SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
(X) Quarterly report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934, for the quarterly period ended June 30, 1997.
( ) Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934, for the transition period from
to .
Commission file number 333-03501
THE HARMAT ORGANIZATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2780723
(State of Incorporation) (I.R.S. Employer ID No.)
22 Old Country Road
Quogue, New York 11959
(516) 653-3303
(Address of Principal Executive Offices
and Principal Place of Business and Telephone Number)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
Common Stock, $.001 par value 2,612,500 shares
1
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The Harmat Organization, Inc.
Index to Form 10-Q
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<S> <C> <C> <C> <C> <C> <C>
Page
Item Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 and June 30, 1996 3-4
Consolidated Statement of Operations Three months and nine months ended
June 30, 1997
and June 30, 1996 5
Consolidated Statements of Cash Flow - 6
Nine months ended June 30, 1997
and June 30, 1996
Consolidated Statement of Stockholder's Equity 7-8
Notes to Consolidated Financial Statements 9-15
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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THE HARMAT ORGANIZATION,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997 June 30, 1996
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,042,322 $ 1,747
Marketable Securities 11,068 101,615
Accounts Receivable 61,283 107,331
Land and Construction Costs 2,272,660 1,016,236
Prepaid Expenses 81,429 24,100
Total Current Assets 3,468,763 1,251,029
Property and Equipment-Net 1,232,483 1,148,218
Other Assets
Land and Construction Costs 528,883 709,319
Land Held for Development 385,000
Due From Affiliated Companies 81,109
Goodwill-Net 60,314 68,355
Investment in Partnership 26,447 29,727
Deferred Offering Costs 253,227
Land Deposits 75,000
Total Other Assets 1,081,753 1,135,628
Total Assets $5,782,999 $3,534,875
1
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THE HARMAT ORGANIZATION,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997 June 30, 1996
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Portion of Mortgage Payable $ 107,700 $ 331,115
Notes Payable-Shareholders 277,000
Notes Payable-Related Parties 215,000
Loans Payable-Bank 240,000
Other Notes and Loans Payable 127,074 132,800
Accounts Payable and Accrued Expenses 422,174 972,124
Customer and Security Deposits 41,838 549,849
Total Current Liabilities 698,786 2,717,888
Other Liabilities
Mortgages Payable-Net of Current Maturities 956,554 922,378
Construction Loans Payable-Net of Current
Maturities 1,135,105
Notes Payable-Related Party
Total Other Liabilities 2,091,659 922,378
Stockholders' Equity
Preferred Stock-.001 Par Value,5,000,000 Shares Authorized
2
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No Shares Issued and Outstanding
Common Stock-.001 Par Value,25,000,000
Shares Authorized 2,612,500 and 2,250,000
Shares Issued and Outstanding at
June 30, 1997 and June 30, 1996 2,613 2,250
Additional Paid-in Capital -Common Stock 4,253,604 300.563
Retained Earnings (Deficit) (1,263,663) (408,204)
Total Stockholders' Equity 2,992,554 (105,391)
Total Liabilities and Stockholders' Equity $5,782,999 $3,534,875
3
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THE HARMAT ORGANIZATION,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Three Months
ended ended
June 30, June 30,
REVENUES 1997 1996
Construction Sales $ 1,254,405 $ 489,700
Sale of Land Held for Development 52,000
Rental Income 60,616 46,897
Management Fee Income 12,500
Total Revenues 1,315,021 601,097
Cost of Sales and Direct Operating Expenses 1,173,907 516,267
Gross Profit 141,114 84,830
Selling,General and Administrative Expenses 418,323 197,791
Charge for Executive Compensation Capitalized
Income (Loss) from Operations (277,209) (112,961)
Other Income (Expense)
Gain on Sale of Marketable Securities 8,495 11,142
Unrealized Gain on Marketable Securities (11,066) 4,325
Interest and Dividend Income 12,628 115
4
<PAGE>
Interest Expense (15,323) (43,957)
Total Other (Expense) Income (5,266) (28,375)
Net Income (Loss) (282,475) (141,336)
Charge in Lieu of
Income Taxes
Pro Forma Net Income (Loss) $ (282,475) $(141,336)
(Loss) per Share (0.11) (0.06)
Weighted Average Number of Shares 2,585,402 2,250,000
5
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THE HARMAT ORGANIZATION,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Nine Months
ended ended
June 30, June 30,
REVENUES 1997 1996
Construction Sales $ 1,255,881 $ 534,763
Sale of Land Held for Development 52,000
Rental Income 130,550 147,097
Management Fee Income 87,500
Total Revenues 1,386,432 821,360
Cost of Sales and Direct
Operating Expenses 1,194,213 555,910
Gross Profit 192,219 265,450
Selling,General and Administrative
Expenses 948,595 417,991
Charge for Executive Compensation
Capitalized 67,250
Income (Loss) from Operations (756,376) (219,791)
Other Income (Expense)
Gain on Sale of Marketable Securities 62,274 151,457
Unrealized Gain on Marketable Securities (11,066) 41,503
Interest and Dividend Income 65,408 5,450
6
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Interest Expense (58,602) (126,986)
Total Other (Expense) Income 58,014 71,424
Net Income (Loss) (698,362) (148,367)
Charge in Lieu of
Income Taxes
Pro Forma Net Income (Loss) $ (698,362) $ (148,367)
(Loss) per Share (0.28) (0.07)
Weighted Average Number of Shares 2,535,589 2,000,000
7
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THE HARMAT ORGANIZATION,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Nine Months
ended ended
June 30, June 30,
1997 1996
Operating Activities:
Net (Loss) Income $ (698,362) $ (148,366)
Adjustments to Reconcile Net(Loss) Income to Net
Cash(Used For) Provided by Operating Activities:
Depreciation and Amortization 19,483 31,292
Gain on Sale of Marketable Securities (62,274) (151,457)
Change in Unrealized(Gain) Loss on Investments 11,066 15,431
Executive Compensation Capitalized 67,250
Changes in Assets and Liabilities:
Contract Receivables (33,689) (92,567)
Purchase of Marketable Securities (242,148)
Sale of Marketable Securities 62,647 398,977
Prepaid Expenses (37,931) (22,925)
Accounts Payable and Accrued Expenses 197,384 382,915
Customer Deposits 29,914 499,849
Accrued Interest Receivables (8,332)
Total Adjustments 186,600 878,285
Net Cash - Operating Activites-Forward (511,762) 729,919
<PAGE>
Investing Activities:
Advances from / to Affiliates and
Related Parties (81,109)
Acquisition of Property & Equipment (99,850) (52,099)
Land Deposit (137,652)
Land and Construction Cost (1,262,223) (762,041)
Payment of Deferred Offering Costs (223,227)
Net Cash-Investing Activities-Forward (1,143,182) (1,175,019)
Financing Activities:
Repayment of Notes Payable-Related Party (90,000)
Repayment of Mortgage Payable (71,977) (14,764)
Proceeds of Mortgage Payable (7,357)
Repayment of Other Notes & Loans Payable (44,426)
Repayment of Notes Payable-Shareholder (6,560)
Distribution to Shareholder (65,416)
Proceeds of Private Placement 500,000
Net Cash-Financing Activities (206,403) (405,903)
Net Increase(Decrease) in Cash
and Cash Equivalents (2,161,347) (39,197)
Cash and Cash Equivalents-Beginning
of Periods 3,203,669 40,994
<PAGE>
Cash and Cash Equivalents-End
of Periods $1,042,322 $1,747
Supplemental Disclosures of Cash Flow Information:
Cash Paid during Periods for:
Interest $ 68,422 $ 115,760
Income Taxes $ 48,620
Supplemlental Dislcosures on
Non-Cash Investing and
Financing Activities:
For the Nine months ended June 30, 1996, the Company distributed marketable
securities with a fair value of $186,400 to its controlling stockholder.
10
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THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Total
Number of Amount Paid-in Accumulated Stockholders'
Shares At Par Capital (Deficit) Equity
Balance-September 30,1996 2,612,500 $ 2,613 $4,253,604 $ (565,300) $ 3,690,917
Net (Loss) for period (698,363) (698,363)
Balance-June 30,1997 2,612,500 $ 2,613 $4,253,604 $(1,263,663) $ 2,992,554
</TABLE>
11
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THE HARMAT ORGANIZATION,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Total
Number of Amount Paid-in Accumulated Stockholders'
Shares At Par Capital (Deficit) Equity
Balance-September 30,1995 1,750,000 $ 1,750 $128,750 $ (350,455) $ (219,955)
Proceeds from Private Placement 500,000 500 499,500 500,000
Transfer of S Corporation Deficit to 38,026
Additional Paid-in Capital (342,437) 342,437
Executive Compensation Captialized 14,750 14,750
Net Income(Loss) for period (148,367) (148,367)
Stockholder Distributions (251,819) (251,819)
Balance-June 30,1996 2,250,000 $ 2,250 $300,563 $ (408,204) $ (105,391)
</TABLE>
<PAGE>
<PAGE>
The Harmat Organization, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim financial statements are prepared pursuant
to the requirements for reporting on Form 10-Q. The June 30,
1997 and June 30, 1996 balance sheet data was derived from
interim financial statements and together with the interim
financial statements and notes thereto should be read in
conjunction with the financial statements and notes included
in the Company's latest annual report on Form 10-K. In the
opinion of the management, the interim financial statements
reflect all adjustments of a normal recurring nature necessary
for a fair statement of the results for interim periods. The
current period results of operations are not necessarily
indicative of results which ultimately will be reported for
the full fiscal year.
BUSINESS
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].
The June 30, 1997 and June 30, 1996 financial statements
reflect the financial position and results of operations of
The Harmat Organization, Inc. 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.
The construction industry poses certain inherent risks
to the Company, such as a shortage of skilled labor. 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. The
<PAGE>
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 principal stockholder of the Company is a general
partner in the partnership in which The Harmat
Management Co., Inc. - New York has a limited
partnership interest.
The Plan for Incentive Compensation of Matthew
Schilowitz [the "Schilowitz incentive Plan"] who is the
principal, was adopted by the Board of Directors and approved
by the Company`s sole stockholder on March 1, 1996 and amended
August 3, 1996 and June 19, 1997. Pursuant to such plan, Mr.
Schilowitz has been granted an option to purchase up to an
aggregate of 500,000 shares of Common stock at an exercise
price of $1.125 per share. In the event the Company`s earnings
before taxes first equals or exceeds any amount listed below
for any fiscal year ending after the date of the Company`s
initial public offering, the shares shall be released to such
stockholder as follows:
Earnings Before Taxes Shares to be Issued
$ 750,000 250,000
$ 1,500,000 250,000
If the above earnings are achieved, the Company will recognize
compensation expense equal to the difference between the fair
market value and the exercise price at the time the
performance conditions are achieved. Issuance of the shares
would result in substantial compensation expense to the
Company in future years.
NOTE 2 - ACCOUNTING PERIOD
Effective September 30, 1996, the Company changed to a fiscal
year ending on September 30th. Prior to 1996, the Company
utilized a calender year end. The accompanying financial
statements include the nine month period ended June 30, 1997
and June 30, 1996.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash
equivalents. Cash equivalents totaled approximately $1,042,322
at June 30, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents
and accounts receivable arising from the normal business
activities. The Company routinely assesses the financial
strength of its customers and
<PAGE>
based upon factors surrounding the credit risk of its
customers, establishes an allowance for uncollectible
accounts, and as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowances is
limited. Deposits are usually required on house construction
contracts. The Company places its cash and cash equivalents
with high credit quality financial institutions. The amount on
deposit in any one institution that exceeds federally insured
limits is subject to credit risk. Such amount was
approximately $896,163 at June 30, 1997. The Company believes
no significant concentration of credit risk exists with
respect to these cash equivalents.
NOTE 3 - ECONOMIC DEPENDENCY
There were three construction sales recorded during the nine
months ended June 30, 1997. For the nine months ended June 30,
1997, there were three construction contracts in process that
were deemed major customers. These contracts represent 83%,
10%, 7% of construction in process at June 30, 1997. There
were six construction contracts which were deemed major
customers and accounted for approximately 99% of total
construction sales for the nine months ended June 30, 1997.
For the nine months ended June 30, 1996, five contracts
represented 16% each of total sales and one contract
represented 19% 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 accounts for its investments pursuant to Statement
of Financial Accounting Standards ["SFAS"] No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." 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.
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 June 30, 1997 and 1996, all of the Company
investments were classified as trading securities. Trading
securities are securities bought
<PAGE>
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.
EARNINGS [LOSS] PER SHARE
Earnings [Loss] per share are computed by dividing the net
income [loss] for the year by the weighted average number of
common shares outstanding. Stock options and warrants are
assumed converted to common stock, when dilutive.
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.
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 HOLDING AND HARMAT HOMES
Harmat Holding Corp. ("Harmat Holding") and Harmat Homes, Inc.
("Harmat Homes")recognize 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 June 30, 1997 and 1996 such land and construction
costs totaled $2,272,660 and $1,016,236. Customer deposits
received on such
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contracts totaled $27,837 and $549,849 at June 30, 1997
and 1996.
NORTHSIDE WOODS AND HARMAT CAPITAL
Rental income of Northside Woods, Inc. ("Northside
Woods") and Harmat Capital Corp. ("Harmat Capital") 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.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated
by the straight-line method over the estimated useful
lives of the assets for building and improvements and
accelerated methods for furniture and equipment of 5 - 40
years and consist of the following:
June 30, 1997 June 30, 1996
Land $ 523,330 $ 450,495
Buildings and
improvements 843,246 824,532
Furniture and fixtures 49,902 45,335
1,416,478 1,320,362
Less: accumulated
depreciation
and amortization 183,995 172,144
$1,232,483 $1,148,218
NOTE 4 - INCOME TAXES
The Company will file a consolidated federal income tax return
with its subsidiaries. At June 30, 1997, the Company will have
net operating loss carry forwards of approximately $750,000
available to reduce future taxes. These carry forward losses
expire in 2011. Pursuant to Section 382 of the Internal
Revenue Code regarding substantial changes in Company
ownership, utilization of these losses may be limited.
For the year ended December 31, 1995, each of the subsidiaries
had elected S-corporation status under the Internal Revenue
Code and similar state statutes and, therefore, did not incur
federal or state income taxes except for a New York State
equalization tax on S-corporation earnings. Taxes are passed
through to the individual shareholder for S-corporations. Pro
forma net income and earnings per share are presented as if
the companies were C-corporations. On March 1, 1996, each of
the S-corporations terminated their S-corporation status and
became C-corporations.
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NOTE 5 - GOODWILL
The cost of the newly acquired subsidiary, Quick Storage of
Quogue, Inc., in excess of the fair value of the net assets of
such subsidiary has been charged to goodwill. The Company has
decided to amortize its goodwill over a period of up to ten
years under the straight-line method. Accumulated amortization
at June 30, 1997 and 1996 was $12,063 and $6,033. 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 of Quogue, Inc.
Impairment is recognized if the Company value of goodwill is
less than the projected undiscounted cash flow from acquired
assets or business.
NOTE 6 - 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 $6.00 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 were registered as part of the 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Date No. of FMV at No. of
of Warrants Exercise Date of Warrants
Grant Type Issued Price Grant Exercised
February Series A 1,500,000 $6.00 $5.75
1996
February Series B 500,000 $9.00 $5.75
1996
TOTAL 2,000,000
</TABLE>
NOTE 7 - COMMON STOCK
CAPITAL CONTRIBUTION
On August 3, 1996, the Company's principal stockholder
contributed 500,000 shares of the Company's common stock to
the Company in lieu of an escrow of 750,000 of his
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shares. The escrow was part of the "earnout" agreement.
The 500,000 contributed shares were canceled. The
contribution has been reflected retroactively in these
financial statements as a recapitalization.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
LAND CONTRACT
Pursuant to an agreement dated December 1995, the Harmat
Organization, Inc. agreed to purchase three parcels of
undeveloped land located in Westhampton, New York for
$1,247,000. The Harmat Organization, Inc. deposited $75,000
pursuant to the terms of such contract. This contract was
finalized by the Company receiving a commitment for the
financing of land acquisitions during the period ended June
30, 1997.
LEGAL PROCEEDINGS
The Company is involved in 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, operations
or cash flows of the Company. Due the inherent uncertainty of
the legal process, however, this assessment may be subject to
change in the near term.
COMMITMENTS AND 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 granted the Company's chief
executive officer and principal shareholder 300,000 shares at
an exercise price of $1.125 per share. In January, 1997, the
Company granted five year options under the Company's
Qualified Stock Option Plan providing for 10,000 shares at a
price of $2.125 per share to four directors and two key
employees of the Company.
EMPLOYMENT AGREEMENT
On April 1, 1996, the Company entered into a five year
employment agreement with the President and Chief Executive
Officer, who is also the Company's principal shareholder for a
base salary of $105,000 with increments of $50,000 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 500,000 shares of the Company
common stock for ten years exercisable at $1.125 per share
with rights vesting upon attainment of certain earnings
levels.
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The Harmat Organization, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE
NINE MONTHS ENDED JUNE 30, 1996
Net revenues increased $565,072 to $1,386,432 for the nine months ended June 30,
1997 from $821,360 for the nine months ended June 30, 1996. Net revenues
increased $713,924 to $1,315,021 for the three months ended June 30, 1997 from
$601,097 for the three months ended June 30, 1996. The $721,118 increase in
gross sales was due primarily to the fact that there were no sales recorded in
the six months ended March 31, 1997. The remaining change in net revenues
related primarily to a lower rental income and a reduction in management fee
income in addition to the sale of Land Held for Development.
Cost of sales for the nine months ended June 30, 1997 was $1,194,213 as compared
to $555,910 for the nine months ended June 30, 1996. Cost of sales for the three
months ended June 30, 1997 was $1,173,907 as compared to $516,267 for the three
months ended June 30, 1996. The reduction is due to the lack of sales in the six
months ended March 31, 1997 versus 1996.
Selling, General and Administrative expenses were $948,595 for the nine months
ended June 30, 1997 as compared to $417,991 for the nine months ended June 30,
1996. For the three months ended June 30, 1997, Selling, General and
Administrative expenses were $418,323 versus $197,791 for the three months
ended June 30, 1996. The increase is due primarily to the addition of
administrative staff and marketing costs in 1997 and 1996 versus 1996 and 1995.
Interest expense decreased from $126,986 for the nine months ended June 30, 1996
to $58,602 for the nine months ended June 30, 1997. For the three months ended
June 30, 1997, interest expense decreased from $43,957 for the three months
ended June 30, 1996 to $15,323 primarily as a result of a reduction in
construction loans and the repayment of bank debt and payables to Shareholders
and Related Parties from the public offering in September, 1996.
The net loss of $698,362 for the nine months ended June 30, 1997 increased by
$549,995 from a net loss of $148,367 for the nine months ended June 30, 1996.
For the three months ended June 30, 1997 the net loss of $282,475 increased by
$141,139 from a net loss of $141,336 for the three months ended June 30, 1996.
<PAGE>
The Harmat Organization, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been the proceeds of its initial
public offering, cash generated from sales, and borrowings from its officers and
related parties.
During the nine months ended June 30, 1997, the Company had negative cash flows
from operating activities of $511,762 versus a positive cash flow of $729,919
for the nine months ended June 30, 1996. Investing activities used cash of
$1,443,182 in the nine months ended June 30, 1997 and $1,175,019 in the nine
months ended June 30, 1996 primarily for the acquisition of land and
construction costs.
<PAGE>
Subsequent Events
In July of 1997, Harmat Organization, Inc. entered into an
agreement to sell its interest in the Jagger Woods Development
and certain other properties to an unaffiliated third
party for approximately $3,130,000. It is anticipated that this
transaction will be completed prior to year end.
During July 1997, Harmat Organization, Inc. deposited
$100,000 in escrow relating to the proposed acquisition of
certain real estate properties in Florida. The proposed
acquisition price of the properties is approximately $5,300,000.
At this time, it is not possible to determine the effect
that the above transactions will have on the financial statements
of Harmat Organization, Inc.
<PAGE>
The Harmat Organization, Inc.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
On January 20, 1997,the Greater Westhampton Civic Association and
Edward Batcheller commenced in New York State Supreme Court proceeding
a against the Town of Southampton Planning Board pertaining to the
approval process of the Jagger Village Subdivision, the Company's 41-acre
parcel. Although not named as a defendant, the Company intervened to defend and
filed a motion to dismiss the petition. Oral argument was heard on April 30,
1997 and the petition was dismissed on June 10, 1977.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
The Harmat Organization, Inc.
(Registrant)
By: _________________________
Matthew C. Schilowitz
Chief Executive Officer
By: ___________________________
Vincent E. Hunt
Chief Financial Officer
Date: July , 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This legend contains summary financial information extracted from the
financial statements for the nine months ended June 30, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,042,322
<SECURITIES> 11,068
<RECEIVABLES> 61,283
<ALLOWANCES> 0
<INVENTORY> 990,617
<CURRENT-ASSETS> 3,468,763
<PP&E> 1,416,478
<DEPRECIATION> 183,995
<TOTAL-ASSETS> 5,782,999
<CURRENT-LIABILITIES> 698,786
<BONDS> 2,091,659
0
0
<COMMON> 2,613
<OTHER-SE> 2,992,554
<TOTAL-LIABILITY-AND-EQUITY> 5,782,999
<SALES> 1,255,881
<TOTAL-REVENUES> 1,386,432
<CGS> 1,194,213
<TOTAL-COSTS> 1,194,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,602
<INCOME-PRETAX> (756,376)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (698,362)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
