As filed with the Securities and Exchange Commission on July 22, 1996
Registration No. 333-3501
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment #2
to
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THE HARMAT ORGANIZATION, INC.
(Name of small business issuer in charter)
Delaware 1521 11-2780723
(State or other (Standard Industrial (IRS Employer
jurisdiction of Primary Classification I.D. Number)
incorporation Code Number)
or organization)
(Address and telephone number, of registrant's
principal executive offices)
Old Country Road
P.O. Box 539
Quogue, New York 11959
(Address of principal place of business or
intended principal place of business)
(Name, address and telephone number, of agent for service)
MATTHEW SCHILOWITZ
c/o The Harmat Organization, Inc.
Old Country Road
P.O. Box 539
Quogue, New York 11959
(516) 653-3303
Please send a copy of all communications to:
DAVID W. SASS, ESQ. STEVEN WASSERMAN, ESQ.
McLaughlin & Stern, LLP Bernstein & Wasserman, LLP
380 Lexington Avenue 950 Third Avenue
New York, New York 10168 New York, New York 10022
(212) 867-2500 (212) 826-0730
Fax(212) 697-2817 Fax (212) 371-4730
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box [x]
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CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Title of Each Amount Offering
Class of Security Being Price per
Being Registered Registered Unit/Share
(1)
- -------------------------------------------------------------------------------
Units (each consisting
of one share of Common
Stock $.001 par value
and one Series A Common Stock
Purchase Warrant(2) 1,265,000 $ 3.50
Units
Shares of Common Stock
$.001 par value, under-
lying the Series A Common
Stock Purchase Warrants(2)(3) 1,265,000 $ 4.00
Shares
Representative's Warrant 110,000 $ .001
to Purchase Units Units
Units underlying
the Representative's
Warrant (3) 110,000 $ 4.20
Units
Shares of Common Stock
$.001 par value under-
lying the Series A Warrants
included in the
Representative's 110,000 $ 4.00
Warrant (3) Shares
Shares of Common Stock
$.001 par value offered 1,000,000 $ 3.25
by Selling Stockholders(4) Shares
Series A Common Stock
Warrants issued in a
private placement (3) 1,500,000 $ .001
Warrants
Shares of Common Stock
$.001 par value underlying
the Series A Warrants issued
in a private placement (3) 1,500,000 $ 4.00
Shares of Common Stock
$.001 par value underlying
the Series B Warrants
issued in a private 500,000 $ 9.00
placement (3)(5) Shares
Total.............................. $ 8,324.59
Previously paid.................. $ 7,415.19
Balance Due...................... $ 909.40
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CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Title of Each Aggregate Amount of
Class of Security Offering Registration
Being Registered Price Fee
--------------------------------------------------
Units (each consisting
of one share of Common
Stock $.001 par value
and one Series A Common Stock
Purchase Warrant(2) $ 4,427,500.00 $ 1,526.73
Shares of Common Stock
$.001 par value, under-
lying the Series A Common
Stock Purchase Warrants(2)(3) $ 5,060,000 1,744.84
Representative's Warrant $ 110.00 $ .04
to Purchase Units
Units underlying
the Representative's
Warrant (3) $ 462,000 $ 159.31
Shares of Common Stock
$.001 par value under-
lying the Series A Warrants
included in the
Representative's $ 440,000 $ 151.73
Warrant (3)
Shares of Common Stock
$.001 par value offered $ 3,250,000 $ 1,120.70
by Selling Stockholders(4)
Series A Common Stock
Warrants issued in a
private placement (3) $ 1,500 $ .53
Shares of Common Stock
$.001 par value underlying
the Series A Warrants issued
in a private placement (3) $ 6,000,000 $ 2,068.98
Shares of Common Stock
$.001 par value underlying
the Series B Warrants
issued in a private $ 4,500,000 $ 1,551.73
placement (3)(5)
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(1) Estimated solely for the purpose of calculating the
registration fee.
(2) Includes 165,000 Units which may be issued on exercise of
a 30-day option granted to the Underwriters to cover
over-allotments. See "Underwriting".
(3) Pursuant to Rule 416 there are also being registered such additional
shares as may be issued as a result of the anti-dilution provisions of
the Common Stock Purchase Warrants and the Representative's Warrant.
(4) Includes 500,000 shares of Common Stock sold in a private
placement in March 1996 contained in 500,000 Private Placement
Units, each Unit consisting of one share of Common Stock,
three Series A Warrants and one Series B Warrant. The Series
A Warrants are identical to the Warrants contained in the
Units. The Series B Warrants are exercisable at $9.00 per
share. Also includes 500,000 shares to be sold by Selling
Stockholders. These shares and warrants herein are being
registered for resale only pursuant to an alternate prospectus
prepared in connection with the Registration Statement.
(5) Represents shares of Common Stock underlying Series B Warrants sold in
a private placement in February 1996. These shares are being registered
for resale only pursuant to an alternate prospectus prepared in
connection with the Registration Statement.
------------------------------
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
-----------------------------
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EXPLANATORY NOTE
This registration statement covers the primary offering of Units by The
Harmat Organization, Inc. ("Company") and the offering of securities by certain
selling stockholders ("Selling Stockholders"). The Company is registering, under
the primary prospectus ("Primary Prospectus") 1,100,000 Units, each Unit
consisting of one share of Common Stock and one Class A Warrant and 200,000
shares of common stock being sold by a Selling Stockholder. The Selling
Stockholders are registering, under an alternate prospectus ("Alternate
Prospectus"), 800,000 shares of Common stock, 1,500,000 Class A Warrants and
2,000,000 shares of Common Stock underlying outstanding Class A and Class B
Warrants. The Alternate Prospectus pages, which follow the Primary Prospectus,
contain certain sections which are to be combined with all of the sections
contained in the Primary Prospectus, with the following exceptions: The front
and back cover pages, and the sections entitled "The Offering" and "Selling
Stockholders." In addition, the sections entitled "Concurrent Sales" and "Plan
of Distribution" will be added to the Alternate Prospectus. Furthermore, all
references contained in the Alternate Prospectus to the "offering" shall refer
to the Company`s offering under the Primary Prospectus.
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THE HARMAT ORGANIZATION, INC.
Cross Reference Sheet
Item Caption Location
1. Forepart of Registration Statement Outside Front Cover
Page and Outside Front Cover Page of Page
Prospectus
2. Inside Front and Outside Back Cover Inside Front and
Outside Pages of Prospectus Outside Back Cover
Pages
3. Summary Information and Risk Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting; Risk
Factors
6. Dilution Dilution
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Underwriting
9. Legal Proceedings Business-Litigation
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of
Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Underwriting-
Indemnification for Securities Act Indemnification
15. Organization Within Last Five Years The Company
16. Description of Business Business; Risk
Factors; Financial
Statements; Selected
Financial Data;
Prospectus Summary;
Use of Proceeds
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17. Management's Discussion and Analysis Management's
or Plan of Operation Discussion and
Analysis of
Financial
Condition and Results
of Operation
18. Description of Property Business-Properties
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Market Information;
Stockholder Matters Prospectus Summary
21. Executive Compensation Management-Executive
Compensation
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Not Applicable
Accountants on Accounting and
Financial Disclosure
8
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Subject to Completion dated July 22, 1996
PROSPECTUS
THE HARMAT ORGANIZATION, INC.
1,100,000 UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
and
200,000 SHARES OF COMMON STOCK
The Harmat Organization, Inc., a Delaware corporation (the "Company"),
is offering for sale 1,100,000 Units (the "Units"), each consisting of one share
of Common Stock, par value $.001 per share (the "Common Stock"), and one Series
A Redeemable Common Stock Purchase Warrant (the "Series A Warrants"). The shares
of Common Stock and the Series A Warrants included in the Units may be
separately transferred and traded immediately upon the date on which the
registration statement (the "Registration Statement") of which this prospectus
(the "Prospectus") forms a part is declared effective (the "Effective Date") by
the Securities and Exchange Commission (the "Commission"). This offering also
includes 200,000 shares of Common Stock owned and offered by an affiliate of the
Company (the "Underwritten Shares"). The Company will not receive any of the
proceeds from the sale of the shares of Common Stock by the holder thereof. See
"Selling Stockholders" and "Underwriting."
Each Series A Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $4.00 per share for a
period of four years commencing one year after the Effective Date. The Series A
Warrants are subject to redemption by the Company upon 30 days prior written
notice thereof (the "Redemption Notice") at any time after _________, 1997 at
$.05 per Series A Warrant if the closing bid price per share of Common stock has
equaled or exceeded $8.00 for 20 consecutive trading days ending within 10 days
of the Company's Redemption Notice. The exercise price and exercise date of the
Series A Warrants are subject to adjustment under certain circumstances
including, without limitation, the recapitalization or reorganization of the
Company and certain corporate combinations. See "Descriptions of Securities".
The offering price of the Units and the exercise price of the Series A Warrants
were determined arbitrarily by the Company and Biltmore Securities, Inc.
("Biltmore"), the underwriter of this offering (the "Underwriter"), and are not
necessarily related to the Company's assets, book value, net worth or any other
established criteria of value. See "Risk Factors" and "Underwriting". The
Company will receive proceeds (net of certain expenses) of its offering of the
Units, including the proceeds from the exercise, if any, of the Series A
Warrants included therein.
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See "Use of Proceeds." Upon completion of the Company's public offering,
management will own an aggregate of 46.3% (23.8% if the escrowed shares are not
included) 44.1% (22.8% if the escrowed shares are not included) if the
Over-Allotment Option, as hereinafter defined, is exercised in full) of the then
outstanding Common Stock of the Company.
The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of an option to purchase up to 110,000 Units as
well as 110,000 Units covered by the options and the underlying securities to be
issued to the Underwriter. The Warrants contained in the Units to be sold to the
Underwriter have the same terms and conditions as the public Series A Warrants
and are redeemable on the same terms as the Warrants forming a part of the Units
offered hereby. The Underwriter`s Unit Purchase Option is not redeemable by the
Company.
The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of 800,000 shares of Common Stock; 1,500,000
Series A Warrants and 2,000,000 shares issuable upon exercise of outstanding
Series A and Series B Warrants which were previously issued by the Company to
the holders thereof and are to be offered and sold by such stockholders (the
"Selling Stockholders"). The Series A Warrants offered by the Selling
Stockholders are identical in all respects to the Warrants forming a part of the
Units offered hereby. The Series B Warrants are identical to the Series A
Warrants except that the exercise price is $9.00 per share, the term is for four
years and the strike price for redemption is $10 per share. Such securities are
subject to an 18 month lock-up by the Underwriter. The shares and Warrants being
offered by the Selling Stockholders are being registered for resale purposes
only pursuant to an Alternate Prospectus. Sales of the securities to be offered
by Selling Stockholders (or even the potential of such sales) would likely have
an adverse effect on the market prices of the securities being offered by the
Company. The Company will not receive the proceeds of any sale of such
securities by the Selling Stockholders. The Selling Stockholders will receive
the proceeds from the sale, if any, of the securities to be offered by Selling
Stockholders. Except as otherwise set forth herein, the costs incurred in
connection with the registration of such securities are to be borne by the
Company. See "Selling Stockholders."
AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN INVOLVES A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" AND "DILUTION."
SUCH SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Public Underwriting Discounts
and Commissions (1)
Per Unit offered by $ 3.50 $ .35
Company............
Per Share offered by $ 3.25 $ .325
Selling Stockholder
Total(3)..... $ 4,500,000 $ 450,000
Proceeds to Company(2) Proceeds to Selling
Stockholders
$ 3.15 $ -0-
$ - $2.925
$3,465,000 $585,000
BILTMORE SECURITIES, INC
The Date of this Prospectus is _______, 1996
- ---------------
(1) Does not include additional underwriting compensation to be
paid by the Company to the Underwriter in the form of: (a) an
option to purchase up to 110,000 Units (the "Underwriter's
Unit Purchase Option") at an exercise price equal to 120% of
the public offering price ($4.20 per Unit); and (b) a non-
accountable expense allowance of $135,000 Non-Accountable
Expense Allowance") equal to 3% of the aggregate initial
public offering price of the Units and the Shares(or $152,325
assuming exercise in full of the Over-Allotment Option, as
defined below), $25,000 of which has been advanced to the
Underwriter.
(2) Exclusive of exercise of the Over-Allotment Option (as defined
below) and before deducting expenses payable by the Company
estimated at $410,500 (including the Underwriter's Non-
Accountable Expense Allowance of $115,000 payable by the
Company). After deducting such expenses and applicable
underwriting discounts, the net proceeds to the Company,
exclusive of the exercise of the Over-Allotment Option (as
defined below), will be approximately $3,054,500.
(3) The Company has granted an option to the Underwriter to
purchase up to an aggregate of 165,000 additional Units
exercisable for a period of 30 days following the Effective
Date to cover over-allotments, if any, at the initial public
offering price ($3.50 per Unit) less an underwriting discount
equal to 10% of the public offering price (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full,
the total of each of the Price to Public, Underwriting
Discounts and Commissions, and Proceeds to the Company of each
of the Price to Public, Underwriting Discounts and
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Commissions, and Proceeds to the Company will be $4,427,500, $442,750
and $3,984,750, respectively (exclusive of other expenses payable by
the Company and the Non-Accountable Expense Allowance). Assuming
exercise of the Over-Allotment Option and after deducting expenses and
applicable underwriting discounts, the net proceeds to the Company will
be approximately $3,556,925, See "Underwriting."
Prior to the Company's public offering as described herein, there has
been no public market for the Units, the Common Stock or the Series A Warrants,
and no assurance may be given that a public market will develop following the
completion of the offering or that, if any such market does develop, it will be
sustained. The Company has applied to have the Units, the Common Stock and the
Series A Warrants listed for quotation on The NASDAQ SmallCap MarketSM
("NASDAQ") under the symbols: "HMATU", "HMAT", and "HMATW", respectively. There
can be no assurance given that the Company will be able to satisfy on a
continuing basis the requirements for quotation of such securities on NASDAQ.
See "Risk Factors - No Assurances of Public Market or Continued NASDAQ Listing,"
"Risk Factors-Penny Stock Regulations" and "Market for the Company's Securities
and Other Related Stockholder Matters."
The securities being offered for sale by the Company are being offered
on a "firm commitment" basis, subject to prior sale, when, as and if delivered
to and accepted by the Underwriter pursuant to the terms of the underwriting
agreement relating to the offering. See "Underwriting." It is expected that
delivery of certificates representing the securities being offered by the
Company will be made against payment therefor at the offices of the Underwriter
on or about ______, 1996. The Company does not currently file reports and other
information with the Commission. However, following completion of its offering,
the Company intends to issue annual reports containing audited financial
statements and such interim reports to its Securityholders as the Company may
determine to furnish or as the same may be required by law. See "Available
Information."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALTHOUGH IT HAS NO LEGAL OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM
TIME TO TIME ACT AS A MARKETMAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE
COMPANY'S SECURITIES. THE UNDERWRITER WILL NOT ACT AS A MARKETMAKER UNTIL SUCH
TIME AS ITS PARTICIPATION IN THIS OFFERING IS COMPLETE. THE UNDERWRITER, IF IT
PARTICIPATES IN THE MARKET, MAY BE A DOMINATING INFLUENCE IN ANY MARKET THAT
MIGHT DEVELOP FOR ANY OF THE COMPANY'S SECURITIES. SUCH ACTIVITIES, IF
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COMMENCED, MAY BE DISCONTINUED AT ANY TIME OR FROM TIME TO TIME.
THEREFORE, THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL OR WILL
NOT BE A DOMINATING INFLUENCE. THE PRICES AND LIQUIDITY OF THE
SECURITIES OFFERED HEREUNDER MAY BE AFFECTED BY THE DEGREE, IF ANY,
OF THE UNDERWRITER'S PARTICIPATION IN THE MARKET. SEE "RISK
FACTORS" AND "UNDERWRITING."
AVAILABLE INFORMATION
Upon completion of its offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, a amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copies at the Commission's
public reference room located in Room 1024 at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials may also be obtained at prescribed rates from
the Public Reference Section of the Commission located in Room 1024 at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Company has filed a Registration Statement relating to the
securities offered hereby with the Commission pursuant to the provision s of the
Securities Act of 1933, as amended (the "Securities Act"). Although this
Prospectus forms a part of the Registration Statement, it does not contain all
of the information set forth in the Registration Statement, the exhibits or the
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the registration Statement, the
exhibits and the schedules thereto. Summaries of and references to various
documents in this Prospectus do not purport to be complete and in each case
reference is made to the copy of such document which has been filed as an
exhibit to the Registration Statement.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
data (including any financial statements and the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share and per
share amounts set forth hereinafter have been adjusted to reflect the issuance
to Matthew Schilowitz, the Company's President, CEO and Chairman of the Board of
Directors, in March 1, 1996 of 1,750,000 shares of Common Stock of the Company
in exchange for shares of
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common stock of Harmat Homes, Inc., Harmat Capital Corp., Northside Woods, Inc.,
Harmat Holding Corp., Harmat Organization, Inc. and Quick Storage of Quogue,
Inc. (collectively the "Subsidiaries"). The consideration for such exchange was
arbitrarily determined and was not an arms-length transaction. Of such 1,750,000
shares, 750,000 shares have been placed in escrow to be released from escrow in
the event certain financial goals are achieved. The Company has outstanding
prior to the Offering contemplated hereby 2,250,000 shares of Common Stock. See
"The Company;" and "Certain Transactions." Each prospective investor is urged to
read this Prospectus in its entirety.
The Company
The Harmat Organization, Inc. (hereinafter with its Subsidiaries
collectively "Harmat" or the "Company"), incorporated on December 14, 1995, a
Delaware corporation, is a construction, architectural and landscape design and
real estate development firm based in Long Island, New York. Harmat builds
custom homes on either the client's land or on properties owned or controlled by
entities affiliated with Harmat. The Company also builds commercial and
residential rental properties. The Company also offers interior design,
renovation and restoration services to its clients. In addition, Harmat owns
undeveloped land, storage facilities containing 115 units, rental properties and
is involved in real estate development projects. Over the past ten years, the
Company has focused its efforts in the Suffolk County area of eastern Long
Island, New York, where it has built approximately 150 single-family homes as
well as such commercial/public projects as the 6,000 square feet center of
Jewish Life in Westhampton Beach, the Hamptons Synagogue. The Company is
currently constructing a 14 unit luxury condominium in Westhampton Beach on a 10
acre bayfront property on Dune Road consisting of club house, 6 tennis courts,
pool, patio, beach access and 30 boat slips. The Company maintains its principal
office at 2 Old Country Road, Quogue, NY 11959; its phone number is (516)
653-3303.
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The Offering
Securities Offered by the Company... 1,100,000 Units, each consisting of one
share of Common Stock and one Series A Redeemable Common Stock Purchase Warrant.
Each Series A Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $4.00 per share for a period of four years
commencing one year after the Effective Date and terminating on the earlier of
its expiration date on ______, 2001 or the prior redemption thereof by the
Company. The Series A Warrants are subject to redemption at $.05 per warrant at
any time after _______ 1997 on 30 days notice if the closing bid price of the
Common Stock equals or exceeds $8.00 for 20 consecutive days within 10 days of
redemption notice.
See "Description of Securities."
Securities Offered by Selling Stockholder 200,000 Shares
Securities Outstanding Prior to the
Company's Offering
Common Stock................... 2,250,000 Shares
Series A Warrants.............. 1,500,000
Series B Warrants............... 500,000
Securities Outstanding After the
Company's Offering:
Common Stock (1)................. 3,350,000 Shares
Series A Warrants(2)............. 2,600,000 Warrants
Series B Warrants................ 500,000 Warrants
Proposed NASDAQ SmallCap MarketSM
Symbols(3);
Units............................ HMATU
Series A Warrants................ HMATW
Common Stock..................... HMAT
- ---------------
(1) Does not include: (a) 2,000,000 shares of Common Stock
issuable upon exercise of the Series A and Series B Warrants
issued in a private placement and 1,100,000 shares of Common
Stock issuable upon exercise of the Series A Warrants
contained in the Units; (b) 165,000 shares of Common Stock
issuable upon exercise of the Over-Allotment Option and
165,000 shares of Common Stock issuable upon the exercise of
the Series A Warrants contained therein; (c) 110,000 shares of
Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option and 110,000 shares of Common Stock issuable
upon exercise of the Series A Warrants issuable upon exercise
thereof; (d) 400,000 shares of Common Stock reserved for
issuance pursuant to the Company's Stock Option Plan (as
hereinafter defined); and (e) 750,000 shares of Common Stock
reserved for issuance pursuant to an option issued to an
officer of the Company. In the event all outstanding options
(excluding 165,000 options covering the over-allotment option
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and 400,000 shares covered by the Company's qualified option plan but
including 110,000 shares covered by the Underwriters Unit Purchase
Option and 750,000 shares covered by the Employment Option granted to
Mr. Schilowitz, the President of the Company) were exercised there
would be 7,310,000 shares of Common Stock outstanding. See "Description
of Securities," "Certain Transactions," "Management-Other Options or
Plans" and "Underwriting."
(2) Does not include the issuance of: (a) 165,000 Series A
Warrants issuable upon exercise of the Over-Allotment Option;
or (b) 110,000 Series A Warrants issuable upon the exercise of
the Underwriter's Unit Purchase Option. See "Underwriting" and
"Description of Securities."
(3) The Units, the Common Stock and the Series A Warrants are
expected to be listed for quotation on NASDAQ under the
symbols: "HMATU", "HMAT" and "HMATW", respectively. There can
be no assurance given that the Company will be able to satisfy
on a continuing basis the requirements for quotation of such
securities on NASDAQ. See "Risk Factors" and "Market for the
Company's Securities and Other Related Stockholder Matters."
Risk Factors
An investment in any of the securities being offered hereby is highly
speculative and involves substantial risks including, but not limited to, the
Company`s working capital and shareholder`s deficits, economic dependency,
inherent risks of the real estate business, the risks of the construction
industry, potential conflicts of interest, the Company's ongoing capital
requirements, dependence upon and application of the proceeds of the Company's
public offering, the potential need for additional financing, the Company's
reliance on senior management, "penny stock" regulations, the Underwriter's
influence on the market, industry competition, lack of assurance with respect to
continued quotation of any of the Company's securities on NASDAQ (or any other
quotation market or exchange), lack of cash dividends and dilution. See "Risk
Factors," "Business," "Dilution," "Market for the Company's Securities and Other
Related Stockholder Matters" and "Underwriting."
Use of Proceeds
The Company will receive the net proceeds of its offer and sale of the
Units and will receive the proceeds from the exercise, if any, of the Series A
Warrants included in the Units. The Company intends to use the net proceeds from
its offering of the Units for the following: (i) approximately $600,000 for the
acquisition and development of property; (ii) repayment of approximately
$1,068,048 in outstanding indebtedness; and (iii) the remainder of
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approximately $1,386,452, for general working capital purposes.
See "Risk Factors-Use of Proceeds Subject to Management
Discretion," and "Use of Proceeds."
Summary Financial Information
The following summary of selected financial information concerning the
Company, other the "As Adjusted" information reflecting the Company's receipt
and use of the net proceeds of its public offering (see "Use of Proceeds"), has
been derived from the financial statements (including the related notes thereto)
of the Company included elsewhere in this Prospectus (the "Financial
Statements"). This information should be read in conjunction with the Financial
Statements and the section hereof entitled "Management's Discussion and Analysis
of Financial condition and Results of Operations." The financial information
presented below for each of the fiscal years ended December 31, 1995 and
December 31, 1994 and the three months ended March 31, 1996 and 1995 has been
derived from audited financial statements.
December 31,
1995
Balance Sheet Data
Working Capital (Deficit).............. (1,206,453)
Total Assets........................... 2,694,555
Total Liabilities...................... 2,876,485
Total Long-Term Obligations............ 1,156,273
Stockholders' Equity (Deficit)......... (181,930)
March 31, 1996
Actual As Adjusted(1)
Balance Sheet Data
Working Capital (Deficit).............. (1,201,617) 752,883
Total Assets........................... 3,205,848 5,192,300
Total Liabilities...................... 3,157,100 2,089,052
Total Long-Term Obligations............ 925,445 777,797
Stockholders' Equity................... 48,748 3,103,248
Three Months Ended March 31,
1996 1995
Income Statement Data
Revenues................................ 87,822 45,783
Income from Operations.................. (43,818) (42,205)
Net Income (Loss)....................... (45,056) (113,857)
Pro Forma Net Earnings.................. (45,056)
Pro Forma Net Earnings per Share of
Common Stock........................... (.02)
Weighted Average Number of Common Shares
Outstanding Used in Computation......... 2,250,000
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December 31, December 31,
1995 1994
Income Statement Data
Revenues (2)............................ 2,323,524 4,518,872
Income from Operations.................. 131,710 1,260
Net Income (Loss)....................... 235,903 258,171
Pro Forma Net Earnings.................. 141,000
Pro Forma Net Earnings per Share of
Common Stock........................... .06
Weighted Average Number of Common Shares
Outstanding Used in Computation......... 2,250,000
(1) Includes the effect of the proposed public offering with anticipated
net proceeds of $3,054,500.
(2) The decrease of sales revenues from 1994 to 1995
reflects the Company's decision to expand into the
construction management phase of the commercial real
estate market. In 1995, the Company entered into a
construction management contract to supervise the
construction of a 14 unit condominium project in
Westhampton, N.Y. As a result, all sales revenue
generated by the sale of these condominium units were
not reflected on the books of the Company, only the
construction management fee for the construction
period was reflected as revenue.
In addition, the Company has moved towards constructing
homes for the upscale market which has resulted in fewer homes
delivered last year. Although, fewer homes were delivered in
1995 than in 1994, the gross profit margin increased in 1995.
This increase in gross profit indicates the Company's
direction in producing an upscale product at that same time
monitoring costs.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK. SUCH SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE INVESTOR
SHOULD, PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS,
AS WELL AS ALL OF THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS
AND THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS, THE NOTES THERETO AND
THE DOCUMENTS REFERENCED HEREIN.
Modified Independent Auditor`s Report - Financial Losses
The financial statements have been prepared assuming that the Company
will continue as a going concern and the accountant's report contains a going
concern modification. There can be no assurance that the Company's business
strategy will prove successful, or that the Company will operate profitably.
Since the Company has incurred operating losses from inception and has capital
and working capital deficiencies, there is doubt as to the Company's ability to
continue as a going concern. See "Business",
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"Financial Statements" and "Management's Discussion and Analysis".
Economic Dependency
Most of the Company`s business is of a non-recurring nature. The
Company must continually market its homes in order to attract new purchasers.
Unless the Company is successful in attracting new purchasers for its houses,
such lack of new purchasers will have a negative impact to the Company in the
near term.
Inherent Risks of the Real Estate Business
The real estate business is highly speculative. Land values and/or home prices
may fluctuate significantly, and the rate of home sales can be slow.
Furthermore, the Company's building has been centered in the Hamptons resort
area in eastern Long Island, New York, where the bulk of the market consists of
vacation homes. This market is highly dependant upon the disposable income of
potential buyers as well as the interest rate climate and the availability of
suitable financing for both the Company and its clients. No assurances can be
given that the housing or commercial real estate market will expand such that
the Company will be profitable or that the Company's inventory of homes and lots
will sell at such a rate that the Company will be able to carry such inventory.
See "Business."
Inherent Risks of the Construction Industry
The construction industry poses certain inherent risks to the Company,
such as a shortage of skilled labor or labor problems such as strikes, walkouts,
etc. In addition, certain other problems may arise resulting in construction
delays such as weather delays, cost of supplies and late deliveries and/or cost
overruns that the Company may have to absorb. Furthermore, the Company may incur
unexpected costs with respect to warranty service on completed projects even
though it carries warranty insurance to cover such contingencies. Such
construction risks can affect the Company`s cash flow and profits. To date the
Company has not been materially affected by such construction risks. See
"Business."
Expansion of Business - Unspecified Acquisitions
The Company proposes to seek opportunities to expand its business in
commercial real estate and to acquire income producing properties such as mini
storage facilities, apartments and commercial strip retail centers. The Company
has not entered into any negotiations in respect thereto. Such opportunities
management believes are attractive since they require low maintenance, limited
supervision and a preferred return. No assurance can be given that
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the Company will be able to expand its business or realize
profitable operations. See "Business - Strategy".
Dependence Upon Key Individual
The Company's success is dependent upon the activities of Matthew C.
Schilowitz, its principal shareholder and officer. The loss of Mr. Schilowitz'
services through death, disability or resignation will have a material and
adverse effect on the business of the Company. The Company has a five year
employment agreement with Mr. Schilowitz. The Company intends to obtain keyman
insurance on the life of Mr. Schilowitz in the amount of $1,000,000. See
"Management".
Seasonality
The Company generally experiences an increase in revenues in the fall when it
commences the majority of its construction projects, and a decrease in revenues
during the summer, when it does most of its marketing and in the winter, when
adverse weather may make construction difficult. The Company sometimes obtains
bridge loans to cover construction costs and utilizes its rental income from
apartments and the storage facility to cover its overhead during slow periods.
The Company`s construction projects usually begin in the fall with most sales
completed in the spring and early summer.
See "Business - Seasonality".
Broad Discretion in Application of Proceeds
The management of the Company has broad discretion to adjust the
application and allocation of the net proceeds of this offering of approximately
$1,986,452 or 65% of the net proceeds, including up to $4,400,000 funds that may
be received upon exercise of the Class A Warrants, in order to address changed
circumstances and opportunities. As a result of the foregoing, the success of
the Company will be substantially dependent upon the discretion and judgment of
the management of the Company with respect to the application and allocation of
the net proceeds hereof. Pending use of such proceeds, the net proceeds of this
offering will be invested by the Company in temporary, short-term
interest-bearing obligations. See "Use of Proceeds," "Business" and
"Management."
Possible Need for Additional Financing
The Company intends to fund its operations and other capital
needs for the next twelve (12) months substantially form operations
and the proceeds of this offering, but there can be no assurance
that such funds will be sufficient for these purposes. The Company
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may require substantial amounts of the proceeds of this offering for its future
expansion, operating and capital needs, there can be no assurance that such
financing will be available, or that it will be available on acceptable terms.
See "Use of Proceeds."
Conflicts of Interest
Mr. Schilowitz currently has interests in several real estate
development projects either individually or through entities either owned
outright or controlled by him. To the extent feasible, Mr. Schilowitz will seek
to have the Company retained as a construction and/or development firm for such
projects, and to have the Company receive a management fee for services provided
to such entities. All such arrangements will be reviewed solely by the Company's
outside directors, who will determine the value of any services provided by the
Company and attempt to ensure that all terms received by the Company will be
equivalent to those granted by unrelated third parties. Additional conflicts
could occur by reason of the fact that a director of the Company is a member of
the law firm representing the Company. See "Certain Transactions" and "Legal
Matters".
Working Capital - Use of Proceeds
A portion (approximately $1,386,452 or 45.4%) of the proceeds derived
from the sale of the Units offered hereby will be added to the Company's general
working capital. Management will have complete discretion as to the application
of such funds. No assurance can be given as to the amounts that will be raised
under this offering and if such amounts will be sufficient to meet the Company's
needs. See "Use of Proceeds."
Competition
The Company faces competition from a number of local builders, many of
which can offer either the same or lower building costs than the Company. The
Company seeks to compete not solely on the basis of price, however, but also on
the basis of quality, reliability, selection of quality building sites, customer
service and its ability to offer a "turn key" operation. No assurances can be
given that this strategy will enable the Company to compete successfully. See
"Business - Competition."
Government Regulation
The Company is subject to federal and state regulations regarding
environmental, and the construction industry generally and is therefore subject
to expenditures to maintain its compliance
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with these regulations. To date, the Company has had no problems in complying
with such laws nor experienced any unusual cost with respect to compliance
therewith. The Company is also subject to changes in these regulations that may
have a materially adverse effect on its business. See "Business - Government
Regulation".
Limitation on Directors' Liabilities Under Delaware Law
The Company's Certificate of Incorporation limits the liability of the
Company's directors for breach of their fiduciary duty of care to the Company.
The effect is to eliminate liability of directors for monetary damages arising
out of negligent or grossly negligent conduct. Stockholder actions against a
director of the Company for monetary damages can only be maintained upon a
showing of a breach of the individual director's duty of loyalty to the Company,
a failure to act in good faith, intentional misconduct, a knowing violation of
the law, an improper personal benefit, or an illegal dividend or stock purchase,
and not for such director's negligence or gross negligence in satisfying his
duty of care. See "Description of Securities".
Limitation on Future Issuance of Securities
The Underwriting Agreement prohibits the Company from issuing any
capital stock or other securities for a period of 18 months following the
Effective Date without the Underwriter's prior consent. This provision may limit
the Company's ability to raise additional equity capital. The purpose of such
provision is to protect against unnecessary dilution to the public shareholders.
Arbitrary Determination of Offering Price of Securities
The public offering price of the Units and the exercise price of the
Series A Warrants were determined by negotiation between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, book value, net worth or any other established criteria of value. Among
the factors considered in determining such prices were the Company's historical
performance and growth, management's assessment of the Company's business
potential and earning prospects, the prospects for growth in the industry in
which the Company operates, market prices and prevailing market conditions
generally. Neither the offering price of the Units nor the exercise price of the
Series A Warrants should be regarded as indicative of the actual value of any of
the securities being offered by the Company. See "Underwriting".
Immediate and Substantial Dilution
Purchasers of the securities being offered by the Company will suffer
immediate substantial dilution in the net tangible book value of shares of
Common Stock purchased in the amount of $2.40
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per share, or approximately 68.6%, assuming that with the anticipated $3.50
price per Unit $3.25 is attributed to the share of Common Stock and $.25 is
attributed to the Series A Warrants included in each Unit. Additional dilution
may result in the event of the exercise of options granted pursuant to the
Company's Stock Option Plan (as hereinafter defined). See "Dilution," "Stock
Option Plan," and "Other Options and Plans," "Description of Securities" and
"Certain Transactions."
Absence of Dividends on Common Stock
The Company has not paid any dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, working capital
and earnings, if any, will be retained for use in the Company's business
operations and in the expansion of its business. The Company has no present
intention to pay cash dividends on its Common Stock. See "Dividend Policy" and
"Description of Securities".
Future Issuances of Stock by the Company; Potential Anti-Takeover
Effect
The Company has authorized capital stock of 25,000,000 shares of Common
Stock, $.001 par value per share, and 5,000,000 shares of preferred stock, $.001
par value per share (the "Preferred Stock"). As of the date hereof, there are
2,250,000 shares of Common Stock issued and outstanding. Although there are no
present plans, agreement or undertakings with respect to the Company's issuance
of any shares of stock or related convertible securities, other than as
disclosed herein, the issuance of any of such securities by the Company could
have anti-takeover effects insofar as such securities could be used as a method
of discouraging, delaying or preventing a change in control of the Company. Such
issuance could also dilute the public ownership of the Company. Inasmuch as the
Company may, in the future, issue authorized shares of Common Stock or Preferred
Stock without prior stockholder approval, there may be substantial dilution to
the interests of the Company's stockholders. In addition, a stockholder's pro
rata ownership interest in the Company may be reduced to the extent of the
issuance and/or exercise of any options or warrants relating to the Common Stock
or Preferred Stock (including exercise of the Over-Allotment Option and the
Series A Warrants included therein, and the Series A Warrants included therein
and the Series A Warrants included in the Units). See "Use of Proceeds,"
"Capitalization," "Description of Securities" and "Underwriting".
Future Sales of Stock by Stockholders
All of the Company's 2,250,000 outstanding shares of Common Stock are
"restricted securities" as that term is defined under the Securities Act and in
the future may only be sold in compliance with Rule 144 promulgated under the
Securities Act or pursuant to
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an effective registration statement. Rule 144 provides, in essence, that a
person (including a group of persons whose shares are aggregated) who has
satisfied a two-year holding period for such restricted securities may sell
within any three-month period, under certain circumstances, an amount of
restricted securities which does not exceed the greater of 1% of that class of
the Company's outstanding securities or the average weekly trading volume of
that class of securities during the four calendar weeks prior to such sale. In
addition, pursuant to Rule 144, persons who are not affiliated with the Company
and who have held their restricted securities for at least three years are not
subject to the quantity limitations or the manner of sale restriction of the
rules. As of the date hereof, no shares of Common Stock are available for resale
pursuant to Rule 144. However, 1,000,000 shares of the 2,250,000 shares of the
Company issued and outstanding Common Stock have been included in the
Registration Statement of which this Prospectus forms a part. Pursuant to an
agreement with the Underwriter, the officers, directors and holders of 5% or
more of the Company's equity securities are restricted from selling their
respective securities for a period of 18 months from the Effective Date, absent
waiver of such restriction by the Underwriter. In addition, 750,000 shares are
held in escrow and will only be released if certain financial goals relating to
the Company achieving earnings before taxes at certain levels. The Underwriter
required that all shareholders of the Company lock-up their securities in order
for the Underwriter to engage in the Offering. In previous offerings the
Underwriter has released the lock-up prior to the end of the lock-up period. In
making its decision to release the lock-up , the Underwriter evaluates the
totality of the facts and circumstances that exist at the time the decision is
made, including, without limitation market demand for the securities and trading
volume.
See "Certain Transactions" and "Underwriting."
In the event that shares of Common Stock which are not currently
salable become salable by means of registration, eligibility for sale under Rule
144 or otherwise and the holders of such shares of Common Stock elect to sell
such shares of Common Stock in the public market, there is likely to be negative
effect on the market price of the Company's securities and on the ability of the
Company to obtain additional equity financing. In addition, to the extent that
such shares of Common Stock enter the market, the value of the Common Stock in
the over-the-counter market may be reduced. No predictions can be made as to the
effect, if any, that sales of the Units, the Common Stock and the Series A
Warrants or the availability of the Units, the Common Stock and the Series A
Warrants for sale will have on the market price of any such securities which may
prevail from time to time. Nevertheless, the foregoing could adversely affect
such prevailing market prices. See "Shares Eligible For Future Sale," "Principal
Stockholders," "Certain Transactions" and "Description of Securities."
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Authorization of Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of Preferred Stock with such rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors may, without shareholder approval, issue shares of Preferred Stock
with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of Common
Stock. In addition, the issuance of such Preferred Stock may have the effect of
rendering more difficult, or discouraging, an acquisition of the Company or
changes in control of the Company. Although the Company does not currently
intend to issue any shares of Preferred Stock, there can be no assurance that
the Company will not do so in the future. See "Risk Factors Future Issuances of
Stock by the Company; Potential Anti-Takeover Effect", and "Description of
Securities".
Financial Risk to Investors in Public Offering
Upon completion of the Company's public offering, the Company's current
stockholders will have paid $525,000 for 2,250,000 shares of Common Stock, or
67.2% (57.7% if the escrowed shares are not included) of the Company's then
outstanding shares of Common Stock, and purchasers of the Units in the Company's
public offering will have paid $3,850,000 for 1,100,000 shares of Common Stock,
or 32.8% (42.3% if the escrowed shares are not included) of the Company's then
outstanding shares of Common Stock, assuming no exercise of the Over-Allotment
Option or the Underwriter's Unit Purchase Option and no exercise of the Series A
Warrants included in the Units being offered by the Company pursuant hereto, the
Units issuable upon exercise of the Over- Allotment Option or the Units issuable
upon exercise of the Underwriter's Unit Purchase Option but including the
750,000 shares held in escrow. Therefore, investors purchasing Units in the
Company's public offering will bear a substantially greater financial risk than
the Company's current stockholders. See "Dilution."
No Assurance of Public Market or Continued NASDAQ Listing
Prior to the Company's public offering, there has been no public market
for any of the Company's securities, and there can be no assurance given that a
regular trading market for the Units, the Common Stock and/or the Series A
Warrants will develop after the completion of the Company's public offering. If
a trading market does in fact develop for any of the foregoing securities, there
can be no assurance given that it will be sustained. In connection with the
Company's public offering, the Company applied for and was
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granted inclusion of the Units, the Common Stock and the Series A Warrants for
quotation on NASDAQ under the symbols: HMATU, HMAT and HMATW, respectively.
While such securities are currently listed for quotation on NASDAQ, there can be
no assurance given that the Company will be able to satisfy the requirements for
continued quotation on NASDAQ or that such quotation will otherwise continue.
If, for any reason, any of such securities become ineligible for continued
listing and quotation or a public trading market does not develop, purchasers of
such securities may have difficulty selling their securities should they desire
to do so.
Under the current rules of the National Association of Securities
Dealers, Inc. ("NASD"), in order to qualify for initial listing on NASDAQ, a
company must have, among other things, at least $4,000,000 in total assets,
$2,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $3.00 per share. For continued listing, a
company must have, among other things, $2,000,000 in total assets, $1,000,000 in
total capital and surplus, $1,000,000 in market value of public float and a
minimum bid price of $1.00 per share. Although the Company is able initially to
satisfy the requirements for quotation on NASDAQ, it may be unable to satisfy
the requirements for continued quotation thereon, and trading, if any, in the
securities being offered hereby would be conducted in the over-the-counter
market in what are commonly referred to as the "pink sheets" of the National
Quotation Bureau, Inc. or on the NASD OTC Electronic Bulletin Board. As a
result, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the price of such securities. See "Underwriting".
"Penny Stock" Regulations
The Commission has adopted regulations which define a "penny stock" to
be any equity security that has a market price (as defined) of less than $5.00
per share, subject to certain exceptions. The Company believes that, as of the
date of this Prospectus, the Units, the Common Stock and/or the Series A
Warrants may be deemed to be "penny stocks" as defined by the Exchange Act and
the rules and regulations promulgated thereunder. For any transaction involving
a penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by the Commission relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities information on the limited market in penny stocks and, if the
broker-dealer is the sole marketmaker, the broker-dealer must disclose this fact
and the broker-dealer's presumed control over the market. In addition, the
broker-dealer must obtain a written acknowledgment from the customer that such
disclosure information was provided and must retain such acknowledgment from the
customer for at least three
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years.
Further, monthly statements must be sent to the customer disclosing
current price information for the penny stock held in the account. While many
NASDAQ-listed securities would otherwise be covered by the definition of penny
stock, transactions in a NASDAQ- listed security would be exempt from all but
the sole marketmaker provision for: (I) issuers who have $2,000,000 in tangible
assets ($5,000,000 if the issuer has not been in continuous operation for three
years); (ii) transactions in which the customer is an institutional accredited
investor; and (iii) transactions that are not recommended by the broker-dealer.
In addition, transactions in a NASDAQ-listed security directly with a NASDAQ
marketmaker for such securities would be subject only to the sole marketmaker
disclosure, and the disclosure with respect to commissions to be paid to the
broker-dealer and the registered representative.
The above-described rules may materially adversely affect the liquidity
for the market of the Company's securities. Such rules may also affect the
ability of broker-dealers to sell the Company's securities and may impede the
ability of holders (including, specifically, purchasers in this offering) of the
Units, the Common Stock, the Series A Warrants or the Common Stock underlying
the Series A Warrants to sell such securities in the secondary market.
Underwriter's Influence on the Market
Although it has no legal obligation to do so, the Underwriter may from
time to time act as a marketmaker and otherwise effect transactions in the
Company's securities. To the extent the Underwriter acts as a marketmaker in the
Units, the Common Stock or the Series A Warrants, it may be a dominating
influence in that market. The price and liquidity of such securities may be
affected by the degree, if any, of the Underwriter's participation in the market
inasmuch as a significant amount of such securities may be sold to customers of
the Underwriter. Such customers subsequently may engage in transactions for the
sale or purchase of such securities through or with the Underwriter. In the
event that marketmaking activities are commenced, the Underwriter may
discontinue such activities at any time or from time to time. See
"Underwriting."
Litigation Involving the Underwriter - SEC Judgement
The Company has been advised by the Underwriter that on or about May
22, 1995, the Underwriter and Elliot Lowenstern and Richard Bronson, principals
of the Underwriter, and the Securities and Exchange Commission (the
"Commission") agreed to an offer of settlement (the "Offer of Settlement") in
connection with a complaint filed by the Commission in the United States
District Court for the Southern District of Florida alleging violations of
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the federal securities laws, Section 17(a) of the Securities Act of 1933,
Section 10(b) and 15(C) of the Securities Exchange Act of 1934, and Rules 10b-5,
10b-6 and 15c1-2 promulgated thereunder. The complaint also alleged that in
connection with the sale of securities in three (3) IPOs in 1992 and 1993, the
Underwriter engaged in fraudulent sales practices. The proposed Offer of
Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The Offer
of Settlement was approved by Judge Gonzales on June 6, 1995. Pursuant to the
final judgment (the "Final Judgment"), the Underwriter:
* was required to disgorge $1,000,000 to the Commission,
which amount was paid in four (4) equal installments on
or before June 22, 1995; and
* agreed to the appointment of an independent consultant
("Consultant").
Such Consultant is obligated, on or before May 15, 1996:
* to review the Underwriter's policies, practices and
procedures in six (6) areas relating to compliance and
sales practices;
* to formulate policies, practices and procedures for the
Underwriter that the Consultant deems necessary with
respect to the Underwriter`s compliance and sales
practices;
* to prepare a report devoted to and which details the
aforementioned policies, practices and procedures (the
"Report");
* to deliver the Report to the President of the Underwriter
and to the staff of the Southeast Regional office of the
Commission;
* to prepare, if necessary, a supervisory procedures and
compliance manual for the Underwriter, or to amend the
Underwriter's existing manual; and
* to formulate policies, practices and procedures designed
to provide mandatory on-going training to all existing
and newly hired employees of the Underwriter. The Final
Judgment further provides that, within thirty (30) days
of the Underwriter's receipt of the Report, unless such
time is extended, the Underwriter shall adopt, implement
and maintain any and all policies, practices and
procedures set forth in the Report.
The Final Judgment also provides that an independent auditor
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("Auditor") shall conduct four (4) special reviews of the Underwriter's
policies, practices and procedures, the first such review to take place six (6)
months after the Report has been delivered to the Underwriter and thereafter at
six-month intervals. The Auditor is also authorized to conduct a review, on a
random basis and without notice to the Underwriter, to certify that any persons
associated with the Underwriter, who have been suspended or barred by any
Commission order are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and
Bronston was dismissed with prejudice. Mr. Bronson has agreed to a suspension
from associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of such suspension. Mr.
Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing upon
the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Company`s
stock, and additional brokers do not make a market in the Company`s securities,
the market for and liquidity of the Company`s securities may be adversely
affected. In the event that other broker dealers fail to make a market in the
Company`s securities, the possibility exists that the market for and the
liquidity of the Company`s securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company`s securities may not exist. For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999. See "Underwriting".
Recent State Action Involving the Underwriter - Possible Loss of
Liquidity
The State of Indiana has commenced an action seeking among other things
to revoke the Underwriter`s license to do business in such state. A hearing in
this matter has been scheduled for October 7, 1996. Such proceeding if
ultimately successful may adversely affect the market for and liquidity of the
Company`s securities if additional broker dealers do not make a market in the
Company`s securities. Moreover, should Indiana investors purchase any of the
securities sold in this Offering from the Underwriter prior to the possible
revocation of the Underwriter`s license in Indiana, such investors will not be
able to resell such securities in such state through the Underwriter but will be
required to retain a new broker dealer firm for such purpose. The Company cannot
ensure that other broker dealers will make a market in the Company`s securities.
In
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the event that other broker dealers fail to make a market in the Company`s
securities, the possibility exists that the market for and the liquidity of the
Company`s securities may be adversely affected to an extent that public security
holders may not have anyone to purchase their securities when offered for a sale
at any price. In such event, the market for, liquidity and prices of the
Company`s securities may not exist. It should be noted that although the
Underwriter may not be the sole market maker in the Company`s securities, it
will most likely be the dominant market maker in the Company`s securities. See
"Underwriting".
Blue Sky Restrictions on Exercise of the Series A Warrants
The Company has qualified the sale of the securities being offered
hereby in a limited number of states. Although certain exemptions in the Blue
Sky laws of certain states, other than those states in which such securities are
initially qualified, may permit such securities, including the Series A
Warrants, to be transferred to purchasers in such states, the Company will be
prevented from issuing Common Stock upon exercise of the Series A Warrants in
such states unless an exemption from registration or qualification is available
or unless the issuance of Common Stock upon the exercise of the Series A
Warrants is qualified and a current registration statement is in effect. The
Company may decide not to seek or may not be able to obtain qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Series A Warrants reside. In such case, the Series A Warrants
of such purchasers will expire and have no value if such warrants cannot be
exercised. Accordingly, the market for the Series A Warrants may be limited. See
"Underwriting".
Underwriter's Unit Purchase Option
In connection with the Company's offering of the 1,100,000 Units, the
Company will sell to the Underwriter, for nominal consideration, an option to
purchase up to an aggregate of 110,000 Units. The Underwriter's Unit Purchase
Option (as previously defined) will be exercisable commencing 12 months after
the Effective Date of the Registration Statement of which this Prospectus forms
a part and ending four years from such date at an exercise price of $4.20 per
Unit, subject to certain adjustments. The holder of the Underwriter's Unit
Purchase Option will have the opportunity to profit from a rise in the market
price of the Common Stock, if any, without assuming the risk of ownership, with
a resulting dilution in the interest of other stockholders. The Company may find
it more difficult to raise additional equity capital if it should be needed for
the business of the Company while the Underwriter's Unit Purchase Option is
outstanding. At any time at which the holder thereof might be expected to
exercise such option, the Company would probably be able to obtain additional
capital on terms more favorable than those provided by the Underwriter's Unit
Purchase Option. The holder of the Underwriter's
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Unit Purchase Option will have the right to require registration under the
Securities Act of the securities issuable upon exercise of the Underwriter's
Unit Purchase Option and will have certain "piggy-back" registration rights. The
cost to the Company of effecting any such registration may be substantial. See
"Underwriting" and "Dilution."
Certain Provisions of Certificate of Incorporation and Bylaws
As previously noted, pursuant to the Company's Certificate of
Incorporation, the Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock without further action by the stockholders in one or
more series having such preferences, rights and other provisions as the Board of
Directors may designate in providing for the issuance of such series. The
Certificate of Incorporation and Bylaws contain provisions which may discourage
certain transactions which involve an actual or threatened change in control of
the Company. These provisions provide for a classified Board of directors. See
"Description of Securities" and "Management." As permitted by the Delaware
General Corporation Law, the Certificate of Incorporation provides that a
director of the Company will not be personally liable to the Company or its
stockholders for monetary damages for breach of the fiduciary duty of care as a
director, except under certain circumstances including breach of the director's
duty of loyalty to the Company or its stockholders or any transaction from which
the director derived an improper personal benefit. See "Description of
Securities".
Voting Control by Current Officers and Directors
As of the date hereof, Matthew Schilowitz, a director and officer of
the Company owns 1,550,000 shares of Common Stock (after the sale by him of
200,000 shares as described under "Selling Stockholder" and including 750,000
shares held in escrow subject to release only if certain goals are achieved. Mr.
Schilowitz has the right to vote the shares held in escrow. See "Certain
Transactions."). Consequently, immediately upon completion of the Company's
public offering of the 1,100,000 Units, the officers and directors of the
Company will own or control the voting of 46.3% (23.8% if the escrowed shares
are excluded) of the Company's issued and outstanding Common Stock, assuming no
exercise of the Over- Allotment Option, no exercise of the Underwriter's Unit
Purchase Option, no exercise of the Series A Warrants contained therein and no
exercise of the Series A Warrants contained in the Units being offered by the
Company pursuant hereto nor the exercise of the outstanding Series B Warrants.
There are no cumulative voting rights and directors must be elected by a
plurality of the outstanding voting securities entitled to vote. Although Mr.
Schilowitz does not own a majority of the Company`s issued and outstanding
Common Stock, Mr. Schilowitz will be in a position to exert substantial
influence over the actions of the Company. Mr. Schilowitz is also a Selling
Stockholder under the alternate
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prospectus selling 300,000 shares. After such sale, Mr. Schilowitz
will own 1,250,000 shares of the Company`s Common Stock (including
750,000 shares held in escrow). See "Principal Stockholders" and
"Certain Transactions."
Current Prospectus Requirement
During the exercise period of the Series A Warrants as well as during
the 18 month lock-up period applicable to the Selling Stockholder, the Company
must maintain and make available a current prospectus. This Prospectus will no
longer be current after _________, 1996 (or earlier upon the occurrence of a
material event or change which would render the information herein inaccurate or
otherwise misleading). There can be no assurance give that the Company will not
be prevented by financial or other considerations from maintaining a current
prospectus. In the event that a current prospectus is not available, the Series
A Warrants may not be exercisable and the Company will be precluded from
redeeming the Series A Warrants. See "Underwriting".
Possible Redemption of the Series A Warrants
After _________ , 1997, in the event that the closing bid price of the
Common Stock exceeds $8.00 for any period of 20 consecutive trading days ending
within five days of the Company's Redemption Notice, the Series A Warrants may
be redeemed by the Company for $.05 per Series A Warrant prior to exercise or
expiration thereof. Although holders of the Series A Warrants will have the
right to exercise their Series A Warrants through the date of redemption, they
may be unable to do so because they lack sufficient funds at the time of
redemption, or they may simply not wish to invest any more money in shares of
the Common Stock at that time. Should a holder of the Series A Warrants fail to
exercise such Series A Warrants or to sell such Series A Warrants on or prior to
the redemption date, such Series A Warrants will have no value beyond their
redemption value. The Company may not redeem the Series A Warrants unless the
Company has available a current prospectus with respect to the Series A
Warrants. See "Risk Factors-Current Prospectus Requirement" above and
"Description of Securities-The Series A Warrants."
Restrictions on Marketmaking Activities During Warrant Solicitation
To the extent that the Underwriter solicits the exercise of the Series
A Warrants from the holders thereof, it may be prohibited pursuant to the
requirements of Rule 10b-6 under the Exchange Act from engaging in marketmaking
activities during such solicitation and for a period of up to nine days
preceding such solicitation. As a result, the Underwriter may be unable to
continue to provide a market for the Company's securities during certain periods
while the Series A Warrants are exercisable. The
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Underwriter is not obligated to act as a marketmaker. See
"Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units being
offered by the Company, after deducting expenses and other costs of the
offering, are estimated to be approximately $3,054,500 (or $3,574,250 if the
Over-Allotment Option is exercised in full). The Company intends to use the net
proceeds of its offering substantially as follows:
Approximate
Proposed Use of Proceeds Amount Percentage
Acquisition and Development of Property (1).. $ 600,000 19.6%
Repayment of Debt(2)......................... 1,068,048 35.0%
General Working Capital (3).................. 1,386,452 45.4%
---------- -----
Total.............................. $3,054,500 100%
- -------------
(1) To be utilized for a) the Jaegger Woods project in
Westhampton, New York ($500,000) with the balance of the funds
needed for this project to be obtained from conventional
mortgage financing of approximately $3,425,000, a commitment
from Key Bank of New York having been obtained; and (b)
expansion of the mini storage facility in Quogue, New York
($100,000).
(2) Of the total debt of $1,068,048 being repaid (a) $125,000
bears interest at 8% and matures on March 26, 1997 and is
payable to an unaffiliated party; (b) $20,000 bears interest
at 6% and matures December 31, 1996 and is payable to Sidney
Prizer, the grandfather of Matthew Schilowitz, the President
of the Company; (c) $70,000 bears interest at 8% and matures
on December 31, 1996 and is payable to the mother of Matthew
Schilowitz, the President of the Company; (d) $240,000 bears
interest of prime plus 1 1/2% and matures September 30, 1996
and is payable to a bank; (e) $150,000 bears interest at 4%
and matures December 31, 1996 or earlier upon completion of
the offering contemplated hereby and is payable to the
unaffiliated prior owners of Quick Storage of Quogue, Inc.;
(f) $100,000, bears interest at 12% and matures August 31,
1996 and is payable to an unaffiliated party; (g) $215,400
bears interest at prime plus 3%, is a demand obligation and is
payable to a bank; and (h) $147,648 bears interest at 10.625%
and matures February 1, 2006 and is payable to a bank.
(3) General working capital contemplates, among other things, the use for
general corporate purposes, including funding the day-to-day operations
of the Company and the Company's future development.
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The amounts set forth above are estimates developed by management of
the Company based upon the Company's current plans and prevailing economic and
industry conditions. Although the Company does not currently contemplate
material changes in the proposed use of proceeds set forth above, to the extent
that management of the Company finds that adjustment thereto is required, the
amounts shown may be adjusted among the uses indicated above. The Company's
proposed use of proceeds is subject to changes in general, economic and
competitive conditions, timing and management discretion, each of which may
change the amount of proceeds expended for the purposes intended. The proposed
application of proceeds is also subject to changes in market conditions and the
Company's financial condition in general. Changes in general, economic,
competitive and market conditions and the Company's financial condition would
include, without limitation, the occurrence of an economic slowdown or
recession, changes in the competitive environment in which the Company operates.
While management of the Company is not currently aware of the existence or
pending threat of any of the foregoing events, there can be no assurance given
that one or more of such events will not occur. See "Risk Factors" generally,
including specifically, "Risk Factors-Working Capital-Use of Proceeds" and "Risk
Factors-Competition." Any additional proceeds received upon exercise of the
Over-Allotment Option, the Underwriter's Unit Purchase Option or the Series A
Warrants or the Series B Warrants will be added to working capital and used as
management, in its sole discretion, deems appropriate.
While there can be no assurance given, the Company believes that the
net proceeds from its public offering and internally generated funds will be
adequate to satisfy the Company's working capital needs for the next 12 months.
The Company does not currently anticipate that it will need the proceeds from
the potential exercise of Series A Warrants to fund its working capital needs or
to maintain its operations over the next 12 months. However, the Company may
require additional financing in the future in order to expand its business. The
Company is not able at this time to predict the amount or potential source of
such additional funds and has no current commitments to obtain such funds, other
than as set forth herein. There can be no assurance that additional financing on
acceptable terms will be available to the Company when needed, if at all. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Pending use of the net proceeds from the Company's
public offering, the Company may make temporary investments in short-term, high
grade, interest-bearing instruments.
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- ----------------------------------------------------------------
CAPITALIZATION
- -----------------------------------------------------------------
The following table sets forth the Company's capitalization on a pro forma basis
and as adjusted as if all of the Units offered herein were sold.
March 31, 1996
Actual As Adjusted(1)(2)
Short-Term Debt $2,231,655 $ 1,311,255
Long-Term Debt $ 925,445 $ 777,797
Common Stock,
$0.001 par value
shares authorized;
outstanding(2) $ 2,250 $ 3,350
Additional Paid-In
Capital $ 300,563 $ 3,354,063
Retained Earnings
(Deficit) $ (254,065) $ (254,065)
----------- -----------
Total
Capitalization $3,205,848 $5,192,300
========== ==========
(1) Gives effect to the anticipated net proceeds of $3,054,500 public
offering and the repayment of debt of $1,068,048 with the proceeds.
(2) Does not include: (a) 2,000,000 shares of Common Stock
issuable upon exercise of the Series A and Series B Warrants
issued in a private placement and 1,100,000 shares of Common
Stock issuable upon exercise of the Series A Warrants
contained in the Units; (b) 165,000 shares of Common Stock
issuable upon exercise of the Over-Allotment Option and the
Series A Warrants contained therein; (c) 110,000 shares of
Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option and the Series A Warrants issuable upon
exercise thereof; (d) 400,000 shares of Common Stock reserved
for issuance pursuant to the Company's Stock Option Plan (as
hereinafter defined); or (e) 750,000 shares of Common Stock
reserved for issuance pursuant to an option issued to an
officer of the Company. Includes 750,000 shares held in escrow
to be released if certain financial goals are achieved. In
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the event all outstanding options (excluding 165,000 options covering
the over-allotment option and 400,000 shares covered by the Company's
qualified option plan but including 110,000 shares covered by the
Underwriters Unit Purchase Option and 750,000 shares covered by the
Employment Option granted to Mr. Schilowitz, the President of the
Company) were exercised there would be 7,310,000 shares of Common Stock
outstanding. See "Description of Securities," "Certain Transactions,"
"Management-Other Options or Plans" and "Underwriting."
Private Placement
In March 1996, the Company completed a private placement of $500,000 by
the sale of 500,000 Units, each Unit consisting of one share of the Company's
Common Stock; three Series A Warrants and one Series B Warrant. The Series A
Warrants are identical in all respects to the Series A Warrants forming a part
of the Units offered hereby. The Series B Warrants are exercisable at $9.00 per
share over a four year period commencing on the date of this Prospectus. The
Series B Warrants are callable at a redemption price of $.05 per Warrant in the
event that the price of the Company`s Common Stock equals or exceeds $10.00 per
share for 20 consecutive trading days ending with five days prior to the
Company`s notice of redemption. Of the $500,000 raised, $177,000 were utilized
towards expenses of the offering contemplated hereby, including blue sky filing
and legal fees, deposit towards Underwriter`s non-accountable expense allowance,
NASD and NASDAQ filing fees, SEC filing fees and legal and accounting expenses
and the balance of $323,000 was used for working capital purposes.
DILUTION
As of March 31, 1996, the Company had an aggregate of 2,250,000 shares
of Common Stock outstanding (including 750,000 shares held in escrow) and a net
tangible book value deficit of $(197,918) or $.(.09) per share of Common Stock.
"Net Tangible Book Value Per Share" represents the total amount of the Company's
tangible assets, less the total amount of its liabilities, divided by the total
number of shares of Common Stock outstanding.
After giving effect to the sale of 1,100,000 Units by the Company at
the offering price of $3.50 per Unit of which $.25 is ascribed to the warrants,
the issuance of 1,100,000 shares of Common Stock included in such Units, and the
deduction of offering expenses in the amount of $295,000 and underwriting
discounts and commissions estimated at $500,500 (which amounts include payment
of the Underwriter's Non-Accountable Expense Allowance but without taking into
account exercise of the Over-Allotment Option or the Series A Warrants included
in the Units or those issued in a private placement and assuming that $.25 of
the public offering
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price of the Units is allocated to the Series A Warrants), or the exercise of
the Series B Warrants, the pro forma note tangible book value of the Company
would be $.85 per share of Common Stock. This amount represents an immediate
dilution (the difference between the attributed price per share of Common Stock
to purchasers in the Company's offering and the pro forma net tangible book
value per share of Common Stock as of March 31, 1996, after giving effect to the
issuance of 1,100,000 shares of Common Stock included in the Units) of
approximately $2.40 per share of Common Stock to new investors and an immediate
increase (the difference between the pro forma net tangible book value per share
of Common Stock as of March 31, 1996 and the pro forma net tangible book value
per share of Common Stock as of March 31, 1996 after giving effect to the
issuance of 1,100,000 shares of Common Stock included in the Units) of $.94 per
share of Common Stock to the Company's stockholders. Such increase to the
Company's current stockholders is solely attributable to the cash price paid by
purchasers of the Units offered for sale by the Company.
The following table illustrates the per share dilution as of March 31, 1996:
Public offering price per share(1)................. $3.25
Net tangible book value per share before giving
effect to the Company's offering ............... (.09)
Increase per share attributable to the sale of
1,100,000 shares of Common Stock included in the
Units offered by the Company ................... .94
Pro forma net tangible book value per share as of
March 31, 1996 reflecting the Company's
Offering(2)........................................ .85
Dilution per share to purchasers in the Company's
offering........................................... $2.40
- ------------------------
(1) Attributes 3.25 of the public offering price per Unit to the
share of Common Stock and .25 to the Series A Warrants
contained in each Unit. Represents the public offering price
before deduction of estimated expenses of the Company's
offering, underwriting discounts and commissions. If the
Underwriter's option is exercised in full, the pro forma as
adjusted net tangible book value per share of common stock
after this Offering would be approximately $.96, representing
an immediate increase of $1.05 per share to current
stockholders and an immediate dilution of $2.29 per share to
new investors.
(2) Assumes no exercise of: (a) the Underwriter's Unit Purchase Option (or
exercise of the Series A Warrants included therein); (b) the
Over-Allotment Option (or exercise of the Series A Warrants included
therein); or (c) the Series A Warrants included in the Units or the
Series A and the Series B Warrants issued in a private placement. In
the event all
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outstanding options (excluding 165,000 options covering the
over-allotment option and 400,000 shares covered by the Company's
qualified option plan but including 110,000 shares covered by the
Underwriters Unit Purchase Option and 750,000 shares covered by the
Employment Option granted to Mr. Schilowitz, the President of the
Company) were exercised there would be 7,310,000 shares of Common Stock
outstanding. See "Capitalization," "Underwriting," "Certain
Transactions" and "Description of Securities."
The following table sets forth, as of March 31, 1996, a
comparison of the number of shares of Common Stock acquired by current
stockholders from the Company, the total consideration paid for such shares of
Common Stock and the average price per share paid by current stockholders of
Common Stock and to be paid by the prospective purchasers of Units offered for
sale by the Company (based upon the anticipated public offering price of $3.50
per Unit, of which $3.25 is attributable to the common stock and .25 is
attributable to the warrants. before deducting underwriting discounts and
commissions and estimated offering expenses and attributing all $717,500
consideration to the Common Stock contained in each Unit):
Common Stock Acquired Total Consideration Average Price
Number Percent Amount Percent Per Share
Current
Stockholders.. 2,250,000 67.2% $ 525,500 12% .23
New
Investors(1) 1,100,000 32.8% $3,575,000 88% $3.25(3)
--------- ------- ---------- ------
Total(2).... 3,350,000 100% $4,100,000 100%
(1) Does not include 165,000 Units which may be issued on exercise
of a 30-day option granted to the Underwriters to cover over-
allotments. See "Underwriting".
(2) Assumes no exercise of: (a) the Underwriter's Unit Purchase
Option (or exercise of the Series A Warrants included
therein); (b) the Over-Allotment Option (or exercise of the
Series A Warrants included therein); or (c) the Series A
Warrants included in the Units or the Series A and Series B
Warrants issued in a private placement. See "Capitalization,"
"Underwriting," "Certain Transactions" and "Description of
Securities."
(3) Aggregate offering price for common stock only before deduction of
offering expenses, underwriting discounts and commissions.
DIVIDEND POLICY
The Company has not, to date, paid and does not anticipate paying any
dividends on its Common Stock in the foreseeable future.
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The Company currently intends to retain all working capital and
earnings, if any, for use in the Company's business operations and
in the expansion of its business. See "Description of Securities-
Common Stock."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three months ended March 31, 1996 and 1995
Introduction
The Company has, since its inception in 1985, built in excess of 150
single-family homes in the Hamptons resorts area of Long Island. New York. It
has also been able to acquire residential and commercial rental properties which
generated additional cash flow for the Company. In addition, the Company has
acquired a 12 lot subdivision, Polo grounds, which is currently in development.
The Company is marketing Polo Grounds and currently has three contracts. The
Company is also in contract with a 57 unit subdivision in Westhampton Beach
[Jaegger] which it intents to close on during the summer of 1996, market
immediately thereafter and deliver homes from such development by year end 1996.
The Company provides construction management services to other developers and
charges a fee for providing construction supervision on a project.
Currently, the luxury housing market, which has been the Company's primary
target niche, has thousands of acres in and around the Hampton area that are
available for development. Based upon prior experience, the Company expects that
its entry into the market for this usable acreage which is spread in various
size pockets throughout the Hampton area, will not be a problematic. The Company
will not only continue to invest in properties that are scattered throughout the
Hampton area but in markets that are more concentrated and are experiencing
residential, industrial and/or commercial growth i.e. Western Suffolk County and
Nassau County, New York. The Company feels that it has limited competition from
a few large and small real estate developers.
Since there is significant customer concentration to high net worth individuals
who are for the most part impervious to economic conditions, the Company does
not expect to experience any significant sales volatility. The Company is also
focusing on delivering more moderately-priced homes with similar gross profit
margins as its higher-priced homes. The Company expects to purchase larger
tracts of land at substantially lower costs per acre than it has historically
paid so that it can deliver more homes to at least have a similar impact on its
operating results than the Company's higher-end products. At the same time, the
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Company will be expanding its appeal to customers seeking not only second
vacation homes, but affordable primary homes as well.
The Company expects to expand into commercial and residential management,
construction supervision and consulting services all of which it will access
primarily through reputation and referrals. Management feels that special
projects requiring such services are readily available. In addition, the Company
intends to purchase additional rental units to add to its portfolio in order to
maintain cash flow during slow periods.
The Company prices its products on a cost plus basis.
For the three months ended March 31, 1996 and 1995
Results of Operations
Revenues for the three months ended March 31, 1996 were $87,822 compared to
revenues of $45,783 for the three months ended march 31, 1995, an increase of
approximately $42,000 or 92%.
Revenues
The Company delivered no homes during the three months ended March 31, 1996 and
1995, because the only homes in inventory during these periods were under
construction. $1,873 and $3,172 for the three months ended March 31, 1996 and
1995, respectively, represents proceeds received on construction extras. The
Company has moved into the commercial construction market and is concentrating
its residential inventory toward the upscale market. In addition, the Company
has grown into a construction management firm, and accordingly it has received a
management fee to supervise the construction of a project. The Company's first
commercial construction venture included the completion of the Hamptons
Synagogue in Westhamption Beach. This initial commercial construction venture
has given the company publicity towards successfully entering this market with
plans to secure future commercial ventures. In addition, the Company has grown
into a construction management firm where the Company receives a management fee
to supervise the construction of a project. The construction management fee of
$37,500 was the only source of revenue generated from the project [See
"Construction Management].
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Construction Management Revenue
Construction management services for the three months ended March 31, 1996
generated $37,500 compared to $-0- generated for the three months ended March
31, 1995. This increase reflects a contract secured by the Company to perform
construction management supervision for a 14 unit condominium development in
Westhampton. Construction management supervision is consistent with the
Company's plans to emerge as a full service real estate development company. The
Company is currently pursuing additional construction management projects for
future development.
Gross Profit Margin
The Company had no costs of sales or direct operating expenses since no home
were delivered for the three months ended March 31, 1996 and 1995. Gross profit
represents incidental construction sales [See "Revenues"], rental income of
$48,449 and $42,611 for the three months ended March 31, 1996 and 1995,
respectively, and $37,500 of management fee income for the three months ended
March 31, 1996 [See "Construction Management Revenue"].
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses increased to $116,890
for the three months ended March 31, 1996, compared to $87,988 for the three
months ended March 31, 1995. The increase is principally due to the reduction of
revenue for the three months ended March 31, 1996 and the addition of key
employees to the Company.
Charge for Executive Compensation Capitalized
The fair value of services provided by an executive was $26,250. Of such amount
$11,500 was paid and included as an expense for the period. The difference of
$14,750 was capitalized.
Income from Operations
The Company's loss from operations for the three months ended March 31, 1996 and
1995 was $43,818 and $42,205, respectively. The increase of approximately $1,600
is attributable to an increase in management fee income of $37,500, [See
"Construction Management Revenue"] offset by an increase in Selling, General and
Administrative Expense of $28,902 [See "Selling, General and Administrative
Expense"] and an increase of $14,750 in executive compensation [See "Charge of
Executive Compensation"].
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Other Income Expense
Included in other income [expense] during the 1st quarter of 1996 is $30,222
which represents a gain on sale of marketable securities, compared to $(1,131),
a loss on sale of marketable securities for the three months ended March 31,
1995. Also included in other income [expense] during the first quarter of 1996
is $8,711 representing unrealized gains on marketable securities, compared to
$(27,725), representing unrealized losses on marketable securities. The Company
realizes that the real estate industry is highly speculative. Land values and/or
home prices may fluctuate significantly, and the rate of home sales can be slow.
The Company's building activities have centered in the Hamptons resort area in
Eastern Long Island, New York, where the bulk of the market consists of vacation
homes. The Company has already begun to expand into other areas of the real
estate industry [rental properties, primary residences, construction management
and commercial construction projects]. The Company has acquired key personnel
with the requisite skills, contacts and experience to successfully expand into
these areas within the real estate field. The Company will seek out additional
opportunities to construct, manage and/or invest in family communities, shopping
centers, industrial parks, congregate care facilities and other income producing
properties. The Company's belief that investing in income producing properties
will insure a stable growth for he future should adverse market conditions
arise.
Pro Forma Net [Loss]
Pro forma net [loss] gives effect to income tax considerations assuming that
each of the subsidiary entities had been a "C" Corp. for the period January 1,
1996 to February 29, 1996. Since each of the subsidiary entities was an "S"
Corp. and that period no provision for income taxes was necessary. Although,
each of the subsidiary entities became "C" Corps on March 1, 1996 no charge in
lieu of income taxes was deemed necessary for the period January 1, 1996 to
February 29,1996 as the amount was deemed immaterial.
Liquidity and Capital Resources
At March 31, 1996 and 1995, the Company had cash of $82,340 and $47,392,
respectively.
The Company generated $341,577 from operating activities for the three months
ended March 31, 1996 as compared to $667,275 generated from operating activities
for the three months ended March 31, 1995. The overall net decrease of $325,698
is substantially attributable to a reduction of $346,609 in customer deposits
[fewer home under contract than the same time in 199], a reduction of $213,918
in accounts payable, $100,120 utilized for the purchase of marketable securities
and $337,136 generated from the sale of other marketable securities.
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The Company intends to improve its profitability and, therefore, increase the
cash generated from operations, by continuing its strategy from 1995 to
emphasize the construction of higher priced quality homes. Management assesses
on a continuing basis the current lending real estate market and investigates
additional lending opportunities which will improve cash flow or decrease the
cost of existing borrowings. If such available borrowings are deemed to be
advantageous to the Company, management will assemble all necessary information
and provide such data to prospective lenders and begin the process of
negotiating such refinancing.
For the three months ended March 31, 1996 and 1995, $711,181 and $1,355,174,
respectively, were utilized for investing activities. The overall net reduction
in the utilization of cash of $643,993 is substantially attributable to a
$312,631 reduction in the acquisition of property and equipment, a $288,402
reduction in land and construction expenditures, no $150,000 Quick Storage
acquisition as in 1995, a $43,997 reduction in advances to related parties and
$146,300 paid in connection with the proposed public offering.
For the three months ended March 31, 1996, the Company generated $436,505 from
financing activities as compared to $691,753 generated from financing activities
for the three months ended March 31,1995. The overall net reduction in the cash
generated by financing activities of $255,248 was substantially attributable to
$215,400 of mortgage proceeds in 1996 as compared to 1995, $156,740 reduction in
notes payable from a stockholder in 1996 as compared to 1995, $52,616 of
distribution stockholders in 1996 that did not occur in the same period in 1995
and no $100,000 repayment of the proceeds from other notes payable in 1996 as
there was in 1995.
At March 31, 1996, the Company had notes and loans payable of $864,620,
mortgages payable of $1,256,711, accounts payable and accrued expenses of
$635,969 and customer deposit of $399,800. The Company intends to repay notes
payable and mortgages payable totaling $1,068,048 out of the proceeds of the
proposed public offering. This amount includes $928,180 which is included in
current liabilities at March 31, 1996. Although the proposed public offering is
on a firm commitment basis, the Company believes that through alternatives such
as cash generated from operations, the refinancing of short-term debt by
extending the due dates, or loans from the Company's principal stockholder, the
Company will be able to meet its short-term liquidity needs. Although, the
Company intends to utilize one or more of these alternatives if the proposed
public offering is not timely completed, there is no assurance that the Company
will be successful in utilizing any or all of these alternative.
It is anticipated that account payable and accrued expenses and customers
deposits will be paid from funds generated from
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operations which is consistent with prior years.
The Company believes that its long-term liquidity needs will be satisfied
thorough cash generated from operations, the refinancing of long-term debt and
through equity financing resulting from the proposed public offering and the
exercise of Series A and B Warrants.
Going Concern
The Company's accountants issued a modified going concern opinion to the
December 31, 1995 financial statements based upon a working capital deficit at
December 31, 1995 of approximately $1,200,000.
The Company's financial statements for the year ended December 31, 1995, have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The continuation of the Company as a going concern is dependent upon
its ability to generate sufficient cash from operations and financing
activities. The Company's working capital deficit raises substantial doubt about
the entity's ability to continue as a going concern. Management 's viable plans
include the following:
1. To generate additional equity financing through a private placement
with proceeds of approximately $500,000 [See Note 10 to the Financial
Statements].
2. To close a proposed public offering for common stock with anticipated
net proceeds of approximately $3,054,500 and satisfy certain
outstanding obligations with the net proceeds of this offering [See
Note 11A to the Financial Statements].
3. To continue to investigate additional lending opportunities with more
favorable terms and more specifically to take advantage of lower
interest rates and refinance properties that currently having floating
rate mortgages.
4. To expand into other areas of the real estate market such as
the commercial market. The Company has acquired key personnel
with the requisite skills, contracts and experience to
successfully expand into commercial and residential
management, construction supervision and consulting services.
The Company intends to access these markets by advertisements,
reputation and referrals. The Company's first commercial
construction venture included the completion of the Hampton
Synagogue of Westhampton Beach.
5. To seek opportunities to acquire income producing properties
which would include apartment buildings, shopping centers,
industrial parks, office buildings and other income producing
properties. Management believes that investing in income
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producing properties will enable the Company to generate sufficient
residual income in the future to fund the Company's operating expenses
should adverse market conditions arise.
Management believes that these plans can be effectively implemented in the next
twelve months. There can be no assurances that management will be successful in
these endeavors. The Company's ability to continue as a going concern is
dependent on the implementation and success of these plans. The financial
statements do not include any adjustments in the event the Company is unable to
continue as a going concern.
The years ended December 31, 1995 and 1994
Total revenues for the year ended December 31, 1995 were $2,323,524 compared to
revenues of $4,518,872 for the year ended December 31, 1994, a decrease of
approximately $2,200,000 or 50%.
Construction Sales. Deliveries of 6 homes resulted in housing revenues of
$2,065,126 for the year ended December 31, 1995. For the year ended December 31,
1994, the Company delivered 14 homes which generated $4,449,827 of housing
revenues. Housing revenues in 1995 decreased $2,384,701. The Company's plan is
to move into the commercial construction market and concentrate its residential
inventory toward the upscale market. Although, fewer homes were delivered in
1995 than in 1994 the gross profit margin increased [see gross profit margin].
The Company's first commercial construction venture includes the completion of
The Hamptons Synagogue in Westhampton Beach in 1994 which generated $650,000 in
additional revenues for the year ended December 31, 1994. This initial
commercial construction venture has given the Company publicity towards
successfully entering this market with plans to secure future commercial
ventures. In addition, the Company has grown into a construction management
firm, where the Company receives a management fee to supervise the construction
of a project. The decrease in the home delivered for 1995 (6), compared to 1994
(14) reflects the Company's construction management contract to complete a 14
unit condominium project in Westhampton, whereby the sales revenues have been
deferred. The construction management fee of $75,000 was the only source of
revenue generated from the project [see "Construction Management Revenues"].
Rental Income. Acquisition of additional rental based properties resulted in
rental income of $183,398 for the year ended December 31, 1995. For the year
ended December 31, 1994, the Company generated rental income of $69,045. Rental
income in 1995 increased by $114,353 which reflects the acquisition of Quick
Storage At Quogue, a self storage facility with 111 units. This facility
generated rental income for $113,905 for the year ended December 31, 1995. The
Company plans to expand the existing facility by purchasing and constructing on
the acquisition of
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rental based properties.
Construction Management Revenue. Construction Management Services for the year
ended December 31, 1995 generated $85,000 compared to $-0- generated for the
year ended December 31, 1994. This increase reflects a contract secured by the
Company to perform construction management supervision for a 14 unit condominium
development in Westhampton. Construction management supervision is consistent
with the Company's plans to emerge as a full service real estate development
company. The Company is currently pursuing additional construction management
projects for future development.
Gross Profit Margin. The Company's gross profit margin on homes delivered was
approximately seventeen percent [17%] during the year ended December 31, 1995,
compared to four percent [4%] in the year ended December 31, 1994. The gross
profit margin on homes increased due to the quality and pricing of the homes
built in 1995. In 1995, the Company positioned itself in the upscale market
segment. As a result, the number of homes decreased in 1995 from 1994 but the
gross profit margin increased substantially.
Selling, General and Administrative Expenses. The Company's selling, general and
administrative expenses increased to $367,498 [15% of Revenues] for the year
ended December 31, 1995, compared to $239,791 [5% of revenues] for the year
ended December 31, 1994. The increase percentage is principally due to the
reduction of revenue for the year ended 1995, the addition of Key Employees an
the acquisition of Quick Storage at Quogue [a self storage facility] which
produced $54,770 of selling, general and administrative expenses for the year
ended December 31, 1995.
Charge for Executive Compensation Capitalized. The $105,000 represents the fair
value of services provided for executive compensation that would have been paid
had the Company chose to do so.
Income from Operations. The Company's income from operations for the years ended
December 31, 1995 and 1994 was $131,710 and $1,260, respectively. This increase
of approximately $130,450 is primarily attributable to the improved gross profit
in 1995 of approximately $350,000.
Gross Interest Costs. Gross interest costs were $157,678 for the year ended
December 31, 1995 compared to $51,470 for the year ended December 31, 994. The
increase in gross interest cost for the year ended 1995 resulted from the
acquisition of Quick Storage at Quogue [a self storage facility], Polo Grounds
[12 units subdivision] and other real estate ventures whereby additional debt
was incurred upon acquisition.
Other [Income] Expense. Included in other [income] expense in 1995
is $(245,022) which represents gain on sale of marketable
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securities, compared to $281,767 for the year ended December 31, 1994. the
Company realizes that the real estate industry is highly speculative. Land
values and/or home prices may fluctuate significantly, and the rate of home
sales can be slow. The Company's building has centered in the Hamptons resort
area in Easter Long Island, New York, w here the bulk of the market consists of
vacation homes. The Company has already begun to expand into other areas of the
real estate industry [rental properties, primary residences, construction
management and commercial construction projects]. The Company has acquired key
personnel with the requisite skills, contracts and experience to successfully
expand into these areas within the real estate field. The Company will seek out
additional opportunities to construct, manage and/or invest in family
communities, shopping centers, industrial parks, congregate care facilities and
other income producing properties. The Company's belief that investing in income
producing properties will insure a stable growth for the future should adverse
market conditions arise.
Pro Forma Net Income. Pro forma net income gives to income tax consideration
assuming that each of the subsidiary entities had been a "C" Corp. For the year
ended December 31, 1995. Since each of the subsidiary entities was an "S" Corp.
No provision for income taxes was necessary. In accordance therewith, an
estimated pro forma income of $94,903 gave effect to an income tax provision had
each of the subsidiaries been a "C" Corp rather than an "S" Corp. Upon the
conversion of each of these subsidiaries to a "C" Corp., a provision for income
taxes will be reflected in net income.
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BUSINESS
- -----------------------------------------------------------------
The Harmat Organization, Inc. ("Harmat" or "Company"), a Delaware corporation,
has, through its wholly owned subsidiary Harmat Homes, Incorporated ("Harmat
Homes"), been engaged in real estate development and construction in the
Hamptons resort area of Long Island, New York ("Hamptons") for the past eleven
years. The Company develops large multi-parcel projects, builds custom
single-family homes and rental properties as well as commercial/public
structures such as the Hamptons Synagogue in Westhampton Beach. Harmat also
provides remodeling, design and landscape architectural services. The Company
will build on either land owned or provided by the client or on land owned or
controlled by entities affiliated with the Company. To date, the Company has
built approximately 150 single-family homes as well as rental properties, a
short-term storage facility and commercial properties.
To date, the Company's strategy for growth has been to integrate the foregoing
services into a "turn key" business which can offer its customers the
convenience of obtaining all of the necessary elements and services regarding
the purchase and maintenance of a home, including the land, architectural,
interior and landscape design services, construction of a home, swimming pool or
tennis court, and maintenance of the property. The Company believes that it has
carved a niche for itself as one of the premier full-service builder/developers
in the western portion of the Hamptons.
Since Harmat Homes' inception in 1985, the Company's founder and principal
shareholder, Matthew C. Schilowitz, has sought to not only provide construction
services through the Company but also to invest in real estate development
ventures by purchasing large parcels of real property for development. To date,
the majority of such investments have been made by Mr. Schilowitz individually,
as a general partner, joint venturer or principal stockholder of a corporation.
Mr. Schilowitz has been able to invest in the majority of such properties using
private non-recourse financing with only a modest down payment on the purchase
price. This type of financing is attractive because the investor is often able
to recoup its cash investment after selling only a small number of lots while
being able to market the balance with minimal exposure. The Company believes
that such sources and terms of financing will be available for future projects,
although no assurances can be given that this will be the case.
These projects have involved the construction of single-family homes as well as
the development and construction of luxury properties where each home has its
own swimming pool and tennis court. Such developments have included "Hidden
Cove" in Southampton (12 lots, all of which have been sold); "Woodridge" in
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Bridgehampton (52 lots, 32 of which have been sold); "The Woodlands" (52 lots,
37 of which have been sold) and "The Crossings," (14 lots, 12 of which have been
sold) each in East Quogue; "Emerald Woods" in East Quogue (14 lots, 12 of which
have been sold) and "The Fairways" in Westhampton Beach (6 lots, 4 of which have
been sold). All of these projects are located in prime areas where the bulk of
the lots abut either a nature preserve, golf course or farm land. The Company
also anticipates performing construction services for the "Bridal Path"
development in Westhampton. The real property for all of the foregoing projects
is owned by entities affiliated with the Company.
The Company has built homes ranging in price from $200,000 to $2,000,000. While
the bulk of the homes built in the Hamptons are vacation homes, the Company
believes that approximately 25% of its clients live in their homes on a
year-round basis.
Strategy
Harmat is now seeking to expand, by providing first class construction, design
and homeowner and management services to not only residential buyers but to a
broad array of commercial clients as well.
For example, the Company is considering developing or investing in luxury
single-family developments, senior citizen condominium units and undeveloped
real property (including oceanfront acreage) in such areas as western Suffolk
County, the Hamptons, Florida and the Washington, D.C./Maryland area that
management believes provide attractive opportunities. The Company further
believes that it could obtain financing similar to that used in its previous
projects, (i.e. a modest down payment and no recourse against the Company) and
that such projects would enhance its growth. Furthermore, Management of Harmat
is of the opinion that all of such potential projects involve lots in prime
locations where homes (or commercial buildings) could be sold or leased
profitably within a reasonable amount of time, although no assurances can be
given that such transactions will be consummated or that any sales or leases
thereunder will occur within any particular time frame. Depending on the
project, the Company may either simply build model homes or may be required to
put in the required infrastructure such as roads, etc. It is presently
contemplated that the Company would receive a management fee and construction
fees for services provided for such projects, although no assurances can be
given that such fees will be paid or that such ventures will be profitable. The
Company may also make construction loans to either its affiliates or to third
parties during the course of such projects.
The Company also intends to expand into the commercial real estate field
including income producing properties and will therefore aggressively seek out
opportunities to construct, manage and/or
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invest in shopping malls, motels, golf courses, industrial parks and other
income-producing properties. The Company believes that its officers and
directors have the requisite skills, contacts and experience to successfully
enter this field, but no assurances can be given that such goals will be
achieved or that any of Harmat's future real estate investments will be
profitable.
Competition
The Company believes that it is one of the larger, more sophisticated builders
in the western Suffolk County area. Unlike smaller local builders, the Company
maintains a permanent sales office and has a registered architect on staff to
supervise construction and work with clients who request such services. The
construction business is highly competitive, however, and the Company is aware
of many builders who are able to meet or improve upon a price the Company can
offer its clients for a given construction project. The Company seeks to compete
not solely on the basis of price, but on the ability to provide integrated
quality real estate, design and construction services under one roof. No
assurances can be given that this strategy will enable the Company to compete
successfully.
Employees
The Company has five full-time employees, 3 in management and 2 in clerical.
Since 1990, Harmat has not employed a full-time construction staff but has hired
skilled non-union local labor on a per-project basis. The Company believes that
its relationships with its employees and its sub-contractors are good, and that
the supply of skilled labor in the area is adequate for its needs.
Properties
The Company's wholly-owned subsidiaries hold title to certain real property.
Such properties include (i) The Polo Grounds, a development with 12 one acre
lots in Southampton, New York, each building lot contains room for house with
all amenities, pool and tennis court; three of the lots have been built upon and
sold; (ii) 2 single-family residential rental properties in the Hamptons; one
six bedroom home in Westhampton Beach, New York with eight horse stalls and the
other an 8 bedroom house in Southampton, New York both rented on an annual
basis; (iii) three acres of unimproved real property in Westhampton, NY; (iv)
the 4,000 square foot premises in Quogue, NY housing the Company's executive
offices and corporate sales office, which the Company believes is adequate for
its foreseeable needs; and (v) a 115,000 square foot mini-storage facility in
Quogue, NY., which the Company expects to expand on adjacent property.
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The Company issued 1,750,000 shares of its common stock to Mr.
Schilowitz upon transfer of the stock of the corporations holding
title to the foregoing properties. See "Certain Transactions."
The Company currently has the following projects under contract:
(A) Jagger Woods at Westhampton Beach, N.Y. - A 41 acre parcel
with approvals to construct 57 single family residences on 1/2
to 3/4 acre parcels complete with the following amenities:
(community pool, tennis court and clubhouse). Homes will range
between 1,271 and 2,160 square feet.
(B) Two 1 1/2 acre building lots with all road improvements
completed located in East Quogue, N.Y., - The lots will be
marketed whereby the Company shall construct a single family
house complete with pool and tennis court.
(C) Vacant parcel located adjacent to the Company's mini storage
facility in Quogue, N.Y. The Company intends to develop this
property to expand its current facility by constructing 5,000
additional square feet of specialized storage.
Seasonality
The Company generally experiences an increase in revenues in the fall when it
commences the majority of its construction projects, and a decrease in revenues
during the summer, when it does most of its marketing and in the winter, when
adverse weather may make construction difficult. The Company`s projects usually
begin in the fall with most sales completed in the spring and early summer. The
Company sometimes obtains bridge loans to cover construction costs and utilizes
its rental income from apartments and the storage facility to cover its overhead
during slow periods.
Licensing
The Company does not require any State or County license or permits to perform
services as a general contractor, but does require (and possess) a home
improvement license from the Town of Southampton.
Government Regulation
In the construction business, the Company is required to meet and satisfy both
State and local building and zoning regulations as well as State and local
environmental regulations. Prior to the commencement of construction building
plans must be approved which show full compliance with all applicable rules and
regulations. In addition, building permits are needed. To date, the Company has
had no problems in meeting and satisfying such requirements and in obtaining all
permits that it needs for its projects.
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Litigation
In January, 1994, Harmat commenced an action in the Supreme Court of the State
of New York, County of Suffolk, against a former client seeking lost profits in
an undetermined amount for wrongful termination of a construction contract.
Harmat also filed a mechanic's lien on the property. The defendant
counterclaimed and is seeking rescission of the construction contract, a refund
of their $28,500 contract deposit, and $100,000 in damages for the wrongful
filing of a mechanic's lien. Defendants are also seeking to recover $150,000
against Mr. Schilowitz personally on an alleged personal guaranty of Harmat's
performance. Harmat's motion for summary judgment is pending. In a related
litigation, the subcontractor on this project brought an action against Harmat
and its former client seeking damages of $30,000 for monies owed regarding this
project. The Company does not believe this litigation will have a material
adverse effect on its business. The litigation was settled on June 20, 1996
without cost or liability to the Company.
In May 1996, the Company commenced an action in the Supreme Court,
State of New York, County of Suffolk, against Carl Gasparik seeking specific
performance to close on a purchase of two parcels of land in East Quogue, New
York. The Company believes that it has met all conditions of the contract to
close and the Seller has refused to close and the Seller is seeking additional
consideration beyond that which is set forth in the contract. The defendant has
filed an answer denying the allegations of the Complaint.
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MANAGEMENT
- -----------------------------------------------------------------
Directors and Officers
The Executive Officers and Directors of the Company and a brief summary of their
business experience and certain other information with respect to them are set
forth below:
Name Age Title
Matthew C. Schilowitz 32 President, CEO & Chairman
Scott Prizer 33 Secretary & Director
Michael C. Gentile 32 Vice-President/Construction
Seymour G. Siegel 52 Treasurer & Director
David W. Sass 60 Director
David S. Eiten 36 Director
Matthew C. Schilowitz Mr. Schilowitz founded Harmat in 1985, and
has been its president and chairman since inception. Mr.
Schilowitz has a B.A. in Business Administration from Tulane
University.
Scott Prizer Mr. Prizer became an officer and director of the
Company in July 1995. From 1990 to 1992, he worked as an
investment banker specializing in mergers and acquisitions at
European Investors, Inc. ("EII"). Since 1992, he has worked as a
investment advisor/asset manager in the real estate group of EII.
He is a Vice President of EII an investment advisor with real
estate and securities portfolios, in excess of $800,000,000. Mr.
Prizer has a B.A. from George Washington University and an M.B.A.
from New York University. Mr. Prizer is Mr. Schilowitz' first
cousin.
Michael C. Gentile Mr. Gentile joined the Company in February 1995
and serves as vice-president/staff architect and construction site
manager for all of the Company's projects. Mr. Gentile has eight
years of architectural and design experience in commercial and
high-end residential construction. From July 1990 to June 1991, he
worked as a designer for James Gaddis, R.A. From June 1991 to
September 1993 he was project manager for Fanning Phillips and
Molnar, Engineers, and from September 1993 to January 1995, served
as project manager for Brockwood Communities, Inc. Mr. Gentile
earned a B.A. in architecture from New York Institute of
Technology.
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Seymour G. Siegel Mr. Siegel became a director of the Company in
July 1995. Mr. Siegel is a CPA and from 1969-1990 was senior
partner and founder of Siegel Rich & Co. P.C. ("Siegel Rich"), an
accounting firm specializing in privately owned businesses and high
net worth individuals. In 1990, Siegel Rich merged with M.R.
Weiser & Co. Mr. Siegel stayed on as a senior partner until 1994,
when he co-founded Siegel Rich Resources, Inc., a firm providing
advisory services to businesses regarding mergers and acquisitions,
long-range planning and problem resolution. Mr. Siegel is a
director of the Oak Hall Capital Fund and Prime Motor Inns, L.P.
David W. Sass Mr. Sass has been a director of the Company since July 1995. For
the past 35 years, Mr. Sass has been a practicing attorney in New York City and
is currently a senior partner in the law firm of McLaughlin & Stern, LLP,
counsel to the Company. Mr. Sass is a director and officer of J.E.C. Lasers,
Inc., a public company engaged in various aspects of the laser business; a
director and officer of Carter, Milchman & Frank, Inc., a company in the
wholesale distribution of tools and related building equipment; an officer of
Ionic Fuel Technology, Inc., a company engaged in the sale and distribution of
emission control systems, and a member and Vice Chairman of the Board of
Trustees of Ithaca College.
David S. Eiten Mr. Eiten became a director of the Company in
January 1996. From 1990 to the present he is the owner and
operator of a residential and commercial construction company. From
1986 to 1990 he was Vice President of Field Operations for the
Company.
Executive Compensation
Summary Compensation Table. The following table sets forth the aggregate cash
compensation paid for services rendered to the Company during each of the
Company's last three fiscal years by all individuals who served as the Company's
Chief Executive Officer during the last fiscal year and the Company's most
highly compensated executive officers who served as such during the last fiscal
year.
Annual Compensation
Other Annual
Name and Compensation
Principal Position Year Salary($) Bonus ($)
---- --------- ----- ------------
Matthew Schilowitz(1)(2) 1995 197,000
Chief Executive Officer, 1994 217,000
Chief Financial Officer 1993 154,000
Long-Term Compensation
Awards Payouts
All
Restricted Other
Name and Stock Options LTIP Compen-
Principal Position Awards($) SARs Payouts(#) sation($)
---- ------ ----- ---------
Matthew Schilowitz(1)(2)
Chief Executive Officer,
Chief Financial Officer
- -----
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(1) See "Employment Agreement" below for a description of the Company's
employment agreement with Mr. Schilowitz.
(2) During the three years ended December 31, 1995, Mr. Schilowitz received
distributions as the Companies were Sub Chapter S corporations and/or
partnerships and no salary was paid.
(3) For the quarter ended March 31, 1996, the Company distributed to
Matthew Schilowitz marketable securities with a fair market value of
$186,400 as additional compensation.
Employment Agreement. On April 1, 1996 the Company entered into a five
year employment agreement with Matthew Schilowitz, a stockholder, director and
officer of the Company (the "Schilowitz Agreement"). Under the Agreement Mr.
Schilowitz's compensation is $105,000 for the first year, $155,000 for the
second year, $205,000 for the third year, $255,000 for the fourth year and
$305,000 for the fifth year. In addition, Mr. Schilowitz will receive a bonus of
5% of the pre-tax earnings of the Company in each fiscal year.
The foregoing employment agreement terminates upon death or disability
of the employee and permits the Company to terminate the Schilowitz Agreement
upon the occurrence of certain events or the commission of certain acts or for
any other reason provided that the Company pays to such employee a severance
payment equal to the aggregate base salary otherwise owed to such employee over
the remaining term of the employment agreement (other than for instances in
which such employee is terminated for "cause" as defined in such agreement).
Pursuant to the provisions of his employment agreement in the event that Mr.
Schilowitz is not nominated or re-elected to serve as member of the Board of
Directors, either may terminate his employment with the Company and will, in
such event, be entitled to continue to receive his base salary as set forth in
such employment with the Company for the remainder of the term thereof. The
employment agreement also contains certain confidentiality and non-competition
provisions which are operative during the term of the agreement and for given
periods of time after termination thereof.
Stock Option Plan
In February 1996, the Board of Directors adopted and the Company's
stockholders approved The Harmat Organization, Inc. 1996 Stock Option Plan (the
"Stock Option Plan"), which provides for the grant of options which qualify as
incentive stock options ("Incentive Options") under the Internal Revenue Code of
1986, as amended, to be issued to officers and employees, as well as options
which do not so qualify ("Non-Qualified Options") to be issued to the Company's
officers, directors, employees and consultants. The Stock Option Plan provides
for the grant of options with respect to, in the aggregate, up to 400,000 shares
of Common Stock (which number is subject to adjustment in the event of the
Company's
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declaration of stock dividends, stock splits, reclassification and the
occurrence of other similar events). The Company has reserved 400,000 shares of
Common Stock for issuance under the Stock Option Plan.
Pursuant to its terms, the Stock Option Plan is to be administered by
the Board of Directors or a committee established by the Board of Directors (the
"Stock Option Committee"). The Board of Directors or such committee determines
the persons to whom options are granted, the number of shares of stock subject
to an option, the period during which options may be exercised and the exercise
price thereof. The Stock Option Plan places restrictions on the grant of options
to persons who are, at the time of the grant, members of the Stock Option
Committee and, if no such committee is established, on the grant of options to
directors.
Non-employee directors of the Company may participate in the Stock
Option Plan but may only be granted Non-Qualified Options on a non-discretionary
basis. To date, no options have been granted under the Stock Option Plan.
Other Options or Plans
The Plan for Incentive Compensation of Matthew Schilowitz (the
"Schilowitz Incentive Plan") was adopted by the Board of Directors and approved
by the Company's stockholders on March 1, 1996. Pursuant to such plan, Mr.
Schilowitz has been granted an option (the "Option") to purchase up to an
aggregate of 750,000 shares of Common Stock at an exercise price of $3.25 per
share. The Option has a duration of ten years. The Option provides for the grant
of: (i) the right to purchase 250,000 shares of Common Stock such right to vest
and become exercisable upon the Company realizing annual earnings before taxes
equaling or exceeding $750,000; (ii) the right to purchase 250,000 shares of
Common Stock such right to vest and become exercisable upon the Company
realizing annual earnings before taxes equaling or exceeding $1,500,000; (iii)
the right to purchase 250,000 shares of Common Stock such right to vest and
become exercisable upon the Company realizing annual earnings before taxes
equaling or exceeding $2,250,000. Shares subject to options granted under the
Schilowitz Incentive Plan are subject to adjustment in the event of the
Company's declaration of stock dividends, stock splits, reclassification and the
occurrence of other similar events. The Company has reserved 750,000 shares of
Common Stock for issuance under the Schilowitz Incentive Plan. Pursuant to the
terms of the Schilowitz Incentive Plan, the Board of Directors or a committee
established by the Board of Directors administers such plan.
CERTAIN TRANSACTIONS
Mr. Schilowitz has interests, either as a general partner, joint
venturer or shareholder, in a number of entities which either have
entered, or may in the future enter, into a variety of transactions
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with the Company. In addition, entities owned or controlled by Mr. Schilowitz
own interests in various real estate ventures which may retain the Company as a
builder for such developments.
The following table sets forth the name of each of the Company's affiliates,Mr.
Schilowitz' interest therein, and its transactions (either current or
contemplated), if any, with the Company:
Company Name Mr. Schilowitz' Interest Transactions
Woodlands Construction
Corp. LLP 50% shareholder Woodlands provides
contracting services on
small jobs - Woodlands
owns no property. It is
possible that the Company
may provide services to
Woodlands in the future.
Crossings Associates, L.P. 33% shareholder
Services The Crossings had a 14
lot subdivision. There
are only 2 available
lots. The Company may
provide construction
services to the crossings
in the future.
Emerald Woods Dev. Corp. 50% shareholder
Services
Emerald had a 14 lot
subdivision. There are
only 3 available lots. The
Company may provide
construction services to
Emerald in the future.
Fairways at Westhampton, Inc. 50% shareholder
Services Fairways had 6 building
lots. All Lots have been
sold. Fairways owns no
other property.
Bridal Path Development Corp. 50% shareholder
Services Bridle Path had a 14 lot
subdivision. There are 13
available lots. The
company may provide
construction services to
Bridle Path in the
future.
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Company Name Mr. Schilowitz' Interest Transactions
Woodland Development
Association, a partnership 1/3 partner Woodland owns 3 building
lots located in East
Quogue, N.Y. The Company
may provide construction
to Woodland in the
future.
Woodland Pines Associates,
a partnership Joint Venture Woodland Pines owns 10
building lots located in
East Quogue, N.Y. The
Company may provide
construction to Woodland
Pines in the future.
The Company has issued 1,750,000 shares of its Common Stock to Mr. Schilowitz in
connection with the transfer to the Company of all of the issued and outstanding
stock of Harmat Homes, Inc. a construction and sales company; Harmat Capital
Corp. which owns the corporate headquarters, and vacant l and in Southampton,
New York and Southold, New York; Northside Woods, Inc., which owns rental
property in Westhampton, New York; Harmat Holding Corp., which owns the
subdivision known as the Polo Grounds; Harmat Organization Inc., which owns an
interest in Woodland Development Associates, a partnership; and a fifty percent
interest in Quick Storage of Quogue, Inc. which owns the storage facility in
Quogue, New York. The Company has a contract to purchase the remaining 50%
interest from unrelated parties for a purchase price of $150,000.
At the request of the Underwriter, Mr. Schilowitz has placed 750,000 shares of
the 1,750,000 shares he received in consideration for the capital stock of the
various companies in escrow. Such escrowed shares shall be released from escrow
as follows: (a) 250,000 shares shall be released and returned to Mr. Schilowitz
upon the Company realizing annual earnings before taxes equaling or exceeding
$750,000; (b) 250,000 shares shall be released and returned to Mr. Schilowitz
upon the Company realizing annual earnings before taxes equaling or exceeding
$1,500,000; and (c) 250,000 shares shall be released and returned to Mr.
Schilowitz upon the Company realizing annual earnings before taxes equaling or
exceeding $2,250,000. In the event such goals have not been achieved in whole or
in part within ten years from the date of this Prospectus, then the shares which
have not been previously released from escrow shall be returned to the Company
for cancellation. The Underwriter requested that the shares be placed in escrow
in order to provide a better valuation for the public shareholders in the event
the Company`s earnings did not reach certain financial goals. As part of the
arrangements, the Company`s Board of Directors and
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<PAGE>
the Underwriter believe that it is important that Mr. Schilowitz have
significant incentive to achieve the financial goals. Although the amounts are
the same, there is no relationship between the escrowed shares and the
Schilowitz Incentive Plan.
All transactions between the Company and its affiliates will be reviewed solely
by the Company's outside directors, who will determine the value of any services
provided by the Company for any affiliated entity. All sums received by the
Company will be equivalent to those granted by unrelated third parties.
The Company is indebted to Mr. Schilowitz in the amount of $127,000 bearing
interest at 7% due December 31, 1996 representing advances made by Mr.
Schilowitz on behalf of the Company, which will not be repaid by the Company
from the proceeds of the Offering.
The Company borrowed from affiliated persons an aggregate of $240,000 as
follows: $20,000 from Sidney Prizer, the grandfather of Matthew Schilowitz, the
President of the Company, which loan bears interest at 6% per annum, matures on
December 31, 1996 and will be repaid from the proceeds of this offering; $70,000
from the mother of Matthew Schilowitz, which loan bears interest at 8% per annum
and matures on December 31, 1996 and will be repaid from the proceeds of this
offering; $150,000 payable to three former owners of Quick Storage of Quogue,
Inc. in connection with the purchase by the Company of such persons 50% interest
in such company.
All of the Company's mortgages on the properties that it owns are personally
guaranteed by Matthew Schilowitz, the President of the Company. The Company has
agreed to indemnify Mr. Schilowitz against any liability with respect to such
guarantees.
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- -----------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
- -----------------------------------------------------------------
The following table provides, on a pro forma basis, information as of July 17,
1996 concerning officers and directors as a group as well as each person who
beneficially owned more than five (5%) percent of the Company's outstanding
common shares.
Name and Address of Common Shares Percentage Percentage
Beneficial Owner Beneficially Owned Before Offering After Offering
Matthew C. Schilowitz 1,750,000(1) 77.7% 46.3%(2)
c/o Harmat Homes Inc.
P.O. Box 539
Quogue, NY 11959
Scott Prizer -0- * *
145 W.67th St.
New York, NY 10023
Seymour G. Siegel -0- * *
c/o Siegel Rich Resources, Inc.
1180 Avenue of the Americas
New York, NY 10036
David W. Sass -0- * *
c/o McLaughlin & Stern, LLP
380 Lexington Ave.
New York, NY 10168
David S. Eiten -0- * *
7 Thorngrove Lane
Dix Hills, New York 11746
Dr. Irving Kraut (3) 250,000 11.1% *
740 River Road
Trenton, New Jersey 08628
Martin Rothstein (3) 200,000 8.8% *
c/o Model Marketing
39 West 19th Street
New York, New York 10011
All officers and directors 1,750,000 77.7% 46.3%
as a group (5 persons)
- ------------------
* No shares owned.
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(1) Includes 200,000 shares of Common Stock which are included in
the Registration Statement, of which this Prospectus is a part
which are being sold by Mr. Schilowitz and 300,000 shares to
be sold by Mr. Schilowitz or part of the alternate prospectus
as well as 750,000 shares held in escrow to be released
subject to achieving certain financial goals. See "Certain
Transactions" and "Selling Stockholders".
(2) Includes 1,550,000 shares owned after sale of 200,000 shares indicated
in the Registration Statement. Does not give effect to the sale of an
additional 300,000 shares which Mr. Schilowitz proposes to sell through
the alternate prospectus after the 18 month lock-up to which such
shares are subject.
(3) Assumes all shares are sold after the public offering. Does not
included 1,000,000 shares issuable upon exercise of the Series A
Warrants and Series B Warrants owned by Dr. Kraut nor 800,000 shares
issuable upon exercise of the Series A Warrants and Series B Warrants
owned by Mr. Rothstein.
SELLING STOCKHOLDERS
In addition to the Units, the Registration Statement, of which this
Prospectus forms a part, also covers the registration of an aggregate of (i)
800,000 shares of Common Stock (ii) 1,500,000 Series A Warrants and (iii)
2,000,000 shares of Common Stock issuable upon the exercise of 1,500,000 Series
A Warrants and 500,000 Series B Warrants. The Company will not receive any
proceeds from the sale of these shares. The costs of qualifying these 800,000
shares of Common Stock under federal and state securities laws, together with
legal and accounting fees, printing and other costs in connection with this
offering, will be paid by the Company.
The 800,000 shares of Common Stock registered in the Registration
Statement, of which this Prospectus forms a part, pursuant to an agreement with
the Underwriter, may not be sold for eighteen months from the date of this
Prospectus, subject, however, to earlier release at the sole discretion of the
Underwriter. Such shares are being registered for resale purposes only and will
be offered pursuant to an alternate prospectus. See "Underwriting."
In addition to the 800,000 shares of Common Stock, the Registration
Statement, of which this Prospectus forms a part, also covers the registration
of 2,000,000 shares issuable upon exercise of the Series A Warrants and Series B
Warrants issued in a private placement. Such warrants and the underlying shares
are registered for resale purposes only and will be offered pursuant to an
alternate prospectus. The terms and conditions of the Common Stock,
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<PAGE>
the Series A and the Series B Warrants included in the private placement are
identical to the terms and conditions of the shares of Common Stock and the
Series A Warrants offered hereby, except that the exercise price of the Series B
Warrant is $9.00, whereas the exercise price of the Series A Warrants is $4.00.
All of the securities issued in the private placement are being registered in
the Registration Statement, of which this Prospectus forms a part. Accordingly,
that part of the securities issued in the private placement being registered for
resale by such persons are the shares of Common Stock and the Series A Warrants
as well as the Common Stock issuable upon exercise of the Series A and Series B
Warrants. Pursuant to an agreement with the Underwriter, 800,000 shares of
Common Stock held by the Selling Stockholders and the shares of Common Stock
issuable on exercise of the Series A and Series B Warrants may not be sold until
eighteen months from the date of this Prospectus, subject, however, to earlier
release at the sole discretion of the Underwriter. The certificates representing
the 800,000 shares of Common Stock of the Selling Stockholders, as well as the
shares of Common Stock issuable on exercise of the Series A and Series B
Warrants will have legends affixed setting forth such restrictions. The
Underwriter may release these securities from this eighteen month restriction at
any time after all securities subject to this offering have been sold. See
"Underwriting." The resale of securities by the Selling Stockholders are subject
to prospectus delivery and other requirements of the Securities Act. Sales of
these securities, or even the potential for such sales at any time, would likely
have an adverse effect on the market prices of the Units, Common Stock and the
Series A Warrants. The Company will not receive any proceeds from the sale of
the securities of the Selling Stockholders. Like the Series A Warrants, the
Series B Warrants are redeemable upon certain circumstances. See "Description of
Securities ." If all of the Series A Warrants and Series B Warrants issued in
the private placement are exercised, of which there is no assurance, the Company
will receive the gross proceeds therefrom aggregating up to an addition
$10,500,000.
Set forth below is a list of the Selling Stockholders and the number of
shares of Common Stock owned which are being registered pursuant to the
Registration Statement, of which this Prospectus forms a part:
Number of
Number of Shares to Be
Shares Owned Offered
Before Concurrently
Offering with the Units
Name (1)
Matthew Schilowitz(2) 1,750,000 200,000
Dr. Irving Kraut (5) 250,000 -0-
Martin Rothstein (6) 200,000 -0-
Alan & Rita Robinson (7) 50,000 -0-
TOTAL
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Number of Shares
Registered but
Subject to 18 Number of Shares Percentage
Month Owned After Owned After
Restriction Offering fering (4)(8)
Name (1)
Matthew Schilowitz(2) 300,000 500,000(3) 14.9%
Dr. Irving Kraut (5) 250,000 -0- -
Martin Rothstein (6) 200,000 -0- -
Alan & Rita Robinson (7) 50,000 -0- -
TOTAL
- -------------------------
(1) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned
by them, except as otherwise indicated.
(2) The Company's President and Chief Executive Officer.
(3) Excludes 750,000 shares held in escrow. If such shares were included Mr.
Schilowitz would own 1,250,000 shares or 37.3% of the outstanding shares of
the Company.
(4) Does not give effect to: (a) 1,100,000 shares of Common Stock issuable upon
exercise of the Series A Warrants as well as 2,000,000 shares issuable upon
exercise of the Series A and Series B Warrants issued in the private
placement; (b) 110,000 shares of Common Stock issuable upon exercise of the
Underwriter's Unit Purchase Option; (c) 110,000 shares of Common Stock
issuable upon exercise of the Series A Warrants included in the Underwriter's
Unit Purchase Option; (d) the Over-Allotment Options and the shares issuable
upon exercise of the Series A Warrants included therein; and (e) any
Employment Options. See "Description of Securities", "Certain Transactions",
"Underwriting" and "Management - Employment Agreement".
(5) Does not include 1,000,000 shares issuable upon exercise of the Series
A and Series B Warrants.
(6) Does not include 800,000 shares issuable upon exercise of the Series A
and Series B Warrants.
(7) Does not include 200,000 shares issuable upon exercise of the Series A
and Series B Warrants.
(8) Assumes (i) each investor sells all shares of Common Stock acquired
upon exercise of the Series A and Series B Warrants and (ii) no
additional securities of the Company are acquired.
After making the investment in the private placement, the investors did
not own, nor did any of them have any right to acquire, any other securities of
the Company. None of the investors were affiliated with the Company at the time
of making their investment, at the time of this offering, or at any other time.
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Plan of Distribution
Subject to the eighteen month restriction on the offer and sale for
800,000 shares, the Common Stock issuable on the exercise of the Series B
Warrants, and the 200,000 shares of Common Stock of the Selling Stockholder, the
securities offered hereby may be sold from time to time directly by the Selling
Stockholders. Alternatively, the Selling Stockholders may, from time to time,
offer such securities through underwriters, dealers and/or agents. The
distribution of securities by the Selling Stockholders may be effected in one or
more transactions, privately-negotiated transactions or through sales to one or
more broker-dealers for resale of such securities as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Stockholders
in connection with such sales. The Selling Stockholders, and intermediaries
through whom such securities are sold, may be deemed "underwriters" within the
meaning of the Securities Act with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation.
At the time a particular offer of securities is made by or on behalf of
the Selling Stockholders to the extent required, a prospectus will be
distributed which will set forth the number of securities being offered and the
terms of the offering, including the name or names of any underwriter, dealer or
agent, the purchase price paid by the underwriter for securities purchased from
the Selling Stockholders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended ("Exchange Act")
and the regulations promulgated thereunder, any person engaged in the
distribution of the securities of the Company offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling off" period (which is
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act, and the rules and regulations
promulgated thereunder, including without limitation, Rules 10b-6 and 10b-7 in
connection with transactions in such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Stockholders.
Sales of securities by the Selling Stockholders or even the potential
of such sales, would likely have an adverse effect on the market prices of the
securities offered hereby . Following the closing of this offering, the freely
tradeable securities of the
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<PAGE>
Company ("public float"), including this offering, assuming the sale of the
entire 200,000 shares of Common Stock by Mr. Schilowitz will be 1,300,000 shares
of Common Stock and 1,100,000 Series A Warrants, not including 800,000 shares of
Common Stock owned by the Selling Stockholders and an aggregate of 2,000,000
shares of Common Stock issuable upon exercise of the Series A and Series B
Warrants owned by the private placement investors, which such securities are not
transferable for eighteen months commencing on the date of this Prospectus or at
such earlier date as may be permitted by the Underwriter, which may release such
securities at any time after all securities subject to this offering have been
sold and assuming no exercise of the Underwriter's Unit Purchase Option or any
Employment Options. See "Descriptions of Securities" and "Underwriting".
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock, $.001 par value per
share, and one Series A Redeemable Common Stock Purchase Warrant, each such
Series A Warrant entitling the holder thereof to purchase one share of Common
Stock. The components of the Units are detachable and separately transferable
immediately upon the Effective Date of the Registration Statement of which this
Prospectus forms a part.
Common Stock
The Company is currently authorized to issue 25,000,000 shares of
Common Stock, having a par value of $.001 per share of which 2,250,000 are
outstanding prior to the offering contemplated hereby including 750,000 shares
held in escrow. Each share of Common Stock entitles the holder thereof to one
vote on each matter submitted to the stockholders of the Company for a vote
thereon. The holders of Common Stock: (i) have equal ratable rights to dividends
from funds legally available therefor when, as and if declared by the Board of
Directors; (ii) are entitled to share ratably in all of the assets of the
Company available for distribution to holders of Common Stock upon liquidation,
dissolution or winding up of the affairs of the Company; (iii) do not have
preemptive, subscription or conversion rights, or redemption or sinking fund
provisions applicable thereto; and (iv) as noted above, are entitled to one
non-cumulative vote per share on all matters submitted to stockholders for a
vote at any meeting of stockholders. The Company has not paid any dividends on
its Common Stock to date. The Company anticipates that, for the foreseeable
future, it will retain earnings, if any, to finance the continuing operations of
its business. The payment of dividends will depend upon, among other things,
capital requirements and operating and financial conditions of the Company.
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Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance
of up to 5,000,000 shares of Preferred Stock, $.001 par value per share. None of
such Preferred Stock has been designated or issued. The Board of Directors is
authorized to issue shares of Preferred stock from time to time in one or more
series and, subject to the limitations contained in the Certificate of
Incorporation and any limitations prescribed by law, to establish and designate
any such series and to fix the number of shares and the relative conversion
rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights. If
the Board of Directors authorizes the issuance of shares of Preferred Stock with
conversion rights, the number of shares of Common Stock outstanding could
potentially be increased by up to the authorized amount. Issuance of shares of
Preferred Stock could, under certain circumstances, have the effect of delaying
or preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock. Also, the Preferred Stock could have
preferences over the Common Stock (and other series of preferred stock) with
respect to dividends and liquidation rights.
Series A Redeemable Common Stock Purchase Warrants
Each Series A Common Stock Purchase Warrant entitles the holder thereof
to purchase one share of Common Stock at an exercise price of $4.00 per share
for a period of four years commencing one year after the Effective Date of the
Registration Statement of which this Prospectus forms a part. The exercise price
and/or the exercise date of each Series A Warrant is subject to adjustment under
certain circumstances including, without limitation, the following: (I) the
Company's issuance of Common Stock for less than its fair market value; (ii) the
Company's issuance of a dividend in Common Stock; (iii) the subdivision of
outstanding shares of Common Stock; (iv) the recapitalization or reorganization
of the Company; (v) the merger or consolidation of the Company with or into
another company; and (vi) the sale of all or substantially all of the assets of
the Company. Each Series A Warrant is redeemable upon 30 days prior written
notice by the Company at a redemption price of $.05 per Series A Warrant at any
time after , 1997, provided that the closing bid price of the Common Stock, as
reported by NASDAQ (or such other principal exchange on which the Common Stock
is then quoted), the NASD OTC Electronic Bulletin Board or the National
Quotation Bureau, Inc., as the case may be, equals or exceeds $8.00 per share
for 20 consecutive trading days ending within five days prior to the date of the
Company's notice
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of redemption. Pursuant to the terms of the Series A Warrants, the Company has
the right, upon 30 days written notice to all holders of the Series A Warrants
and subject to compliance with Rule 13e-4 under the Exchange Act (including the
filing of Schedule 13E-4), to reduce the exercise price and/or extend the term
of the Series A Warrants.
Series B Warrants
Each Series B Warrant entitles the holder thereof to purchase one share
of Common Stock at an exercise price of $9.00 per share with respect for a
period of four years commencing 90 days after issuance (February, 1996) after
the Effective Date of the Registration Statement of which this Prospectus forms
a part. The exercise price and/or the exercise date of each Series B Warrant is
subject to adjustment under certain circumstances including, without limitation,
the following: (i) the Company's issuance of Common Stock for less than its fair
market value; (ii) the Company's issuance of a dividend in Common Stock; (iii)
the subdivision of outstanding shares of Common Stock; (iv) the recapitalization
or reorganization of the Company; (v) the merger or consolidation of the Company
with or into another company; and (vi) the sale of all or substantially all of
the assets of the Company. Each Series B Warrant is redeemable upon 30 days
prior written notice by the Company at a redemption price of $.05 per Series B
Warrant at any time after May, 1996, provided that the closing bid price of the
Common Stock, as reported by NASDAQ (or such other principal exchange on which
the Common Stock is then quoted), the NASD OTC Electronic Bulletin Board or the
National Quotation Bureau, Inc., as the case may be, equals or exceeds $10.00
per share for 20 consecutive trading days ending within five days prior to the
date of the Company's notice of redemption. Pursuant to the terms of the Series
B Warrants, the Company has the right, upon 30 days written notice to all
holders of the Series B Warrants and subject to compliance with Rule 13e-4 under
the Exchange Act (including the filing of Schedule 13E-4), to reduce the
exercise price and/or extend the term of the Series B Warrants.
Transfer and Warrant Agent
American Stock Transfer & Trust Company, New York, New York is the
Registrar and Transfer Agent for the Units and the Common Stock and the
Registrar and Warrant Agent for the Series A Warrants.
Limitation on Directors Liabilities
The Company's Certificate of Incorporation limits the liability of the Company's
directors for breach of their fiduciary duty of care to the Company. The effect
is to eliminate liability of directors for monetary damages arising out of
negligent or grossly negligent
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conduct. Stockholder actions against a director of the Company for monetary
damages can only be maintained upon a showing of a breach of the individual
director's duty of loyalty to the Company, a failure to act in good faith,
intentional misconduct, a knowing violation of the law, an improper personal
benefit, or an illegal dividend or stock purchase, and not for such director's
negligence or gross negligence in satisfying his duty of care.
UNDERWRITING
General
Subject to the terms and conditions set forth in the Underwriting
Agreement by and between the Company and the Underwriter (the "Underwriting
Agreement"), the Underwriter has agreed to purchase on a "firm commitment"
basis, an aggregate of 1,100,000 Units from the Company (exclusive of the
165,000 Units subject to the Over-Allotment Option), each consisting of one
share of Common Stock and one Series A Warrant and 200,000 Underwriter`s Shares
from a Selling Stockholder.
The Units being offered to the public by the Company are being offered
at a price of $3.50 per Unit as set forth on the cover page of this Prospectus.
The Units are offered by the Underwriter subject to: (i) the Underwriter's
receipt and acceptance; (ii) the Underwriter's right to reject any order in
whole or in part; (iii) approval of certain legal matters by counsel to the
Underwriter; and (iv) certain other conditions specified in the Underwriting
Agreement.
The Company has agreed to sell the Units to the Underwriter at a
discount of 10% of the public offering price thereof. The Company has also
agreed to pay the Underwriter the Non-Accountable Expense Allowance (as
previously defined) equal to 3% of the aggregate offering price of the Units and
Shares ($25,000 of which was advanced to the Underwriter). Pursuant to the
provisions of the Underwriting Agreement, in the event that the Company's public
offering is terminated for any reason, the Underwriter shall be reimbursed for
all accountable expense incurred by it. Any amounts previously paid shall be
credited against any amounts due.
The Underwriter has advised the Company that sales to certain dealers
may be made at the public offering price less a concession not in excess of ____
% or $______per Unit. Upon completion of the Company's public offering, the
public offering price and other selling terms may be changed by the Underwriter.
The Underwriter does not intend to confirm sales of more than 1% of the Units
offered hereby to any accounts over which it exercises discretionary authority.
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Prior to the Company's public offering, there has been no public
trading market for the Units, the Common Stock or the Series A Warrants. The
offering price of the Units and the exercise price of the Series A Warrants were
determined by negotiation between the Company and the Underwriter. The major
factors considered by the Company and the Underwriter in determining the public
offering price of the Units and the exercise price of the Series A Warrants, in
addition to prevailing market conditions, were the Company's historical
performance and growth, management's assessment of the Company's business
potential and earning prospects, the prospects for growth in the industry in
which the Company operates, and the foregoing factors in relation to market
valuations of other similar companies. The public offering price may not bear
any relationship to the Company's assets, book value, net worth or other
criteria of value applicable to the Company.
The Underwriter has required that all shareholders of the Company
lock-up their securities in order for the Underwriter to engage in the Offering
as well as in order to maintain a more orderly trading market. Such shares will
have a legend placed on the certificates to express the lock-up.
The Underwriting Agreement prohibits the Company from issuing any
capital stock or other securities for a period of 18 months following the
Effective Date without the Underwriter`s prior consent. This provision may limit
the Company`s ability to raise additional equity capital. The purpose of such
provision is to protect against unnecessary dilution to the public shareholders.
The Over-Allotment Option
The Company has granted to the Underwriter the Over-Allotment Option
which is exercisable for a period of 30 days following the Effective Date of the
Registration Statement of which this Prospectus forms a part to purchase up to
165,000 Units (equal to an aggregate of up to 15% of the number of Units being
offered by the Company to the public) for the purpose of covering
over-allotments. The Over-Allotment Option is exercisable upon the same terms
and conditions as are applicable to the sale of the Units.
The Underwriter's Unit Purchase Option
As part of the consideration to the Underwriter for its services in
connection with the public offering described herein, the Company has agreed to
issue to the Underwriter, for nominal consideration, the Underwriter's Unit
Purchase Option to purchase up to 110,000 Units (an aggregate of up to 10% of
the number of Units being offered by the Company to the public). The
Underwriter's Unit Purchase Option will be exercisable commencing 1 year after
the effective Date and ending four years thereafter at an exercise price of
$4.20 per Unit (120% of the public offering price of the Units). The
Underwriter's Unit Purchase Option will
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be restricted from exercise, sale, transfer, assignment or hypothecation, except
to officers of the Underwriter and members of the selling group and/or their
officers or partners, for a period of one year from the Effective Date and will,
thereafter, be exercisable for a period of four years. The exercise price of the
Underwriter's Unit Purchase Option was arbitrarily determined by the Company and
the Underwriter and should not be deemed to reflect any estimate of the
intrinsic value of either the Underwriter's Unit Purchase Option, the Units or
the underlying Common Stock and Series A Warrants. The Underwriter's Unit
Purchase Option will also contain certain anti-dilution and adjustment
provisions.
During the period in which the Underwriter's Unit Purchase Option is
exercisable, the holders thereof are given the opportunity to profit from a rise
in the market price of the Units, the Common Stock and the Series A Warrants
which may result in a dilution of the interest of the stockholders. The Company
may find it more difficult to raise additional equity capital if it should be
needed for the business of the Company while the Underwriter's Unit Purchase
Option is outstanding. At any time when the holders thereof might be expected to
exercise such Options and the underlying securities, the Company would probably
be able to obtain additional equity capital on terms more favorable than those
provided by the Underwriter's Unit Purchase Option. Any profit realized on the
sale of securities issuable upon the exercise of the Underwriter's Unit Purchase
Option may be deemed additional underwriter compensation.
Registration Rights
In connection with the underwriting of the Company's public offering,
the Company has granted to the Underwriter certain "piggy back" and "demand"
registration rights. Pursuant to the terms of the Underwriting Agreement, the
Company has granted to the Underwriter, for a period of seven years commencing
one year from the Effective Date, the right to include for registration, the
Underwriter's Unit Purchase Option (including the underlying securities) in the
event that the Company files a registration statement under the securities act
relating to the Public sale of any of its securities. Consequently, the "piggy
back" registration rights are only operative if the Company otherwise files a
registration statement. In addition, the Company has agreed, for a period of
five years from the Effective Date, to register under the Securities Act: (i) on
one occasion and at its expense, the Underwriter's Unit Purchase Option
(including the underlying securities) upon the request of the holders of 50% or
more of the Underwriter's Unit Purchase Option (including the underlying
securities); and (ii) on one occasion and at the holder's expense, the
Underwriter's Unit Purchase Option (including the underlying securities) upon
the request of any holder thereof.
70
<PAGE>
Finder's Fees
The Company has also agreed, pursuant to the provisions of the
Underwriting Agreement, to pay the Underwriter a finder's fee (the "Finder's
Fee") in the event that the Company consummates a transaction with a party
introduced to the Company by the Underwriter during the five-year period
following completion of the public offering described herein. The Finder's Fee
is based upon the consideration received by the Company in connection with such
a transaction and may range from between 1% to 5% of such transaction price. No
finder has been associated with the Company's public offering as described
herein; nor does the Company have any obligation to pay a finder's fee to anyone
in connection with any pending transaction involving the Company.
Warrant Solicitation Fee
The Company has agreed with the Underwriter that the Company will pay
to the Underwriter a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to 4% of the exercise price of the Series A Warrants exercised beginning
one year after the Effective Date and to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations of the Commission. Such
Warrant Solicitation Fee will be paid to the Underwriter if: (i) the market
price of the Common Stock on the date that any such Series A Warrant is
exercised is greater than the exercise price of the Series A Warrant; (ii) the
exercise of such Series A Warrant was solicited by the Underwriter; (iii) prior
specific written approval for exercise is received from the customer if the
Series A Warrant is held in a discretionary account; (iv) disclosure of this
compensation arrangement is made to the customer prior to or upon the exercise
of such Series A Warrant; (v) solicitation of the exercise is not in violation
of Rule 10b-6 of the Exchange Act; and (vi) solicitation of the exercise is in
compliance with NASD Notice to Members 81-38. In addition, unless granted an
exemption by the Commission from Rule 10b-6 under the Exchange Act, the
Underwriter will, be prohibited from engaging in any market making activities or
solicited brokerage activities with respect to the Company's securities for the
period from nine business days prior to any solicitation of the exercise of any
Series A Warrant or nine business days prior to the exercise of any Series A
Warrant based on a prior solicitation until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
the Underwriter may have to receive such a fee for the exercise of the Series A
Warrants following such solicitation. As a result, the Underwriter may be unable
to continue to provide a market for the Company's securities during certain
periods while the Series A Warrants are exercisable
71
<PAGE>
Other Terms of the Underwriting
The Company has agreed not to issue, sell, offer to sell, grant any
option relating to the sale of or otherwise dispose of (directly or indirectly)
any of the Company's equity securities (including securities convertible into,
exercisable for or exchangeable into equity securities) without the
Underwriter's prior written consent, except for issuances pursuant to: (i) the
exercise of the Underwriter's Unit Purchase Option; (ii) the Company's public
offering of securities as described herein; (iii) a declaration of dividends,
recapitalization, reorganization or similar transaction; or (iv) a currently
existing stock incentive or option plan, for 18 months from the Effective Date.
In addition, each officer, director and stockholder who owns 5% or more of the
Company's equity securities has agreed not to sell, transfer, convey, pledge,
hypothecate or otherwise dispose of any of the respective securities of the
Company owned by them for a period of 18 months from the Effective Date without
the Underwriter's prior approval.
Indemnification
The Company has agreed to indemnify the Underwriter and others against
certain liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be provided
to officers, directors or persons controlling the Company, the Company has been
informed that, in the opinion of the Commission, such indemnification is against
public policy and is therefore unenforceable. The Underwriter has agreed to
indemnify the Company, its directors, and each person who controls it within the
meaning of Section 15 of the Securities Act with respect to any statement in or
omission from the Registration Statement, the Prospectus or any amendment or
supplement thereto if such statement or omission was made in reliance upon
information furnished in writing to the Company by the Underwriter specifically
for or in connection with the preparation of the Registration Statement, the
Prospectus, or any such amendment or supplement thereto.
The foregoing summaries of certain terms and conditions of the
Underwriting Agreement and the Underwriter's Unit Purchase Option do not purport
to be complete statements of the terms and/or contents of such agreements.
Copies of the foregoing documents have been filed with the Commission as
exhibits to the Registration Statement of which this Prospectus forms a part and
are also on file at the offices of the Underwriter and the Company. Reference is
hereby made to each such exhibit for a detailed description of the provisions
thereof which have been summarized above. See "Available Information."
72
<PAGE>
Action Involving the Underwriter
The Company has been advised by the Underwriter that on or about May
22, 1995, the Underwriter and Elliot Lowenstern and Richard Bronson, principals
of the Underwriter, and the Securities and Exchange Commission (the
"Commission") agreed to an offer of settlement (the "Offer of Settlement") in
connection with a complaint filed by the Commission in the United States
District Court for the Southern District of Florida alleging violations of the
federal securities laws, Section 17(a) of the Securities Act of 1933, Section
10(b) and 15(C) of the Securities Exchange Act of 1934, and Rules 10b-5, 10b-6
and 15c1-2 promulgated thereunder. The complaint also alleged that in connection
with the sale of securities in three (3) IPOs in 1992 and 1993, the Underwriter
engaged in fraudulent sales practices. The proposed Offer of Settlement was
consented to by the Underwriter and Messrs. Loewenstern and Bronson without
admitting or denying the allegations of the complaint. The Offer of Settlement
was approved by Judge Gonzales on June 6, 1995. Pursuant to the final judgment
(the "Final Judgment"), the Underwriter:
* was required to disgorge $1,000,000 to the Commission,
which amount was paid in four (4) equal installments on
or before June 22, 1995; and
* agreed to the appointment of an independent consultant
("Consultant").
Such Consultant is obligated, on or before May 15, 1996:
* to review the Underwriter's policies, practices and
procedures in six (6) areas relating to compliance and
sales practices;
* to formulate policies, practices and procedures for the
Underwriter that the Consultant deems necessary with
respect to the Underwriter`s compliance and sales
practices;
* to prepare a report devoted to and which details the
aforementioned policies, practices and procedures (the
"Report");
* to deliver the Report to the President of the Underwriter
and to the staff of the Southeast Regional office of the
Commission;
* to prepare, if necessary, a supervisory procedures and
compliance manual for the Underwriter, or to amend the
Underwriter's existing manual; and
* to formulate policies, practices and procedures designed
73
<PAGE>
to provide mandatory on-going training to all existing and
newly hired employees of the Underwriter. The Final Judgment
further provides that, within thirty (30) days of the
Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain
any and all policies, practices and procedures set forth in
the Report.
The Final Judgment also provides that an independent auditor
("Auditor") shall conduct four (4) special reviews of the Underwriter's
policies, practices and procedures, the first such review to take place six (6)
months after the Report has been delivered to the Underwriter and thereafter at
six-month intervals. The Auditor is also authorized to conduct a review, on a
random basis and without notice to the Underwriter, to certify that any persons
associated with the Underwriter, who have been suspended or barred by any
Commission order are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and
Bronston was dismissed with prejudice. Mr. Bronson has agreed to a suspension
from associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of such suspension. Mr.
Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing upon
the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Company`s
stock, and additional brokers do not make a market in the Company`s securities,
the market for and liquidity of the Company`s securities may be adversely
affected. In the event that other broker dealers fail to make a market in the
Company`s securities, the possibility exists that the market for and the
liquidity of the Company`s securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company`s securities may not exist. For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999.
The State of Indiana has commenced an action seeking among other things
to revoke the Underwriter`s license to do business in such state. A hearing in
this matter has been scheduled for October 7, 1996. Such proceeding if
ultimately successful may adversely affect the market for and liquidity of the
Company`s securities if additional broker dealers do not make a market in the
Company`s securities. Moreover, should Indiana investors purchase any of the
74
<PAGE>
securities sold in this Offering from the Underwriter prior to the possible
revocation of the Underwriter`s license in Indiana, such investors will not be
able to resell such securities in such state through the Underwriter but will be
required to retain a new broker dealer firm for such purpose. The Company cannot
ensure that other broker dealers will make a market in the Company`s securities.
In the event that other broker dealers fail to make a market in the Company`s
securities, the possibility exists that the market for and the liquidity of the
Company`s securities may be adversely affected to an extent that public security
holders may not have anyone to purchase their securities when offered for a sale
at any price. In such event, the market for, liquidity and prices of the
Company`s securities may not exist. It should be noted that although the
Underwriter may not be the sole market maker in the Company`s securities, it
will most likely be the dominant market maker in the Company`s securities.
CONCURRENT SALES BY SELLING STOCKHOLDERS
The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of up to 800,000 shares of Common Stock, 1,500,000
Class A Warrants and 2,000,000 shares of Common Stock issuable upon exercise of
outstanding Class A and Class B Warrants previously issued to the Selling
Stockholders. Such securities are to be offered and sold by the Selling
Stockholders and are subject to an 18 month lock-up. Such securities are
expected to become tradeable on or about the date of this Prospectus. Sales of
the shares of Common Stock to be offered by Selling Stockholders, or even the
potential of such sales, would likely have an adverse effect on the market
prices of the securities being offered for sale by the Company. The freely
tradeable shares of the Common Stock (the public float), upon the Effective Date
of the Registration Statement of which this Prospectus forms a part and upon
consummation of the transactions contemplated herein, will be 1,300,000 shares
of Common Stock, of which 200,000 shares are to be sold by a Selling
Stockholder.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
being offered by the Company will be passed upon for the Company by McLaughlin &
Stern, LLP, New York, New York, David W. Sass, a member of such firm is a
Director of the Company. Legal matters for the Underwriter will be passed upon
by Bernstein and Wasserman, LLP, New York, New York.
EXPERTS
The Financial Statements of the Company included in this Prospectus to
the extent and for the periods indicated in their report have been reported on
by Moore Stephens, P.C., independent certified public accountants, as stated in
their report appearing herein in reliance upon such report given on the
authority of that firm as experts and auditing.
sass/harmat/sbamd.2
75
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholder of
The Harmat Organization, Inc. and Subsidiaries
Quogue, New York
We have audited the accompanying consolidated balance sheet of
Harmat Organization, Inc. and Subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity [deficit],
and cash flows for each of the two years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Harmat Organization, Inc. and Subsidiaries as of December 31, 1995,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that The Harmat Organization, Inc. and Subsidiaries will
continue as a going concern. As discussed in Note 7 to the consolidated
financial statements, the Company has insufficient cash resources and negative
working capital that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 7. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 27, 1996
F-1
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------
March 31, December 31,
1 9 9 6 1 9 9 5
[Unaudited]
Assets:
Current Assets:
Cash $82,340 $15,439
Marketable Securities 87,556 367,492
Accounts Receivable 30,052 14,764
Land and Construction Costs 798,523 114,889
Prepaid Expenses 8,367 1,175
Due from Related Parties 23,200 --
-------- -----
Total Current Assets 1,030,038 513,759
--------- -------
Property, Plant and
Equipment - Net 1,143,770 1,125,067
--------- ---------
Other Assets:
Land and Construction Costs 608,349 776,327
Goodwill - Net 70,366 72,377
Land Held for Development 72,298 72,298
Investment in Partnership 29,727 29,727
Land Deposits 75,000 75,000
Deferred Offering Costs 176,300 30,000
------- -------
Total Other Assets 1,032,040 1,055,729
---------- ---------
Total Assets $3,205,848 $2,694,555
=======================
Substantially all of the assets are pledged.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-2
77
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------
March 31, December 31,
1 9 9 6 1 9 9 5
[Unaudited]
Liabilities and Stockholder's
Equity [Deficit]:
Current Liabilities:
Current Portion of Mortgage Payable$331,266 $229,577
Notes Payable - Shareholders 270,260 277,000
Notes Payable - Related Parties 215,000 90,000
Loans Payable - Bank 240,000 240,000
Other Loan Payable 139,360 139,360
Accounts Payable and Accrued
Expenses 635,969 646,775
Customer Deposits 399,800 97,500
------- -------
Total Current Liabilities 2,231,655 1,720,212
Commitment and Contingencies [8] --
Other Liabilities:
Mortgages Payable - Net
of Current Maturities 925,445 1,031,273
Notes Payable - Related Party -- 125,000
Total Other Liabilities 925,445 1,156,273
-------- ---------
Stockholder's Equity [Deficit]:
Preferred Stock - $.001 Par Value,
5,000,000 Shares Authorized
No Shares Issued and Outstanding -- --
Common Stock - $.001 Par Value, 25,000,000 Shares Authorized, 2,250,000 and
1,750,000 Shares Issued and Outstanding at March 31, 1996 and December 31,
1995, respectively 2,250 1,750
Additional Paid-in Capital -
Common Stock 300,653 128,750
Retained Earnings [Deficit] (254,065) (312,430)
Total Stockholder's Equity
[Deficit] (48,748) (181,930)
--------- ---------
Total Liabilities and
Stockholder's Equity [Deficit] $3,205,848 $2,694,555
The Accompanying Notes are an Integral
Part of these Consolidated Financial Statements.
F-3
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- --------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------
Three months ended
March 31,
1 9 9 6 1 9 9 5
------------------
[Unaudited] [Unaudited]
Revenues:
Construction Sales $1,873 $3,172
Rental Income 48,449 42,611
Management Fee Income 37,500 --
----------------
Total Revenues 87,822 45,783
Cost of Sales and Direct Operating
Expenses -- --
--------------
Gross Profit 87,822 45,783
Selling, General and
Administrative Expenses 116,890 87,988
Charge for Executive
Compensation Capitalized (14,750) --
[Loss] Income from Operations (43,818) (42,205)
Other Income [Expense]:
Gain on Sale of
Marketable Securities 30,222 (1,131)
Unrealized Gain on Marketable
Securities 8,711 (27,725)
Interest and Dividend Income 451 176
Interest Expense (40,622) (42,972)
Total Other [Expense] Income (1,238) (71,652)
Net [Loss] Income: Historical $(45,056)$(113,857)
Charge in Lieu of
Income Taxes [1] --
Pro Forma Net [Loss] Income [2] $(45,056)
Pro Forma [Loss] Earnings
Per Share:
Net [Loss] Income $ (.02)
Number of Shares 2,250,000
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ---------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------
Years ended
December 31,
19 9 5 1 9 9 4
Revenues:
Construction Sales $2,065,126 $4,449,827
Rental Income 183,398 69,045
Management Fee Income 75,000 --
-------------------------------
Total Revenues 2,323,524 4,518,872
Cost of Sales and Direct
Operating Expenses 1,719,316 4,277,821
------------------------------------
Gross Profit 604,208 241,051
Selling, General and
Administrative Expenses 367,498 239,791
Charge for Executive
Compensation Capitalized (105,000) --
[Loss] Income from Operations 131,710 1,260
Other Income [Expense]:
Gain on Sale of Marketable
Securities 245,022 281,767
Unrealized Gain on Marketable
Securities 5,575 13,803
Interest and Dividend Income 11,274 12,811
Interest Expense (157,678) (51,470)
------------------------- ------------
Total Other [Expense] Income 104,193 256,911
Net [Loss] Income: Historical $235,903 $258,171
Charge in Lieu of Income Taxes [1](94,903)
Pro Forma Net [Loss] Income [2] $141,000
Pro Forma [Loss] Earnings Per Share:
Net [Loss] Income $.06
Number of Shares 2,250,000
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4 (continued)
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY [DEFICIT]
- ---------------------------------------------------------------------
Common Stock
Stockholder's
Number of
Equity
Shares [At Par]
(Deficit)
Balance - December 31, 1993 $1,750,000 $1,750
Net Income -- --
Stockholder Distributions -- --
---------------------------
Balance - December 31, 1994 1,750,000 1,750
Net Income -- --
Executive Compensation
Capitalized -- --
Stockholder Distributions -- --
-------------------------
Balance - December 31, 1995 1,750,000 1,750
March 1, 1996 - Transfer of S
Corporation Deficit to
Additional Paid-in Capital -- --
Proceeds from Private
Placement 500,000 500
Executive Compensation
Capitalized --
Net [Loss] -- --
Stockholder Distributions -- --
----------------
Balance - March 31, 1996
[Unaudited] 2,250,000 $ 2,250
=========================================
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- --------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY [DEFICIT]
- --------------------------------------------------------------
Total
Additional Retained
Amount Paid-in Earnings
Capital[Deficit]
Balance - December 31, 1993 $23,750 $(123,630) $(98,130)
Net Income -- 258,171 258,171
Stockholder Distributions -- (78,887) (78,887)
-------------------------- ----------
Balance - December 31, 1994 23,750 55,654 81,154
Net Income -- 235,903 235,903
Executive Compensation
Capitalized 105,000 -- 105,000
Stockholder Distributions -- (603,987) (603,987)
-------------------------- ----------
Balance - December 31, 1995 128,750 (312,430) (181,930)
March 1, 1996 - Transfer of S
Corporation Deficit to
Additional Paid-in Capital (342,437) 342,437 --
Proceeds from Private
Placement 499,500 -- 500,000
Executive Compensation
Capitalized 14,750 -- 14,750
Net [Loss] -- (45,056) (45,056)
Stockholder Distributions -- (239,016) (239,016)
-------------------------- ---------
Balance - March 31, 1996
[Unaudited] $300,563 $(254,065) $ 48,748
======================================= ========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5 (CONTINUED)
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------
Three months ended
March 31,
1996 1995
[Unaudited] [Unaudited]
Operating Activities:
Net Income $(45,056) $113,857)
--------- --------
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 9,333 5,297
Gain on Sale of Marketable
Securities (30,222) 1,131
Change in Unrealized [Gain] Loss
on Investments (8,711) 27,725
Allowance for Uncollectible
Mortgage Receivable -- --
Loss on Partnership Investment -- 250
Executive Compensation Capitalized 14,750 --
Changes in Assets and Liabilities:
Contract Receivables (15,288) --
Accrued Interest Receivable -- --
Purchase of Marketable Securities (204,667) (107,547)
Sales of Marketable Securities 337,136 --
Costs and Profits in Excess of
Billings on Uncompleted Contacts -- --
Billing in Excess of Costs and Profits
on Uncompleted Contracts -- --
Prepaid Expenses (7,192) 2,255
Accounts Payable and Accrued
Expenses (10,806) 203,112
Customer Deposits 302,300 648,909
-----------------------------------
Total Adjustments 386,633 781,132
-----------------------------------
Net Cash - Operating Activities -
Forward 341,577 667,275
---------------------------------------------
Investing Activities:
Acquisition of Quick Storage -- (150,000)
Less: Cash of Quick Storage at
Acquisition -- 4,737
Acquisition of Property and
Equipment (26,025) (338,656)
Deposit on Land -- --
Land and Construction Costs (515,656) (804,058)
Payment of Deferred Offering
Costs (146,300) --
Advances from/to Affiliates
and Related Parties (23,200) (67,197)
------------------- -------------
Net Cash - Investing
Activities - Forward $(711,181) $(1,355,174)
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------
Three months ended
March 31,
1996 1995
- ------------------------------------------------------
[Unaudited] [Unaudited]
Net Cash - Operating
Activities - Forwarded $341,577 $667,275
--------------------------
Net Cash - Investing
Activities - Forwarded (711,181) (1,355,174)
-------- -----------------
Financing Activities:
[Repayments] Proceeds from
New Loans -- --
Proceeds of Mortgage Payable -- 215,400
Repayments of Mortgages
Payable (4,139) (3,300)
[Repayments] Proceeds of Notes
Payable - Stockholder (6,740) 150,000
[Repayments] Proceeds of Notes
Payable - Other -- (100,000)
Proceeds [Repayment] of Due to
Stockholder -- 429,653
Distribution to Stockholders (52,616) --
Proceeds of Private
Placement 500,000 --
---------------------------------------
Net Cash - Financing
Activities 436,505 691,753
----------------------------------------
Net Increase [Decrease]
in Cash 66,901 3,854
Cash - Beginning of Periods 15,439 43,538
----------------------
Cash - End of Periods $82,340 $47,392
=====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $40,622 $42,792
Income Taxes $ -- $ --
Supplemental Disclosures on Non-Cash Investing and Financing Activities: For the
quarter ended March 31, 1996, the company distributed marketable securities with
a fair value of $186,400 to its controlling stockholder. The Accompanying Notes
are an Integral Part of these Consolidated Financial Statements.
F-7
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ----------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------
Years ended
December 31,
1995 1994
- ------------------------------------------------
Net Cash - Operating
Activities - Forwarded $1,315,076 $81,149
-----------------------
Net Cash - Investing
Activities - Forwarded (584,006) 49,571
-------- ------------
Financing Activities:
[Repayments] Proceeds from
New Loans 309,500 100,000
Proceeds of Mortgage
Payable -- --
Repayments of Mortgages
Payable (14,764) (9,352)
[Repayments] Proceeds of
Notes Payable - Stockholder 150,000 (205,034)
[Repayments] Proceeds of
Notes Payable - Other (8,120) (28,120)
Proceeds [Repayment] of
Due to Stockholder (608,463) --
Distribution to Stockholders (587,322) (78,889)
Net Proceeds of Private
Placement -- --
---------------------------------------
Net Cash - Financing
Activities (759,169) (221,395)
--------------------------- -----------
Net Increase [Decrease] in
Cash (28,099) (90,675)
Cash - Beginning of Periods 43,538 134,213
---------------------
Cash - End of Periods $15,439 $43,538
====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $50,066 $38,585
Income Taxes $ -- $ --
Supplemental Disclosures on Non-Cash Investing and Financing Activities: For the
quarter ended March 31, 1996, the company distributed marketable securities with
a fair value of $186,400 to its controlling stockholder. The Accompanying Notes
are an Integral Part of these Consolidated Financial Statements.
F-7 (CONTINUED)
85
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
[1] Principles of Consolidation and Business
The Harmat Companies are owned by an individual stockholder.
In November 1995, the Harmat Organization, Inc. [Delaware] [the "Company"] was
formed for the purpose of offering securities to the general public and
1,750,000 shares of common stock were issued to the individual stockholder of
the Harmat Companies. On March 1, 1996, the individual stockholder of the Harmat
Companies transferred his stock in the Harmat Companies to the Harmat
Organization [Delaware] for a 100% ownership interest in the Harmat
Organization, Inc. [Delaware].
These December 31, 1995 and 1994 financial statements reflect the financial
position and results of operations of the Parent Company and its subsidiaries on
a consolidated basis, which reflects the Company's current organizational
structure. The Company's policy is to consolidate all majority-owned
subsidiaries. All intercompany amounts have been eliminated in consolidation.
Entity Nature of Business
Parent Company:
The Harmat Organization, Inc. -
Delaware
Harmat Companies:
[Subsidiaries]
Harmat Homes, Inc.
["Harmat"] Construction of custom homes
and residential and commercial
rental properties.
Harmat Holding Corp.
["Harmat Holding"] Subdivision and development
of undeveloped land.
Northside Woods, Inc.
["Northside"] Rental of residential
property.
Harmat Capital Corp.
["Harmat Capital"] Rental of residential
property.
Harmat Organization -
New York Limited Partner in real estate partnership.
Quick Storage, Inc. Short-term rental of storage
facilities
The sole stockholder who owns all of the above entities is a general partner in
the partnership in which the Harmat Organization - New York has a limited
partnership interest.
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Of the 1,750,000 held by the individual stockholder, 750,000 were placed in
escrow for his benefit. Such stockholder will continue to vote his respective
escrowed shares while they are in escrow; however, the escrowed shares are not
assignable or transferable, except through laws of inheritance, guardianship,
legal representation or trusteeship for the benefits of the holder or the
holder's immediate family. In the event the Company's earnings before interest
and taxes first equals or exceeds an amount listed below for any fiscal year
ending prior to the years after the date the Company's initial public offering,
the escrowed shares shall be released to such stockholder as follows:
Earnings Before Escrowed Shares
Interest and Taxes to be Released
$ 750,000 250,000
$1,500,000 250,000
$2,250,000 250,000
If the above earnings levels are achieved, the Company will recognize
compensation expense equal to the difference between the fair market value at
the time of release of the escrowed shares to such stockholder and the recorded
value at the time of issuance. Release of the escrowed shares is likely to
result in substantial compensation expense to the Company in future years. In
the event the above does not occur, the shares shall be returned to the Company
for cancellation.
F-8 (continued)
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies
Concentration of Credit Risk - Accounts receivable arise principally from the
construction and sale of custom homes and residential and commercial properties
in Eastern Suffolk County, New York. The management of the Subsidiaries
continually reviews and evaluates such accounts receivable and provides an
allowance for doubtful accounts for accounts it deems uncollectible and as a
consequence, believes its accounts receivable credit risk exposure beyond such
allowance is limited. Such estimates of the financial strength of such customers
may be subject to change in the near term.
Deferred Offering Costs - As of December 31, 1995, the Company incurred $30,000
of legal and accounting fees in connection with the proposed public offering of
the Company's common stock. These costs will be charged to additional paid-in
capital upon completion of the proposed public offering.
Economic Dependency - There were six construction contracts which were deemed
major customers and accounted for approximately 99% of total construction sales
for the year ended December 31, 1995. Five contracts represented 16% each of
total sales and one contract represented 19% of total sales. There was no
amounts due under such contracts at December 31, 1995. In 1994 no individual
customer exceeded 10% of total sales. Most of the Company's business is of a
nonrecurring nature. The Company must continually market its homes in order to
attract new purchasers. Unless the Company is successful in attracting new
purchasers for its homes, a lack of new purchasers will have a severe negative
impact to the Company in the near term.
Marketable Securities - The Company adopted Statement of Financial Accounting
Standards ["SFAS"] No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at January 1, 1994. SFAS No. 115 addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Those
investments are to be classified into the following three categories:
held-to-maturity debt securities; trading securities; and available-for-sale
securities. In accordance with SFAS No. 115, prior years' financial statements
are not to be restated to reflect the change in adopting the new accounting
method. There was no cumulative effect as a result of adopting SFAS No. 115 at
January 1, 1994.
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date. At December 31, 1995 all of the Company investments
were classified as trading securities. Trading securities are securities bought
and held principally for the purpose of selling them in the near term and are
reported at fair value, with unrealized gains and losses included in operations
for the current year. The Company primarily uses the specific identification
method for gains and losses on the sales of marketable securities [See Note 3].
Property and Equipment and Depreciation - Property and equipment are stated at
cost. Depreciation is computed over the estimated useful lives of the assets,
using the straight-line method and for building and building improvements and
accelerated methods for furniture and equipment, as follows:
Building and Building Improvements 40 Years
Furniture and Equipment 5 to 7 Years
Pro Forma Earnings Per Share - Pro Forma earnings per share are based on the
1,750,000 shares issued [See Note 1] and the 500,000 shares issued in the
private placement [See Note 10A] for all periods presented. Shares or
equivalents issued within a one year period prior to the initial filing of the
registration statement are treated as outstanding for all reported periods.
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<PAGE>
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[2] Summary of Significant Accounting Policies [Continued]
Land Development Costs - Costs that clearly relate to land development projects
are capitalized. Costs are allocated to project components by the specific
identification method whenever possible. Otherwise, acquisition costs are
allocated based on their relative fair value before development, and development
costs are allocated based on their relative sales value. Interest costs are
capitalized while development is in progress.
Revenue Recognition - Harmat recognizes revenues from fixed-price and modified
fixed-price construction contracts on the percentage-of-completion method,
measured by the percentage of cost incurred to date to estimated total cost for
each contract. That method is used because management considers total cost to be
the best available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used will change within the near term.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation. Selling, 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 may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period.
At December 31, 1995, all construction contracts were complete.
Harmat Holding - Harmat Holding recognizes revenue from the acquisition,
development and sale of land and construction and sale of houses on such land.
Pursuant to the terms of such contracts and Statement of Financial Accounting
Standards ["SFAS"] No. 66, "Accounting for Sales of Real Estate," the Company
uses the deposit method of accounting. The method provides that all construction
costs be recorded as incurred and monies received from the purchases recorded as
deposits until the purchase contracts close when all revenue costs and profits
are recognized.
Harmat Holding classifies all land and construction costs that are expected to
be completed within one year as a current asset. At December 31, 1995, such land
and construction costs totaled $114,889. Customer deposits received on such
contracts totaled $97,500 at December 31, 1995.
Northside Woods and Harmat Capital - Rental income is recognized as it is earned
pursuant to the terms of each lease on a straight line basis. All leases have an
initial or remaining term of one year or less.
Income Taxes - Each of the Subsidiaries has elected S corporation status under
the Internal Revenue Code and similar statutes, and, therefore, does not incur
federal or state income taxes except for a New York State equalization tax on S
corporation earnings which is based on the differential between corporate and
personal income tax rates. The amount of this tax has been deemed to be
immaterial and is not included in the financial statements. Taxes are passed
through to the individual shareholder. Pro forma net income and earnings per
share are presented as if the companies were C corporations.
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<PAGE>
On March 1, 1996, each of the S Corporation terminated their S Corporation
status and became C Corporations. The undistribution S Corporation deficit of
each entity at March 1, 1996 was transferred to additional paid-in capital.
[2] Summary of Significant Accounting Policies [Continued]
Goodwill - Amortization for securities of the newly acquired subsidiary, Quick
Storage, in excess of the fair value of the net assets of such subsidiary has
been charged to goodwill. Goodwill is related to revenues the Company
anticipates realized in future years. The Company has decided to amortize its
goodwill over a period of up to ten years under the straight-line method.
Accumulated amortization at December 31, 1995 was $8,042. The Company's policy
is to evaluate the periods of goodwill amortization to determine whether later
events and circumstances warrant revised estimates of useful lives. The Company
also evaluates whether the carrying value of goodwill has become impaired by
comparing the carrying value of goodwill to the value of projected undiscounted
cash flows from the acquired assets of Quick Storage, Inc. Impairment is
recognized if the Company value of goodwill is less than the projected
undiscounted cash flow from acquired assets or business.
Stock Options and Similar Equity Instruments Issued to Employees - The Company
uses the intrinsic value method to recognize cost in accordance with APB 25
[Accounting for Stock Issued to Employees].
[3] Marketable Securities
Marketable securities consist of investments in equity and debt securities at
fair value. The cost of such securities is $361,710. The change in the
unrealized gain account for 1995 is $5,575.
[4] Property and Equipment
Property and equipment consist of the following at December 31, 1995:
Land $450,495
Building and Building Improvements 795,950
Furniture and Office Equipment 33,324
Total 1,279,769
Less: Accumulated Depreciation 154,702
The mortgage is secured by land
and building having a cost of
approximately $200,000. $1,260,850
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[5] Notes and Mortgages Payable
[A] Mortgages - At December 31, 1995, the mortgages payable consist of the
following:
Mortgage payable, dated November 30, 1992,in the amount of $400,000, bearing
interest at 4% plus contingent interest participation payments upon the sale of
subdivided lots. This mortgage is secured by property with a cost of
approximately $450,000 and the personal guaranty of the stockholder of the
Companies. This mortgage requires semi-annual payments of interest only
commencing June 30, 1993 through October 30, 1997 when the mortgage matures and
contingent interest participation payments upon the
sale of subdivided lots. $400,000
Mortgage payable, dated November 14,
1985, in the original amount of
$270,000, payable in monthly
installments of $2,379 including
interest through December 1, 2015.
Interest is payable at adjustable
interest rate [10% at December 31,
1995] which is determined every three
years. The mortgage is secured by
rental property consisting of land
and building having a cost of
approximately $330,000. 246,817
Mortgage payable, dated January 30, 1992, in the original amount of $264,000,
payable in monthly installments of $1,979 including interest through February 1,
2022. Interest is payable at an adjustable interest rate [8.375% at December 31,
1995] which is determined annually. The mortgage is secured by rental property
consisting of land and building having a cost of approximately $270,000. 251,653
Mortgage payable, dated March 11, 1994, in the original amount of $215,400, with
monthly interest at prime plus 3% until December 15, 1994 when all unpaid
principal and interest is due. This loan was extended until October 11, 1996.
The mortgage is secured by land and building have a cost of
approximately $415,000. 215,400
Mortgage payable dated January 17, 1991, and amended June 14, 1994 in the
original amount of $180,000 payable in monthly installments of $1,975 including
interest through February 1, 2006. Interest is payable at an adjustable interest
rate [10.625% at December 31, 1995] which is determined annually. The mortgage
is secured by land and building having a cost of approximately $200,000. 146,980
Total Mortgages Payable $1,260,850
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[5] Notes and Mortgages Payable [Continued]
[B] Related Party Notes Payable
A loan payable to a related party which was originally due on June 25, 1994 and
was extended to March 26, 1997 and bears interest at 8% per annum. Repayment of
this loan has been guaranteed by the sole stockholder of the Companies. $125,000
Notes payable to two related
parties due on demand for $70,000
and $20,000, bearing interest
at 10% and 6% per annum,
respectively. 90,000
[C] Note Payable - Bank
A one year bank loan dated September 21, 1995, with interest of prime plus 1.5%
is guaranteed by the sole stockholder of the Company. The loan is collateralized
by marketable securities of Harmat Capital having a fair market value at
December 31, 1995 of
approximately $360,000. 240,000
[D] Notes Payable - Shareholders
Promissory notes resulting from the buyout of an interest in Quick Storage with
annual interest of 4% due at the earlier of December 31, 1996 or thirty days
after the completion on the initial public offering by the Company [See Note
12]. Interest [totaling approximately $2,000 ] represents the difference between
the stated rate of interest in the promissory notes and the market rate of
interest and is deemed immaterial and, therefore, not imputed. 150,000
Promissory note to a
shareholder dated January 1,
1995 with interest of 7% per
annum due December 31, 1996. 127,000
[E] Other Loans Payable
In 1994 and 1995, there was a loan to an individual with interest at 12% per
annum. This loan was due February 1, 1996 and has been extended to August 31,
1996.
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<PAGE>
Repayment of this loan is
guaranteed by the sole
stockholder of the Companies. 100,000
Legal obligation from from 1991 to a contractor is payable in equal semi-annual
installments on June 1 and December 1 of each year with annual payments of
$8,120. Interest [totaling about $3,000] is considered to be immaterial and has
not been imputed. 39,360
Total $871,360
Annual maturities of notes and mortgages payable are as follows:
Year ended
December 31,
1996 $1,069,697
1997 425,145
1998 26,939
1999 28,925
2000 29,880
Thereafter 551,624
Total Notes
and Mortgages
Payable $2,132,210
[6] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted SFAS No. 107, fair value of
financial investments which requires disclosing fair value to the extent
practicable for financial instruments which are recognized or unrecognized in
the balance sheet. The fair value of the financial instruments disclosed therein
is not necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax consequences of
realization or settlement. The following table summarizes financial instruments
by individual balance sheet accounts as of December 31, 1995:
Carrying
Amount Fair Value
Debt Maturing
Within One Year $1,100,937 $1,100,937
Long-Term Debt 1,031,273 1,031,273
Totals $2,132,210 $2,132,210
- ------ ========== ==========
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, customer deposits and short-term debt, it was assumed
that the carrying amount approximated fair value because of the near term
maturities of such obligations. The fair value of long-term debt is based on
current rates at which the Company could borrow funds with similar remaining
maturities. The carrying amount of long-term debt approximates fair value.
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[7] Going Concern
The Company has a working capital deficit at December 31, 1995 of $1,206,453.
The Company's financial statements for the year ended December 31, 1995, have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The continuation of the Company as a going concern is dependent upon
its ability to generate sufficient cash from operations and financing
activities. The Company's working capital deficit raises substantial doubt about
the entity's ability to continue as a going concern. Management 's viable plans
include the following: (i) to generate additional equity financing through a
private placement with proceeds of $500,000, (ii) to close a proposed public
offering for common stock with anticipated net proceeds of approximately
$3,054,500, (iii) to continue to investigate additional lending opportunities
with more favorable terms, (iv) to expand into other areas of the real estate
market such as the commercial market, (v) to acquire income producing
properties, and (vi) to expand into new services such as construction
supervision and consulting services. Management believes that these plans can be
effectively implemented in the net twelve months. There can be no assurances
that management will be successful in these endeavors. The Company's ability to
continue as a going concern is dependent on the implementation and success of
these plans. The financial statements do not include any adjustments in the
event the Company is unable to continue as a going concern.
[8] Commitments and Contingencies
[A] Land Contract - Pursuant to an agreement dated December 1995, the
Harmat Organization, Inc. has agreed to purchase three parcels of
undeveloped land located in Westhampton, New York for $1,247,000. The
Harmat Organization, Inc. has deposited $75,000 pursuant to the terms of
such contract. This contract is subject to the Company receiving a
commitment for the financing of land acquisitions.
[B] Litigation - Harmat Homes, Inc. owns a mechanics lien and has instituted
legal action against an individual for damages and lost profits in an
undeterminable amount for wrongful termination of a contract. This individual
has instituted a counter claim in the amount of $250,000 claiming breach of
contract and the wrongful filing of a mechanics lien. Harmat's motion for
summary judgement to foreclose upon its mechanics lien has been denied and an
appeal from that order has been taken. The parties are now engaged in discovery
and at this time counsel has advised the Company that the outcome on this case
cannot be rendered. Therefore, no amounts have been accrued in the financial
statements regarding this case. The Company believes the action is without merit
and intends to vigorously contest this case. Nevertheless, due to the
uncertainties in the legal process, it is at least reasonably possible that
management's view of the outcome could change in the near term. In addition, a
subcontractor of Harmat Homes, Inc. has instituted claims against both Harmat
Homes, Inc.
and the other individual for the sum of $30,000.
[8] Commitments and Contingencies [Continued]
[B] Litigation [Continued] -The Company is also involved in other legal
proceedings which are considered routine and incidental to its business. The
Company believes that the legal proceedings which are presently pending have no
potential liability which would have an adverse material effect on the financial
condition and statement of operations of the Company.
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<PAGE>
[9] Segment Information
The Company's operations are classified into two industry segments:
construction and rental. The following is a summary of segment information
for 1995 and 1994:
Construction Rental Consolidated
Revenue from Non-Affiliates:
1995 $2,140,126 $183,398 $2,323,524
========================================================
1994 $4,449,827 $ 69,045 $4,518,872
======================= ==========
Income [Loss] from Operations:
1995 $164,460 $72,250 $ 236,710
=========
1994 $ 22,221 $(20,961) $ 1,260
==================== =========
Identifiable Assets:
1995 $1,064,945 $1,629,610 $2,694,555
===================================
1994 $1,227,785 $1,359,045 $2,586,830
===================================
Depreciation and Amortization:
1995 $ 1,193 $ 28,221 $ 29,414
==================================
1994 $ -- $ 17,091 $ 17,091
==================================
Capital Expenditures:
1995 $ 14,594 $ 5,231 $ 19,825
=================================
1994 $ -- $ 774 $ 774
F-16
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[10] Private Placement
In February of 1996, Harmat Organization, Inc. [Delaware] offered 500,000 units
at $1.00 per unit as part of a private placement transaction. The units consist
of one share of common stock, three Series A warrants entitling the holder to
purchase three shares of common stock for $3.50 for a period of four years and
one Series B warrant entitling the holder to purchase one share of common stock
for $9.00 for a period of four years. The shares of common stock and the Series
A warrants are being registered as part of the proposed initial public offering.
On February 22, 1996, the Company received proceeds of $500.000 from the private
placement.
The following is a schedule of warrants:
No. of
Date of Grant Type Warrants Issued
February 1996 Series A 1,500,000
February 1996 Series B 500,000
Total Total 2,000,000
FMV at No. of
Exercise Date of Warrants
Price Grant Exercised
February 1996 $3.50 $3.50 $ --
February 1996 $9.00 $3.50 $ --
[11] Subsequent Events [Unaudited]
[A] Proposed Initial Public Offering - The Company is offering for public sale
1,100,000 units at $3.50 per unit. Each unit will consist of one [1] share of
common stock and one [1] Class A warrant. The Class A warrants shall be
exercisable during a four year period commencing one year after the date of the
proposed public offering ["Effective Date"]. The Class A warrant entitles its
holder to purchase one share of common stock at a price of $4.00 per share
commencing one year from the effective date. The warrants may be redeemed by the
Company for $.05 per warrant under certain conditions. Although no assurances
can be given that the offering will be successful, the Company intends to
utilize the net proceeds from the proposed offering of approximately $3,054,500
are intended to be used to develop properties and business opportunities, repay
certain indebtedness, and for general working capital needs.
The following supplementary earnings per share reflects on a pro forma basis the
repayment of indebtedness of $1,068,048 and the resulting reduction of interest
expense and increase in net income as if it had taken place at the beginning of
the respective periods [See Note 10A].
March 31, December 31,
1 9 9 6 1 9 9 5
Income [Loss] $ (20,241) $ 201,097
= ======= = =======
Income [Loss] Per Share (.01) . 06
=============== ================
Number of Shares 3,350,000 3,350,000
========= =========
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<PAGE>
[B] Stock Option Plan - In 1996, the Board of Directors adopted a stock option
plan providing for the granting of up to 400,000 shares of the Company's common
stock. This Plan excludes the Company's chief executive officer and principal
shareholder. No shares have been granted pursuant to this stock option plan.
[C] Employment Agreement
On April 1, 1996, the Company entered into a five year employment agreement with
the President and Chief Executive Officer for a base salary of $105,000 with
increments of $55,000 each year thereafter. In addition, the Officer will
receive a bonus of 5% of pre tax annual earnings and is granted warrants to
purchase up to an aggregate of 750,000 shares of the Company common stock for
ten years exercisable at $3.25 per share with rights vesting upon attainment of
earnings as detailed below.
Pre Tax Incremental
Annual Earnings Shares
$750,000 $250,000
$1,500,000 $250,000
$2,250,000 $250,000
The exercise price is equal to the fair value at the date of grant and there
will be no compensation expense to the Company.
[D] Litigation
The litigation described in Note 8A, was settled on June 20, 1996 without cost
or liability to the Company.
[12] New Authoritative Pronouncement
The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995. SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity instruments issued to employees as contrasted
to the intrinsic valued based method of accounting prescribed by Accounting
Principles board ["APB"]Opinion No. 25, "Accounting for Stock Issued to
Employees." The recognition requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company adopted the disclosure requirements on January 1, 1996. SFAS 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounting for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
This requirement is effective for transactions entered into after December 15,
1995.
[13] Unaudited Interim Statements
The financial statements for the three months ended March 31, 1996 and 1995 are
unaudited; however, in the opinion of management all adjustments which are
necessary in order to make the interim financial statements not misleading have
been made. The results for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
F-18
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<PAGE>
Alternate Cover Page
SUBJECT TO COMPLETION, DATED JULY 22 , 1996
PROSPECTUS
400,000 Shares
THE HARMAT ORGANIZATION, INC.
This Prospectus relates to the offering of 800,000 shares of common
stock ("Common Stock"), par value $.001 per share, of The Harmat Organization,
Inc. a Delaware corporation (the "Company"). This Prospectus also relates to the
sale of 1,500,000 shares of Common Stock of the Company issuable upon exercise
of 1,500,000 Class A Redeemable Warrants issued in a private placement as well
as 500,000 shares of Common Stock issuable upon exercise of 500,000 Class B
Warrants issued in a private placement. The securities offered hereby may not be
transferred for eighteen (18) months from the date hereof, subject to earlier
release at the sole discretion of Biltmore Securities, Inc., which is acting as
the underwriter in connection with a public offering of the Company's securities
(the "Underwriter"). Included in the 800,000 shares offered hereby are 300,000
shares held by Mr. Schilowitz, the President of the Company. The certificates
evidencing such securities include a legend with such restrictions. The
Underwriter may release the securities held by the Selling Stockholder at any
time after all securities subject to the Over-Allotment Option have been sold or
such option has expired. The Over-Allotment Option will expire thirty (30) days
from the date of this Prospectus. In other offerings where the Underwriter has
acted as the managing underwriter, it has release similar restrictions
applicable to Selling Stockholders prior to the expiration of the lock-up period
and in some cases immediately after the exercise of the Over-Allotment Option or
the expiration of the Over-Allotment Option period.
The Securities offered by this Prospectus may be sold from time to
time by the Selling Stockholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Stockholders. The
distribution of the securities by the Selling Stockholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders in connection with sales of such securities. Transfers of the
securities may also be made pursuant to applicable exemptions under the
Securities Act of 1933 (the "Securities Act") including but not limited to sales
under Rule 144 under the Securities Act.
The Selling Stockholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act.
On the date hereof, the Company commenced pursuant to the
Registration Statement of which this Prospectus is a part of a public offering
of 1,100,000 Units, each Unit comprising one share of Common Stock and one Class
A Warrant. See "Concurrent Sales."
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Stockholders. All costs in incurred in the
registration of the securities of the Selling Stockholders are being borne by
the Company. See "Selling Stockholders."
The Company intends to furnish its security holders with annual
reports containing audited financial statements and the audit report of the
independent certified public accountants and such interim reports as it deems
appropriate or as may be required by law.
The Company's fiscal year ends December 31.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS", WHICH BEGINS ON PAGE 18, AND "DILUTION" page 36.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
The date of this Prospectus , 1996
<PAGE>
The Offering
Securities Offered by
Selling Stockholders............. 800,000 Shares
1,500,000 Class A Warrants
2,000,000 Shares Issuable
upon exercise of outstanding
Class A and Class B Warrants
Shares of Common
StockOutstanding After Offering(1)...3,350,000 Shares
Use of Net Proceeds..................See "Use of Proceeds"
Proposed Nasdaq Symbols
Units................................HMATU
Common Stock.........................HMAT
Class A Warrants................... .AMATW
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(1) Includes 750,000 shares held in escrow. Does not include shares of
Common Stock issuable upon the exercise of (i) the Class A Warrants
offered as part of the Units in the public offering; (ii) the
Underwriter's Over-Allotment Option to purchase up to 165,000 Units;
(iii) the Underwriter's Unit Purchase Option to purchase up to 110,000
Units and (iv) 2,000,000 shares issuable upon exercise of the Class A
and Class B Warrants issued in a private placement. See "Description
of Securities."
<PAGE>
No dealer, salesperson or other person has been authorized to give
any information or to make any representations in connection with this Offering
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied on as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer or solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or solicitation
is not authorized or is unlawful. The delivery of this Prospectus shall not,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
Available Information..........
Prospectus Summary.............
Risk Factors...................
Use of Proceeds................
Capitalization.................
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations.................
Dilution.......................
Dividend Policy................
Business.......................
Management.....................
Certain Transactions...........
Principal Stockholder..........
Selling Stockholders...........
Description of Securities......
Underwriting...................
Concurrent Sales by Selling
Stockholders..................
Legal Matters..................
Experts........................
Financial Statements...........
Until , 199 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Debentures, whether or not participating in the
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with regard to their unsold allotments or subscription.
200,000 Shares of Common Stock
1,100,000 UNITS
Each Unit consisting of One share of Common Stock and One
Series A Redeemable Common Stock Purchase Warrant
THE HARMAT ORGANIZATION, INC.
Biltmore Securities, Inc.
<PAGE>
No dealer, salesperson or other person has been authorized to give
any information or to make any representations in connection with this Offering
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied on as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer or solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or solicitation
is not authorized or is unlawful. The delivery of this Prospectus shall not,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
Available Information..........
Prospectus Summary.............
Risk Factors...................
Use of Proceeds................
Capitalization.................
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations.................
Dilution.......................
Dividend Policy................
Business.......................
Management.....................
Certain Transactions...........
Principal Stockholder..........
Selling Stockholders...........
Description of Securities......
Underwriting...................
Concurrent Sales by Selling
Stockholders..................
Legal Matters..................
Experts........................
Financial Statements...........
Until , 199 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Debentures, whether or not participating in the
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with regard to their unsold allotments or subscription.
800,000 Shares of Common Stock
1,500,000 Class A Warrants
2,000,000 Shares of Common Stock issuable upon
exercise of outstanding Warrants
THE HARMAT ORGANIZATION, INC.
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 24. Indemnification of Officers and Directors
Articles NINTH and TENTH of the Corporation's Certificate
of Incorporation provides:
"NINTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent
permitted by the provisions of paragraph (7) of
subsection (b) of ss.102 of the General Corporation Law of
the State of Delaware, as the same may be amended and
supplemented."
"TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ss.145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said
section from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any
Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person."
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance
and distribution of the securities being registered (other than underwriting
discounts and commissions, non-accountable expenses of $97,500 ($112,125
additional if the over-allotment option is exercised) are estimated as follows:
Securities and Exchange Commission Fees.......... $ 8,324.59
NASDAQ Stock Market listing fee.................. $ 10,000.00
Transfer/Warrant Agent's Fee and Expenses........ $ 3,500.00
NASD filing fee.................................. $ 825.00
Accounting Fees and Expenses..................... $100,000.00
Blue Sky Fees and Expenses....................... $ 45,000.00
Tombstone Advertisement.......................... $ 10,000.00
Printing Expenses (including Securities)......... $ 35,000.00
Legal Fees....................................... $ 80,000.00
Miscellaneous.................................... $ 2,350.41
-----------
TOTAL................................ $295,000.00
ITEM 26. Recent Sales of Unregistered Securities
In March 1996 the Company concluded a Private Placement of Units for
$500,000 to three people, each Unit consisting of one share of
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<PAGE>
the Company's Common Stock, three Series A Redeemable Common Stock
Purchase Warrant and One Series B Redeemable Common Stock Purchase
Warrant.
On March 1, 1996, the Company entered into a Stock Purchase Agreement
pursuant to which the Company acquired all of the outstanding capital stock of
Harmat Homes, Inc., Harmat Capital Corp., Northside Woods, Inc., Harmat
Organization, Inc., Harmat Holding Corp. and a fifty (50%) percent interest in
Quick Storage, of Quogue, Inc. in exchange for 1,750,000 shares of Common Stock
of the Company.
Neither the Company nor any person acting on its behalf offered or
sold the securities described above by means of any form of general solicitation
or general advertising. Each purchaser represented in writing that he acquired
the securities for his own account. A legend was placed on the certificates
stating that the restrictions on their transferability and sale. Each purchaser
signed a written agreement that the securities will not be sold without
registration under the Act or exemption therefrom. The Registrant believes such
issuances are exempt transactions not involving a public offering under Section
4(2) of the Securities Act of 1933, as amended.
ITEM 27. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Form of Underwriting Agreement
1.2 Selected Dealer Agreement
3.1 Registrant's Articles of Incorporation
3.2 Registrant's By-Laws
4.1 Form of Common Stock Certificate
4.2 Form of Warrant and Warrant Agreement
4.3 Form of Series B Warrant
4.4 Form of Representative's Unit Purchase Option
4.5 Registrant's Stock Option Plan
5 * Opinion of McLaughlin & Stern, LLP
10.1 Intentionally Left Blank
10.2 Employment Agreement dated April 1, 1996, between the
Registrant and Matthew Schilowitz.
10.3 Stock Sale Agreement between the Registrant
and Bennett Brokow, Lloyd Brokow and Donald Cohen.
10.4 Stock Purchase Agreement dated March 1, 1996 between the
Registrant and Matthew Schilowitz.
II-2
<PAGE>
10.5 Escrow Agreement dated March 1, 1996 between
Matthew Schilowitz, the Registrant and
McLaughlin & Stern, LLP.
21 List of Subsidiaries
24.1* Consent of Mortenson and Associates, P.C.
(b) Financial Statement Schedules
* Filed herewith.
Schedules other than those listed above have been omitted since they
are either not required, are not applicable or the required
information is shown in the financial statements or related notes.
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes to:
(a)(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(I) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution;
II-3
<PAGE>
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement for the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering;
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of
the offering; and
(b) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(C) If the Registrant requests acceleration of the effective date of
the Registration Statement under Rule 461 under the Securities Act, the
Registrant acknowledges that:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer
of expenses incurred or paid by a director, officer or controlling
person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration as of the time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, an the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
The Harmat Organization, Inc. and Subsidiaries
Quogue, New York
We hereby consent to the use in the Prospectus
constituting a part of this Registration Statement on Form SB-2 of our report
dated March 27, 1996, relating to the consolidated financial statements of
Harmat Organization, Inc. and subsidiaries which is contained in the Prospectus.
We also consent to the reference to us under the caption
"Experts" in the Prospectus.
Moore Stephens, P.C.
Certified Public Accountants
Cranford, New Jersey
July 22, 1996
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment to
the registration statement to be signed on its behalf by the undersigned, in the
City of Quogue, State of New York, on July 22,1996.
THE HARMAT ORGANIZATION, INC.
By: /s/ Matthew Schilowitz
Matthew Schilowitz
President
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
/s/ Matthew Schilowitz President and Director July 22, 1996
Matthew Schilowitz Principal Executive,
Operating and Financial
Officer
/s/ Seymour G. Siegel Treasurer and Director July 22, 1996
Seymour G. Siegel
/s/ Scott Prizer Secretary and Director July 22, 1996
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Scott Prizer
/s/ David S. Eiten Director July 22, 1996
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David S. Eiten
/s/ David W. Sass Director July 22, 1996
- -----------------
David W. Sass
II-6
<PAGE>
EXHIBIT 5
McLaughlin & Stern, LLP
380 Lexington Avenue
New York, New York 10168
(212) 867-2500
July 21, 1996
United States Securities
and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: The Harmat Organization, Inc. (the "Company")
Gentlemen:
Reference is made to the registration statement
("Registration Statement") on Form SB-2 Registration Statement number
333-3501 filed with the Securities and Exchange
Commission by the Company.
We hereby advise you that we have examined originals
or copies certified to our satisfaction of the Certificate of
Incorporation and amendments thereto and the By-Laws and amendments
thereto of the Company, minutes of the meetings of the Board of
Directors and Shareholders and such other documents and instruments,
and we have made such examination of law as we have deemed appropriate
as the basis for the opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware.
2. The 1,265,000 Units (including the Underwriter's
Over- Allotment Option) (each Unit consisting of one (1) share of the
Company's Common Stock $0.001 par value, and one (1) Series A
Redeemable Common Stock Purchase Warrant ("Series A Warrants") which
are due to be sold pursuant to the Underwriting Agreement have been
duly and validly authorized and when issued and paid for in accordance
with the terms of the Underwriting Agreement ("Agreement") between the
Company and Biltmore Securities, Inc. ("Underwriter"), will be validly
issued, fully paid and non-assessable.
<PAGE>
3. The 1,265,000 shares of Common Stock of the
Company which are to be sold as part of the Units pursuant to the
Agreement have been duly and validly authorized, and when issued and
paid for in accordance with the terms of the Agreement, will be validly
issued, fully paid and non-assessable.
4. The Series A Warrants to purchase up to 1,265,000
shares of the Company's Common Stock to be sold as part of the Units
pursuant to the Agreement will be duly and validly issued and
exercisable in accordance with their terms. The 1,265,000 shares of
Common Stock issuable upon exercise of such Series A Warrants have been
reserved for issuance upon exercise thereof, and when issued and paid
for in accordance with the terms of the Series A Warrants will be
validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
5. The 1,000,000 shares of the Company's Common
Stock, the 1,500,000 Series A Warrants issued in a private placement
and the 1,500,000 of Common Stock issuable upon exercise of such Series
A Warrants as well as 500,000 shares of Common Stock issuable upon
exercise of outstanding Series B Warrants all to be sold by Selling
Stockholders have been duly and validly authorized and issued and are
fully paid and non-assessable. The 2,000,000 shares of Common Stock
underlying such Series A Warrants and Series B Warrants have been
reserved for issuance upon exercise thereof, and when issued and paid
for in accordance with the terms of the Series A Warrants and Series B
Warrants will be validly issued, fully paid and non-assessable shares
of Common Stock of the Company.
6. The Underwriter's Unit Purchase Option ("Unit
Purchase Option") to be sold to the Underwriter entitling it to
purchase 110,000 Units in accordance with the Agreement and the shares
issuable upon exercise of the Series A Warrants forming a part of the
Units and their underlying shares, have been duly and validly
authorized, and when issued and paid for, will be validly issued and
exercisable in accordance with their terms. The 110,000 shares of
Common Stock issuable upon full exercise of the Unit Purchase Option
have been duly reserved for issuance upon exercise thereof, and when
issued, and paid for in accordance with their terms, will be validly
issued, fully paid and non-assessable shares of Common Stock of the
Company.
We hereby consent to the reference to our firm under
the caption "Legal Matters" in the prospectus forming part of such
Registration Statement and to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
McLAUGHLIN & STERN,LLP
<PAGE>
