TABLE>



                                       29
<PAGE>

(1) Incorporated herein by reference to Registrant's Registration Statement on
Form S-1, File No. 33-83722, ordered effective by the Securities and Exchange
Commission on February 13, 1995.

(2) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q (File No. 0-25552) for the quarter ended March 31, 2000.

(3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
(File No. 0-25552) for the period ended June 30, 2000.

(4) Incorporated herein by reference to Registrant's Form 13D filed by Stephen
Feinberg on November 21, 2000.

(5) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q (File No. 0-25552) for the quarter ended December 31, 2000.



                                       30

</TEXT>
</DOCUMENT>
