HARMAT ORGANIZATION INC, DEF 14A, 1999-05-19

HARMAT ORGANIZATION INC
DEF 14A, 1999-05-19
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

Previous: COMMODORE APPLIED TECHNOLOGIES INC, 8-K, 1999-05-19

Next: PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT, N-4, 1999-05-19

THE HARMAT ORGANIZATION, INC.
22 Old Country Road
P.O. Box 539
Quogue, New York, 11959

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON JUNE 18, 1999 AT 10:00 A.M.

To the Shareholders of
The Harmat Organization, Inc.

Notice is hereby given that the Annual Meeting of Shareholders of The
Harmat Organization, Inc., a Delaware corporation (the "Company"), will be held
at Westhampton Bath & Tennis Hotel, Atlantica Restaurant, 231 Dune Road,
Westhampton Beach, New York on June 18, 1999 at the hour of 10:00 a.m. local
time for the following purposes:

(1) To elect five (5) Directors of the Company for the following year; and

(2) To transact such other business as may properly come before the
Meeting.

Only shareholders of record at the close of business on May 14, 1999
are entitled to notice of and to vote at the meeting or any adjournment thereof.

By Order of the Board of Directors

Scott Prizer, Secretary

May 14, 1999

IF YOU WISH TO VOTE IN FAVOR OF EACH OF THE PROPOSAL AND FOR
THE NOMINEES PRESENTED, CHECK THE APPROPRIATE BOX AND SIGN,
DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IN
ANY EVENT, YOUR PROMPT RETURN OF A SIGNED AND DATED PROXY WILL
BE APPRECIATED.

<PAGE>

ANNUAL MEETING OF STOCKHOLDERS

The Harmat Organization, Inc.

June 18, 1999
-----------------

PROXY STATEMENT
-----------------

GENERAL INFORMATION

Proxy Solicitation

This Proxy Statement is furnished to the holders of Common
Stock, $.001 par value per share ("Common Stock"), of The Harmat Organization,
Inc. ("Company") in connection with the solicitation of proxies on behalf of the
Board of Directors of the Company for use at the Annual Meeting of Stockholders
("Annual Meeting") to be held June 18, 1999, or at any continuation or
adjournment thereof, pursuant to the accompanying Notice of Annual Meeting of
Stockholders. The purpose of the meeting and the matters to be acted upon are
set forth in the accompanying Notice of Annual Meeting of Stockholders. The
Board of Directors knows of no other business which will come before the
meeting.

Proxies for use at the meeting will be mailed to stockholders
on or about May 14, 1999 and will be solicited chiefly by mail, but additional
solicitation may be made by telephone, telegram or other means of
telecommunications by directors, officers, consultants or regular employees of
the Company. The Company may enlist the assistance of brokerage houses,
fiduciaries, custodians and other like parties in soliciting proxies. All
solicitation expenses, including costs of preparing, assembling and mailing the
proxy material, will be borne by the Company.

Revocability and Voting of Proxy

A form of proxy for use at the meeting and a return envelope
for the proxy are enclosed. Stockholders may revoke the authority granted by
their execution of proxies at any time before their effective exercise by filing
with the Secretary of the Company a written revocation or duly executed proxy
bearing a later date or by voting in person at the meeting. Shares represented
by executed and unrevoked proxies will be voted in accordance with the choice or
instructions specified thereon. If no specifications are given, the proxies
intend to vote "FOR" each of the nominees for director as described in Proposal
No. 1. Proxies marked as abstaining will be treated as present for purposes of
determining a quorum for the Annual Meeting, but will not be counted as voting
in respect of any matter as to which abstinence is indicated. If any other
matters properly

<PAGE>

come before the meeting or any continuation or adjournment thereof, the proxies
intend to vote in accordance with their best judgment.

Record Date and Voting Rights

Only stockholders of record at the close of business on May
14, 1999 are entitled to notice of and to vote at the Annual Meeting of
Shareholders or any continuation or adjournment thereof. Each share of Common
Stock is entitled to one vote per share. Any share of Common Stock held of
record on May 14, 1999 shall be assumed, by the Board of Directors, to be owned
beneficially by the record holder thereof for the period shown on the Company's
stockholder records. The affirmative vote of a majority of the shareholders
present in person or by proxy at the meeting is required for the election of the
directors to be elected by such shares. The present directors and officers of
the Company holding approximately 19% of the outstanding Common Stock of the
Company intend to vote "FOR" the slate of directors.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

The By-Laws of the Company provide for a Board of Directors of
not less than five (5) members. The Board of Directors currently consists of
five (5) members. At the meeting, five directors will be elected to serve until
the 2000 Annual Meeting of Stockholders and until their successors have been
elected and qualified. Present vacancy or vacancies which occur during the year
may be filled by the Board of Directors, and any directors so appointed must
stand for reelection at the next annual meeting of stockholders. All current
directors have been nominated for reelection. The nominees to be voted on by
stockholders are Messrs. Schilowitz, Prizer, Siegel, Sass and Eiten.

All nominees have consented to be named and have indicated
their intent to serve if elected. The Company has no reason to believe that any
of these nominees are unavailable for election. However, if any of the nominees
become unavailable for any reason, the persons named as proxies may vote for the
election of such person or persons for such office as the Board of Directors of
the Company may recommend in the place of such nominee or nominees. It is
intended that proxies, unless marked to the contrary, will be voted in favor of
the election of Messrs. Schilowitz, Prizer, Siegel, Sass and Eiten.

The Board of Directors recommends that the stockholders vote "FOR" the
election of the following five nominees (Item No. 1 on the proxy card).

<PAGE>

NOMINEES FOR ELECTION

The Directors of the Company and a brief summary of their business experience
and certain other information with respect to them are set forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>

Name Age Title

Matthew C. Schilowitz 35 President, CEO & Chairman

Scott Prizer 36 Secretary & Director

Seymour G. Siegel 56 Treasurer & Director

David W. Sass 63 Director

David S. Eiten 34 Director
</TABLE>

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, and 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's first cousin.

Seymour G. Siegel Mr. Siegel became a director of the Company in July 1995.
Mr. Siegel is a CPA (inactive) 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 Inc., a firm providing advisory services to
businesses regarding mergers and acquisitions, long-range planning and problem
resolution.

David W. Sass Mr. Sass has been a director of the Company since July 1995. For
the past 37 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 of Genisys Reservation Systems,
Inc., a company engaged in the internet travel business; an officer of Westbury
Metals Group, Inc., a company engaged in the refining of precious metals; a
director of Pallet Management Systems, Inc., a company engaged in the
manufacture and repair of wooden pallets and other packaging services and a
member and Vice Chairman of the Board of Trustees of Ithaca College.

<PAGE>

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.

During Fiscal 1998 the Board of Directors held three meetings and acted
two times by unanimous written consent. The Board determined that outside
directors would receive an honorarium of $2,500 per meeting attended but no more
than $10,000 per year.

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

On May 14, 1999, there were 2,612,500 shares of Common Stock
outstanding. The following table sets forth as of May 14, 1999, the number of
shares of Common Stock of the Company and the percentage of that class owned
beneficially, within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended, and the percentage of the Company's voting
power owned by (i) all the directors of the Company who are stockholders; (ii)
all stockholders known by the Company to own more than five percent of the
Company's Common Stock; and (iii) all directors and officers as a group. All
shares set forth in the following table are entitled to one vote per share and
the named beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>

Matthew C. Schilowitz 500,000(1)(2) 19.1%
c/o Harmat Homes Inc.
P.O. Box 539
Quogue, NY 11959

Scott Prizer 10,000(3) 0%
145 West 67th St.
New York, NY 10023

Seymour G. Siegel 10,000(3) 0%
c/o Siegel Rich Resources, Inc.
1180 Avenue of the Americas
New York, NY 10036

David W. Sass 10,000(3) 0%
c/o McLaughlin & Stern, LLP
380 Lexington Ave.
New York, NY 10168

David S. Eiten 10,000(3) 0%
7 Thorngrove Lane
Dix Hills, New York 11746

All officers and directors 500,000 19.1%
as a group (5 persons)
- ------------------
* No shares owned.

</TABLE>

<PAGE>

(1) Does not include shares of Common Stock which may be issued pursuant to
the Plan for Incentive Compensation of Matthew Schilowitz (the
"Schilowitz Incentive Plan") adopted by the Board of Directors, and
approved by the Company's stockholders on March 1, 1996 and amended
August 3, 1996, March 24, 1997 and June 19, 1997. Pursuant to the
Schilowitz Incentive Plan, Mr. Schilowitz has been granted an option
(the "Option") to purchase up to an aggregate of 500,000 shares of
Common Stock at an exercise price of $1.125 per share, as amended. The
Option has a duration of ten years. The Option grants: (i) the right to
purchase 250,000 shares of Common Stock, such right to vest and become
exercisable upon the Company realizing annual pre-tax earnings equaling
or exceeding $750,000; and (ii) the right to purchase 250,000 shares of
Common Stock, such right to vest and become exercisable upon the
Company realizing annual pre-tax earnings equaling or exceeding
$1,500,000. The number of shares granted under the Schilowitz Incentive
Plan is subject to adjustment in the event of the Company's declaration
of stock dividends, stock splits, reclassification and the occurrence
of other similar events.

(2) Does not include shares of Common Stock which were issued pursuant to
the Company's 1996 Qualified Stock Option Plan ("1996 Plan") adopted by
the Board of Directors and approved by the Company's stockholders on
January 23, 1997. On March 24, 1997, as part of the 1996 Plan, Mr.
Schilowitz was granted an option of 300,000 shares of the Company's
Common Stock at an exercise price of $2.337 per share, being 110% of
the fair market value of such shares. On June 19, 1998, the Board voted
to reduce the exercise of such options for Mr. Schilowitz to $.35. The
Option has a duration of five years.

(3) Does not includes shares of Common Stock which may be issued pursuant
to the Company's Qualified Stock Option Plan adopted by the Board of
Directors and approved by the Company's stockholders on January 23,
1997, pursuant to which five year options on 10,000 shares each were
granted and are exercisable at $1.25 per share. On June 19, 1998, the
Board voted to reduce the exercise of such options for Mr. Schilowitz
to $.35. The Option has a duration of five years.

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth the aggregate cash compensation paid by
the Company during each of the last three fiscal years to its Chief Executive
Officer. <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C>

Summary Compensation Table
Annual Compensation Long Term Compensation
Name and principal Year All other
position Awards Payouts compensation
Salary Bonus($) Other Restricte Securities LTIP
($) annual d Stock Underlying Payouts
compen- awards Options/SARs (#) ($)
sation
Matthew C. 1998 $155,000
Schilowitz(1)(2)
1997 $105,000 500,000 shares of
Common Stock

300,000 shares of
Common Stock

1996 $52,000

</TABLE>

(1) See the discussion of the Company's employment agreement with Mr. Schilowitz
as described below.

(2) 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, amended August 3, 1996, March 24, 1997
and June 19, 1997. Pursuant to the Schilowitz Incentive Plan, Mr. Schilowitz has
been granted an option (the "Option") to purchase up to an aggregate of 500,000
shares of Common Stock with an exercise price of $.35 per share, as amended.

On March 24, 1997, as part of the Company's 1996 Qualified Stock Option
Plan, Mr. Schilowitz was granted an option of 300,000 shares of the Company's
common stock at an exercise price of $2.337 per share, being 110% of the fair
market value of such shares. On June 19, 1998, the Company reduced the exercise
price of such options to $.35. The Option has a duration of five- years.

<PAGE>

CERTAIN TRANSACTIONS

The Company has entered into an employment agreement with Matthew C.
Schilowitz, as described below.

On April 1, 1996, the Company entered into a five year employment
agreement which was amended August 3, 1996, January 23, 1997 and June 19, 1997
with Matthew C. 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.

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, amended August 3, 1996, March
24, 1997 and June 19, 1998. Pursuant to such plan, Mr. Schilowitz has been
granted an option (the "Option") to purchase up to an aggregate of 500,000
shares of Common Stock at an exercise price of $.35 per share. 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; and (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. 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 500,000 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.

On January 23, 1997, the Board of Directors voted to grant options to
four directors under the terms of the Company's 1996 Qualified Stock Option
Plan. Each individual was granted a five year option to purchase 10,000 shares
at a price of $1.25. On June 19,1998, the exercise price was

<PAGE>

reduced to $.35.

On March 24, 1997, as part of the Company's 1996 Qualified Stock Option
Plan, Mr. Schilowitz was granted an option of 300,000 shares of the Company's
common stock at an exercise price of $2.337 per share, being 110% of the fair
market value of such shares. On June 19, 1997, the Board voted to reduce the
exercise price of such options for Mr. Schilowitz to $1.25. On June 19,1998, the
exercise price was reduced to $.35. The Option has a duration of five-years.

In July, 1997, the Company 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. The sale was consummated
in December, 1997.

The law firm of McLaughlin & Stern, LLP., of which Mr. Sass is a
principal, received aggregate legal fees of $19,000 and $35,000 during 1998 and
1997 respectively for services rendered to the Company.

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 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 sets forth the name of each of the Company's affiliates,
Mr. Schilowitz's interest therein, and its transactions (either current or
contemplated), if any, with the Company:

Woodlands Construction
Corp. LLP 50% shareholder
Woodlands provides contracting Services on small jobs
- Woodlands owns no property.

Bridle Path Development Corp. 50% shareholder
Services
Bridle Path had a 14-lot subdivision. There is one
available lot. The Company may provide construction
services to Bridle Path in the future.

Woodland Development Association,
a partnership 1/3 interest

Woodland owns three building lots located in East
Quogue, New York The Company may provide construction
to Woodland in the future.

The Company 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.

<PAGE>

a construction and sales company; Harmat Capital Corp. which owns the corporate
headquarters, and rental property in Southampton, 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.

In connection with the Company's initial public offering, at the
request of the Underwriter, Mr. Schilowitz made a capital contribution to the
Company of 500,000 shares reducing his holding to 1,250,000 in lieu of an escrow
of 750,000 shares.

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 bore interest at 6% per annum, matured
on December 31, 1996 and was repaid from the proceeds of the Company's Offering
in September, 1996; $70,000 from Carol Bernstein, the mother of Matthew
Schilowitz, which loan bears interest at 10% per annum and matured on December
31, 1996 and was repaid from the proceeds of the 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. The monies
due to Carol Bernstein, Sidney Prizer and the three former owners of the Quick
Storage of Quogue, Inc., have been repaid in full.

In July 1997, Matthew C. Schilowitz, the president, director and
principal shareholder of the Company borrowed $200,000 from the Company, which
loan was collateralized by 500,000 shares of the Company's common stock owned by
Mr. Schilowitz. The unpaid balance of the loan at September 30, 1998 was
$218,250. The loan bears interest at the annual prime rate of Chase Manhattan
Bank. This loan is due on demand.

During 1997 and 1998 the Company made loans to related parties in the
amount of $67,000 and $186,696, respectively. Such loans had no stated interest
rate and are due on demand.

In April 1997 the Company purchased a building lot from Emerald Woods
Development Corp. ("Emerald Woods") (of which Matthew Schilowitz is a 50% owner)
for $195,000 and is in contract to construct and sell a house on such lot. The
Company purchased two additional building lots from Emerald Woods in December
1997 for $190,000 and simultaneously sold them to an unaffiliated third party.

In October 1997 the Company purchased a 2.5% Class A Limited
Partnership interest in Woodland Development Associates (of which Matthew
Schilowitz is a 33% owner) for a purchase price of $50,000.

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.

In connection with the Company's investment in Socket Communications, Inc.,
Socket

<PAGE>

Communications, Inc. entered into a consulting agreement with Global Holdings, a
limited partnership, the beneficiaries of which are trusts for the benefit of
Mr. Schilowitz's children. The general partner of the partnership is a
corporation controlled by Mr. Schilowitz's mother and another party. The
partnership received a fee of $50,000 as well as a warrant to purchase 60,000
shares of Socket Communications, Inc. Common stock on the same terms and
conditions as the warrant given to the Company in connection with its
investment.

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.

AUDIT MATTERS

It is expected that a representative of the firm of Marks Shron &
Company, independent auditors, will be present at the Annual Meeting of
Shareholders and will be available to respond to appropriate questions.

OTHER BUSINESS TO BE TRANSACTED

As of the date of this Proxy Statement, the Board of Directors knows of
no other business to be presented for action at the Annual Meeting of
Stockholders. As for any business that may properly come before the Annual
Meeting or any continuation or adjournment thereof, the Proxies confer
discretionary authority to the person named therein. These persons will vote or
act in accordance with their best judgment with respect thereto.

ANNUAL REPORT TO STOCKHOLDERS

The Annual Report to Stockholders for the year ended September 30, 1998
is being mailed to stockholders with this Proxy Statement.

<PAGE>

STOCKHOLDER PROPOSAL - 2000 ANNUAL MEETING

Any stockholder proposals to be considered by the Company for inclusion
in the proxy material for the 2000 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices by December 31, 1999.

The prompt return of your proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
meeting, please sign the proxy and return it in the enclosed envelope.

BY ORDER OF THE BOARD OF DIRECTORS

SCOTT PRIZER, Secretary
New York, New York
May 14, 1999

<PAGE>
THE HARMAT ORGANIZATION, INC.

P R O X Y

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints Matthew C. Schilowitz and
Scott Prizer as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of the common stock of The Harmat Organization, Inc. held of record by
the undersigned on May 14, 1999 at the annual meeting of shareholders to be held
on June 18, 1999 or any adjournment thereof.

1. ELECTION OF DIRECTORS

For all nominees listed below Withhold Authority to
(Except as Marked to the Vote All Nominees Listed
Contrary) ___ Below ___

Matthew C. Schilowitz, Scott Prizer, Seymour G. Siegel, David W.
Sass, David S. Eiten

2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1.

Please sign name exactly as appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 1999

Signature

Signature, if held jointly

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY USING THE ENCLOSED
ENVELOPE

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

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

For the Fiscal Year Ended September 30, 1998 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)

Commission file number 333-3501

The Harmat Organization, Inc.
(Name of Small Business Issuer in Its Charter)

NEW YORK 11-2780723
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.)

Old Country Road, P.O. Box 539, Quogue, New York 11959
(Address of Principal Executive Offices) (Zip Code)

Issuers Telephone Number: (516) 653-3303

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None
(Title or Class)

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve
(12) months (or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
ninety (90) days. X Yes No

<PAGE>

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to
security-holders; (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933 (the
"Securities Act"). The listed documents should be clearly described for
identification purposes:

3.1 Registrant's Articles of Incorporation as amended to date,
incorporated herein by Reference to Exhibit 3.1 to
Registrant's Registration Statement on Form SB-2, File
No. 333-3501.

3.2 Registrant's By-Laws, as amended to date, incorporated herein
by Reference to Exhibit 3.2 to Registrant's Registration
Statement on Form SB-2, File No.333-3501.

4.1 Form of Common Stock Certificate, incorporated herein by
Reference to Exhibit 4.1 to Registrant's Registration
Statement on Form SB-2, File No. 333-3501.

4.2 Form of Warrant and Warrant Agreement, incorporated
herein by Reference to Exhibit 4.2 to Registrant's
Registration Statement on Form SB-2, File No. 333-3501.

4.3 Form of Series B Warrant, incorporated herein by Reference to
Exhibit 4.3 to Registrant's Registration Statement on Form
SB-2, File No. 333-3501.

4.4 Form of Representative's Purchase Option, incorporated
herein by Reference to Exhibit 4.4 to Registrant's
Registration Statement on Form SB-2, File No. 333-3501.

4.5 Registrant's 1996 Stock Option Plan incorporated
herein by Reference and as amended June 19, 1997
(Exhibit 4.5 to Registrant's Registration Statement
on Form SB-2, File No.333-3501).

<PAGE>

10.2 Employment Agreement dated April 1, 1996,
incorporated herein by Reference to Exhibit 10.2 to
Registrant's Registration Statement on Form SB-2,
File No. 333-3501 and as amended August 3, 1996,
January 23, 1997 and June 19, 1997 between the
Registrant and Matthew C. Schilowitz.

The Registrant has 2,612,500 shares of Common Stock outstanding as of
December 16, 1998.

The Issuer's revenues for its most recent fiscal year ended September
30, 1998 is $5,777,823.

The aggregate market value of the outstanding common stock held by
non-affiliates of the Registrant on December 16, 1998 was $976,687.50.

<PAGE>

PART I

Item 1. Business

General Development of Business

The Harmat Organization, Inc. (hereinafter with its Subsidiaries
collectively "Harmat," or the "Company," or the "Registrant"), a Delaware
corporation, was a construction, architectural and landscape design and real
estate development firm based in Long Island, New York. Harmat has built custom
homes on either the client's land or on properties owned or controlled by
entities affiliated with Harmat and owns commercial and residential rental
properties. The Company has focused its efforts in the Suffolk County area of
eastern Long Island, New York, where it has built approximately 200
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 has liquidated most of its buildable lots, and is in the process of
marketing some of the few remaining rental properties. The cash from the sales
will be invested in technology oriented opportunities such as
Socket-Communications and Axxess, Inc.

The Company currently owns one lot of a 12-lot subdivision, Polo
Grounds,(eleven lots of which have been sold), and the Company also owns an
agricultural reserve with a large barn which is being rented. The Company has
issued a contract to sell the remaining building lot in Polo Ground and is in a
contract to sell the 15 acre farm. The Company had a contract to purchase
approximately seven acres of zoned resort-residential property in Greenport, New
York to construct 69-units each with two bedrooms, waterfront resort with pool
and tennis courts. The Company is seeking an extension of the contract. The
Company owns a 4,000 square foot office building which a contract has been
issued for sale.

The Company has determined that it is in the best interest of
shareholders if the Company changes its direction away from the real estate
business since the real estate market in the area in whcih the Company
concentrated on changed to a market where management felt no significant profit
opportunities were meaningful to the Company's future.

The Company commenced its transition from a real estate
development company into a more diversified technologically
oriented company. The Company made an internet-related investment
in Axxess, Inc., a publicly traded company (BB.AXXS). The Company
currently has a $175,000 loan to Axxess, Inc. and 175,000 warrants
to purchase its common shares at $0.25 per share. As of December

<PAGE>

15, 1998 the Company notified Axxess, Inc. that it was exercising the warrants
for an aggregate subscription price of $43,750.

Axxess, Inc. produces and manages a family of branded financial content
Internet Web sites collectively under the trademark "Financial Web." Financial
Web distributes financial editorial content, stock quotes, charts, securities
data and news to investors via the internet free of charge with the objective of
earning its principal revenues from the sale of advertising. Beginning with the
acquisitions of The SmallCap Investor in 1997, Financial Web has grown from one
web site and less than 200,000 monthly impressions to twelve separately branded
web sites with over 3.5 million monthly impressions, including Quote Central
Rapid Research, Stock Detective, Wall Street Guru, The SmallCap Investor, Stock
Tools, The Bear Tracker, NewsVest, Mr. EDGAR, Strike Price, YourFunds.com and
InvesToons. Plans for up to 8 additional branded sites in the Financial Web
family are in various stages of development.

The Company on November 16, 1998 completed a private placement
investment of $750,000 in newly-issued equity securities of Socket
Communications, Inc., a publicly traded company (BB.SCKT). The Socket securities
include 750,000 shares of Series D Convertible Preferred Stock, convertible into
common shares at $0.5735 per share, with dividends accruing at eight percent per
annum. In addition, the Company was issued three year warrants to purchase an
additional $250,000 of Socket common stock at an exercise price of $0.5735 per
share. Spencer Trask Securities, Inc. was the investment banker for the
transaction.

Socket Communications, Inc. develops and sells connection solutions for
Windows CE-based handheld computers and other mobile computers, including a
family of low power Battery FriendlyTM and PC Card plug-in adapters for Windows
CE operating system from Microsoft. Socket's products utilize the company's low
power chip technology, making them ideal for battery-operated mobile computers.
Socket has developed a family of handheld bar code scanner systems that can be
attached to mobile Windows CE - based computers. These products integrate with
Laser Scanners from Symbol Technologies.

On February 3, 1998 the Company entered into a corporate financial
consulting agreement with Spencer Trask Securities, Inc. pursuant to which the
Company paid to Spencer Trask an initial retainer of $10,000 and a five year
warrant to purchase 200,000 shares of the Company's common stock at an exercise
price at $.35 per share. In addition, the Company pays to Spencer Trask a
monthly retainer of $3,500 as well as a cash transaction fee on

<PAGE>

transactions brought to the Company by Spencer Trask equal to the sum of: (a)
five percent (5%) of the first two million dollars of the aggregate
consideration of a Transaction (the "Aggregate Consideration"), (b) four percent
(4%) of the second two million dollars or portion thereof, (c) three percent
(3%) of the third two million dollars or portion thereof, and (d) two and one
and one-half percent (2 1/2%) of the balance of the aggregate consideration;
provided, however, that if the Transaction involves a party not introduced by
Spencer Trask, the applicable cash fee will be 90% of the aggregate amount as
calculated using the foregoing percentages.

Competition

The business in which the Company engages and the investments that it
makes in companies engaged in the internet and computer related businesses is
subject to intense competition for investment opportunities as well as with
respect to the product lines offered by the companies in which investments are
made. In addition, the technologies relates to the product line of the companies
in which the Company invests are subject to rapid technological changes which
could affect the product lines and therefore the Company's investment. The
Company is not a significant factor in these areas and competes for the
investment with many other companies, many of whom have greater resources than
the Company.

Employees

As of December 31, 1998, the Company has two full-time
employees. Mr. Schilowitz and an administrative assistant.

Item 2. Properties

At December 31, 1998, the Company's wholly-owned subsidiaries hold
title to certain real property. Such properties include (i) The Polo Grounds,
one six bedroom home in Westhampton Beach, New York and the other an 8 bedroom
house in Southampton, New York both rented on an annual basis; (iii)
agricultural reserve with large barn from which the Company receives rental
income; (iv) the 4,000 square foot premises in Quogue, NY, housing the Company's
executive offices and corporate sales office (the front of the building has been
rented to an unaffiliated company and the property is under contract for sale);
(v) Pond Side Development in Westhampton, NY which consists of 30 acres of
undeveloped land; (vi) single family home on Beach Lane, Westhampton Beach, New
York. All properties are for sale.

<PAGE>

Item 3. 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.

Item 4. Submission of Matters to a Vote of Security Holders

During the last quarter of the Company's fiscal period ended September
30, 1998, no matter was submitted to a vote of the security holders of the
Company.

PART II

Item 5. Market for Common Equity and Related Shareholder Matters

(a) The Company completed its initial public offering on September 9,
1996. The Company's Common Stock is traded in the over-the-counter market and is
generally quoted either by the market makers for the Company's Common Stock or
in brokers' bid and asked quotations on the Bulletin Board. The following table
sets forth the high and low closing bid quotations for the Company's Common
Stock.

High Bid Low Bid
1997

1st Quarter 2 1/2 1 7/8
2nd Quarter 3 1 1/4
3rd Quarter 1 1/4 13/32
4th Quarter 3/8 9/32

1998

1st Quarter 3/8 1/8
2nd Quarter 1/4 1/8
3rd Quarter 13/32 1/4
4th Quarter 3/8 1/8

<PAGE>

The above quotations represent prices between dealers and do not
include retail markups, markdowns or commissions, nor do they represent actual
transactions.

(b) As of December 31, 1998, there were 12 record holders of the
Company's Common Stock.

(c) The Company has not paid any cash dividends to its shareholders and
has no present intention of paying any cash dividends in the foreseeable future.

<PAGE>

Item 6. Management's Discussion and Analysis or Plan of
Operations

Review of 1998 Results

Total revenues for the year ended September 30, 1998 were $ 5,777,823 compared
to $1,591,791 for the year ended September 30, 1997, an increase of $ 4,186,032.

Sale of Properties. During the year ended September 30, 1998 the Company sold
land held for development and several undeveloped lots for an aggregate of $
3,678,323 and constructed and sold 5 homes for an aggregate of $ 1,906,803.
During the year ended September 30, 1997 the company only sold 3 homes
generating revenues of $ 1,390,883. The increase in revenue from sale of
improved and unimproved land during 1998 directly relates to the Company's shift
in focus from the real estate business. The Company is in the process of
liquidating its real estate interests to raise capital to invest in technology
oriented opportunities.

Rental Income. Rental properties resulted in revenues of $192,697 and $200,908
for the years ended September 30, 1998 and 1997, respectively. The decrease from
1997 of $ 8,211 was due primarily to the sale of the Company's storage facility
in July 1998. The Company anticipates a decrease in its rental income in the
future as it is actively marketing its rental properties for sale.

Gross Profit Margin. The Company's gross profit margin on developed and
undeveloped real estate was approximately 13 % in 1998 as compared to 3 % in
1997. The increase in the gross profit margin is specifically attributable to
the undeveloped land the Company sold in 1998.

Selling, General and Administrative Expenses. The Company's selling, general and
administrative expenses decreased to $1,094,515 for the year ended September
30,1998 from $1,114,494 for the year ended September 30, 1997. The decrease in
expense of approximately $20,000 is a result of the Company reducing its office
space and terminating an employee during 1998, offset by the increase in Mr.
Schilowitz's salary of $50,000. The Company anticipates its selling, general and
administrative expenses to be even further reduced in the next fiscal year, as
its new focus is less overhead intensive.

Loss from Operations. The Company's loss from operations decreased from $962,019
for the year ended September 30, 1997 to $139,550 for the year ended September
30, 1998. The decrease in loss of approximately $820,000 is attributable to the
increase in gross profit margin and decrease in selling, general and
administrative expenses.

Other Income (Expense). Other Income (expense) for the year ended September 30,
1998 was $161,088; an increase over the year ended September 30, 1997 of
approximately $174,000. The increase is due to the sale of the Company's self
storage facility in July, 1998 resulting in a net gain of $114,840, increase in
gain of marketable securities of $23,500 and a decrease in interest expense due
to the satisfaction of various loans with the proceeds from the sales.

Review of 1997 Results

The year ended September 30, 1997 and the nine months ended September
30, 1996.

Total revenues for the year ended September 30, 1997 were $1,591,791
compared to revenues of $2,727,870 for the nine months ended September 30, 1996,
a decrease of approximately $1,136,079 or 42%.

Construction Sales. Deliveries of 3 homes resulted in housing revenues
of $1,390,883 for the year ended September 30, 1997. For the nine months ended
September 30, 1996, the Company delivered 6 homes which generated $2,496,926 of
housing revenues. The reason for the decrease in construction sales is
competitive pricing, lower profit margin and reduction of inventory available
for development.

<PAGE>

The Company's plan is to shift its focus and move into the hotel and
motel construction market and to provide hospitality services in addition to
successfully completing current projects under development.

Rental Income. Rental based properties resulted in rental income of
$200,908 for the year ended September 30, 1997. For the nine months ended
September 30, 1996, the Company generated rental income of $153,944. Rental
income in 1997 increased by $46,964. Quick Storage of Quogue, Inc., a self
storage facility generated rental income of $108,422 for the year ended
September 30, 1997. The reason for the increase in rental income is that the
Company's rental income was for a full year 1997 as opposed to nine months for
1996.

Gross Profit Margin. The Company's gross profit margin on homes
delivered was approximately three percent [3%] during the year ended September
30, 1997, compared to twenty percent [20%] in the nine months ended September
30, 1996. The gross profit margin

<PAGE>

on homes decreased due to the competitive pricing and increased
construction costs.

Selling, General and Administrative Expenses. The Company's Selling,
General and Administrative expenses increased to $1,114,494 [70% of Revenues]
for the year ended September 30, 1997, compared to $702,290 [26% of revenues]
for the nine months ended September 30, 1996. The increase has occurred due to a
full year's expenses being reflected as opposed to nine months for 1996. In
addition, the Company has incurred certain recurring costs associated with its
being a public entity such as directors fees, professional fees, payroll costs
and insurance costs.

Charge for Executive Compensation Capitalized. The $14,750 for the nine
months ended September 30, 1996, represents the fair market 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 (loss) from operations for
the year ended September 30, 1997 and for the nine months ended September 30,
1996 was ($948,386) and ($227,939), respectively. This decrease of approximately
$720,447 is primarily attributable to the increase in Selling, General and
Administrative Expenses for the year ended September 30, 1997 of approximately
$412,204 and the gross profit margin decrease to three (3%)percent.

Gross Interest Costs. Gross interest costs were $104,915 for the year
ended September 30, 1997 compared to $175,972 for the nine months ended
September 30, 1996. and the Company had funds available from the initial public
offering which enabled it to satisfy various of it's existing debts and
obligations.

Other Income [Expense]. Included in other income [expense] in 1997 is
$13,638 which represents gain on sale of marketable securities, compared to
$47,976 for the nine months ended September 30, 1996. The interest and dividend
income for the year ended September 30, 1997 is $80,912. During 1997 the Company
had funds remaining from the initial public offering which provided available
working capital and which was fully invested during the year.

Item 7. Financial Statements

The financial information required by Item 7 is included elsewhere in
this Report. (See Part IV, Item 13).

<PAGE>

Item 8. Changes in and Disagreements with Accountants on
Accounting and Financing Disclosure

Not Applicable

<PAGE>

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Registrant

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 35 President, CEO & Chairman

Scott Prizer 36 Secretary & Director

Seymour G. Siegel 57 Treasurer & Director

David W. Sass 63 Director

David S. Eiten 34 Director

All of the foregoing persons are elected as directors for a term of one
year or until their successors are duly elected and qualified. There are no
arrangements or understandings between any director and any other person(s),
pursuant to which a director was elected as a director. The foregoing officers
serve at the pleasure of the Board of Directors for a term of one year, or until
their successors are duly elected and qualified. See Item 13 with regard to
contractual obligations of the Company regarding certain officers of the
Company.

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's first
cousin.

<PAGE>

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 Incorporated, 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 38 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 Harmat. Mr. Sass is a director of Genisys Reservation
Systems, Inc., a company engaged in the internet travel business; an officer of
Westbury Metals Group, Inc. a company engaged in the refining of precious
metals; a director of Pallet Management Systems, Inc. a company engaged in the
manufacture and repair of wooden pallets and other packaging services 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.

Item 10. Executive Compensation

(a) Cash Compensation

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.

Summary Compensation Table
Annual Compensation Long Term Compensation
Name and principal Year All other
position Awards Payouts
Salary Bonus($) Other Restric Securities LTIP compensa-
($) annual ted Underlying Payouts tion
compen- Stock Options/SARs ($)
sation awards (#)
Matthew C. 1998 $155,000
Schilowitz(1)

1997 $105,000 500,000 shares
of Common
Stock
300,000 shares
of Common
Stock

1996 $52,000

</TABLE>

(1) 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, amended August 3, 1996, March 24, 1997
and June 19, 1998. Pursuant to the Schilowitz Incentive Plan, Mr. Schilowitz has
been granted an option (the "Option") to purchase up to an aggregate of 500,000
shares of Common Stock with an exercise price of $.35 per share, as amended. See
the discussion of the Company's employment agreement with Mr. Schilowitz as
described in Item 12.

On March 24, 1997, as part of the Company's 1996 Stock Option Plan, Mr.
Schilowitz was granted an option of 300,000 shares of the Company's common stock
at an exercise price of $2.337 per share, being 110% of the fair market value of
such shares. On June 19, 1998, the Company reduced the exercise price of such
options to $.35. The Option has a duration of five-years. See "Certain
Relationships and Related Transactions."

<PAGE>

(b) Compensation Pursuant to Plans

Option/SAR Grants in Last Fiscal Year
(Individual Grants
Name Number of Percent of Exercise or base Expiration Date
Securities total price ($/Sh)
Underlying options/SARs
Options/SARs granted to
granted (#) employees in
fiscal year

Matthew C. Schilowitz(1) 300,000 $.35 March 23, 2002
Scott Prizer(2) 10,000 $.35 March 23, 2002
Seymour Siegel(2) 10,000 $.35 March 23, 2002
David W. Sass(2) 10,000 $.35 March 23, 2002
David S. Eiten(2) 10,000 $.35 March 23, 2002
</TABLE>

(1) On March 24, 1997, as part of the Company's 1996 Qualified Stock Option
Plan, Mr. Schilowitz was granted an option of 300,000 shares of the Company's
common stock at an exercise price of $2.337 per share, being 110% of the fair
market value of such shares. On June 19, 1998, the Board voted to reduce the
exercise price of such options for Mr. Schilowitz to $.35. The Option has a
duration of five-years. See "Certain Relationships and Related Transactions."

(2) On January 23, 1997, the Board of Directors voted to grant options to four
directors and two key employees under the terms of the Company's 1996 Qualified
Stock Option Plan. Each individual was granted a five year option to purchase
10,000 shares.

None

(d) Compensation of Directors

The directors of the Company receive $2,500 per meeting, but not to
exceed $10,000 per year as compensation for serving in such capacity.

<PAGE>

(e) Termination of Employment and Change of Control
Arrangement.

None.

Item 11. Security Ownership of Certain Beneficial Owners and
Management

(a) Security Ownership of Certain Beneficial Owners

The following table provides information as of December 31, 1998
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. <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C>

Title of Class Name and Address of beneficial Amount and Percent of
owner Nature of class
Beneficial
owner
Common Stock Matthew C. Schilowitz 500,000 19.1%
c/o Harmat Homes Inc.
P.O. Box 539
Quogue, NY 11959
Scott Prizer* 0 0
145 West 67th St.
New York, NY 10023
Seymour G. Siegel* 0 0
Siegel Rich Resources, Inc.
1180 Avenue of the Americas
New York, NY 10036
David W. Sass* 0 0
McLaughlin & Stern, LLP
260 Madison Avenue
New York, NY 10016
David S. Eiten* 0 0
7 Thorngrove Lane
Dix Hills, New York 11746
All officers and directors as a 500,000 19.1%
group (5) persons
- ------------------
* No shares owned.

</TABLE>
16

<PAGE>

Item 12. Certain Relationships and Related Transactions

On April 1, 1996, the Company entered into a five year employment
agreement which was amended August 3, 1996, January 23, 1997 and June 19, 1998
with Matthew C. 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 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, amended August 3, 1996, March
24, 1997 and June 19, 1998. Pursuant to such plan, Mr. Schilowitz has been
granted an option (the "Option") to purchase up to an aggregate of 500,000
shares of Common Stock. 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; and (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. 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 500,000 shares of

<PAGE>

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.

On March 24, 1997, as part of the Company's 1996 Qualified Stock Option
Plan, Mr. Schilowitz was granted an option of 300,000 shares of the Company's
common stock at an exercise price of $2.337 per share, being 110% of the fair
market value of such shares. On June 19, 1998, the Board voted to reduce the
exercise price of such options for Mr. Schilowitz to $.35. The Option has a
duration of five-years.

The following sets forth the name of each of the Company's affiliates,
Mr. Schilowitz's interest therein, and its transactions (either current or
contemplated), if any, with the Company:

Woodlands Construction
Corp. LLP 50% shareholder
Woodlands provides contracting services on small
jobs - Woodlands owns no property.

Bridle Path Development Corp. 50% shareholder
Services
Bridle Path had a 14-lot subdivision. There is one
available lot.

Woodland Development Association, a partnership 1/3 interest

Woodland owns three building
lots located in East Quogue, New York The Company may
provide construction to Woodland in the future.

<PAGE>

The Company 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 rental property
in Southampton, 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.

In connection with the Company's initial public offering, at the
request of the Underwriter, Mr. Schilowitz has made a capital contribution to
the Company of 500,000 shares reducing his holding to 1,250,000 in lieu of an
escrow of 750,000 shares.

In July 1997, Matthew C. Schilowitz, the president, director and
principal shareholder of the Company borrowed $200,000 from the Company, which
loan was collateralized by 500,000 shares of the Company's common stock owned by
Mr. Schilowitz. The unpaid balance of the loan at September 30, 1998 was
$218,250 . The loan bears interest at the annual prime rate of Chase Manhattan
Bank. This loan is due on demand.

<PAGE>

During 1997 and 1998 the Company made loans to related parties in the
amount of $67,600 and $186,696, respectively. Such loans had no stated interest
rate and are due on demand.

In April 1997 the Company purchased a building lot from Emerald Woods
Development Corp. ("Emerald Woods")(of which Matthew Schilowitz is a 50% owner)
for $195,000 and constructed and sold a house on such lot. The Company purchased
two additional building lots from Emerald Woods in December 1997 for $190,000
and simultaneously sold them to an unaffiliated third party.

In October 1997 the Company purchased a 2.5% Class A Limited
Partnership interest in Woodland Development Associates for a purchase price of
$50,000.

During 1998 the Company purchased a building lot from Crossings
Associates, L.P. (of which Matthew Schilowitz is a 33% owner) and constructed
and sold a house on such lot.

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.

In connection with the Company's investment in Socket Communications,
Inc., Socket Communications, Inc. entered into a consulting agreement with
Global Holdings, a limited partnership, the beneficiaries of which are trusts
for the benefit of Mr. Schilowitz's children. The general partner of the
partnership is a corporation controlled by Mr. Schilowitz's mother and another
party. The partnership received a fee of $50,000 as well as a warrant to
purchase 60,000 shares of Socket Communications, Inc. common stock on the same
terms and conditions as the warrant given to the Company in connection with its
investment.

<PAGE>

PART IV

Item 13. Exhibits, Lists and Reports on Form 8-K

(a)(1) Financial Statements Page Number

Report of Independent Certified
Public Accountants F-1

Consolidated Balance Sheet as of
September 30, 1998 F-2

Consolidated Statements of Operations
for the years ended September 30, 1998
and 1997 F-3

Consolidated Statements of Stockholders
Equity for the years ended September 30,
1998 and 1997 F-4

Consolidated Statements of Cash Flows for the
years ended September 30, 1998 and 1997 F-5 & 6

Notes to Financial Statements F-7-17

Schedules other than those listed above are omitted for the reason that they are
not required, are not applicable, or the required information is shown on the
financial statements or notes thereto.

(a)(2) Exhibits

3.1 Registrant's Articles of Incorporation as amended to date,
incorporated herein by Reference to Exhibit 3.1 to
Registrant's Registration Statement on Form SB-2, File
No. 333-3501.

3.2 Registrant's By-Laws, as amended to date, incorporated herein
by Reference to Exhibit 3.2 to Registrant's Registration
Statement on Form SB-2, File No.333-3501.

4.1 Form of Common Stock Certificate, incorporated herein by
Reference to Exhibit 4 to Registrant's Registration Statement
on Form SB-2, File No. 333-3501.

<PAGE>

4.2 Form of Warrant and Warrant Agreement, incorporated
herein by Reference to Exhibit 4.2 to Registrant's
Registration Statement on Form SB-2, File No. 333-3501.

4.3 Form of Series B Warrant, incorporated herein by Reference to
Exhibit 4.3 to Registrant's Registration Statement on Form
SB-2, File No. 333-3501.

4.4 Form of Representative's Purchase Option, incorporated
herein by Reference to Exhibit 4.4 to Registrant's
Registration Statement on Form SB-2, File No. 333-3501.

4.5 Registrant's 1996 Stock Option Plan incorporated herein by
Reference and as amended June 19, 1997 (Exhibit 4.5 to
Registrant's Registration Statement on Form SB-2, File
No.333-3501).

10.2 Employment Agreement dated April 1, 1996, incorporated herein
by Reference to Exhibit 10.2 to Registrant's Registration
Statement on Form SB-2, File No. 333-3501 and as amended
August 3, 1996, January 23, 1997 and June 19, 1997 between the
Registrant and Matthew C. Schilowitz.

(b) Reports on Form 8-K

Two reports on Form 8-K was filed during the first quarter of the
fiscal year ended September 30, 1998.

<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES

Financial Statements

September 30, 1998

<PAGE>
F-1

Independent Auditors' Report

To the Board of Directors and Stockholders of
The Harmat Organization, Inc. and Subsidiaries
Quogue, New York

We have audited the accompanying consolidated balance sheet of The Harmat
Organization, Inc. and Subsidiaries as of September 30, 1998, and the related
statements of operations, stockholders' equity and cash flows for the years
ended September 30, 1998 and 1997. These 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 audit.

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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Harmat
Organization, Inc. and Subsidiaries as of September 30, 1998, and the
consolidated results of its operations and its cash flows for the years ended
September 30, 1998 and 1997, in conformity with generally accepted accounting
principles.

Marks Shron & Company, LLP

January 11, 1999
Great Neck, New York

<PAGE>

F- 2
The Harmat Organization, Inc. and subsidiaries

Consolidated Balance Sheet

September 30, 1998

ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,389,564
Marketable securities 7,431
Accounts receivable 61,912
Loan receivable - stockholder 218,250
Loans receivable - other 208,000
Other receivables - related parties 254,296
Land and construction costs 1,029,821
Prepaid expenses 28,549

Total Current Assets 3,197,823

Property and Equipment - net 734,742

OTHER ASSETS
Investment in Partnership 76,449
Land deposits 85,000
161,449

Total Assets $4,094,014
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of notes and mortgages payable $ 332,761
Accounts payable and accrued expenses 164,823
Accrued interest 13,203
Customer and security deposits 405,871

Total Current Liabilities 916,658

OTHER LIABILITIES
Notes and mortgages payable - net of current maturities 588,009

COMMITMENTS AND CONTINGENCIES -

Total Liabilities 1,504,667

STOCKHOLDERS' EQUITY
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,
2,612,500 shares issued and outstanding 2,612

Additional paid-in capital - common stock 4,253,604

Accumulated (Deficit) (1,666,869)

Total Stockholders' Equity 2,589,347

Total Liabilities and Stockholders' Equity $4,094,014

See Independent Auditors' Report and Notes to Consolidated Financial Statements.

<PAGE>

F- 3

The Harmat Organization, Inc. and subsidiaries

Consolidated Statements of Operations

September 30,

1998 1997
REVENUES
Sale of developed and undeveloped real estate $ 5,585,126 $ 1,390,883
Rental income 192,697 200,908

Total Revenues 5,777,823 1,591,791

COST OF SALES AND DIRECT OPERATING EXPENSES 4,983,946 1,425,683

Gross profit 793,877 166,108

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,094,515 1,114,494

(LOSS) FROM OPERATIONS (300,638) (948,386)

OTHER INCOME (EXPENSE)
Net gain on sale of storage facility 114,840 -
Gain on sale of marketable securities 37,227 13,638
Unrealized (loss) on marketable securities (3,206) (3,268)
Interest and dividend income 90,918 80,912
Interest expense (78,691) (104,915)

Total Other Income (Expense) 161,088 (13,633)

(LOSS) BEFORE INCOME TAXES $ (139,550) $ (962,019)

INCOME TAXES - -

NET (LOSS) $ (139,550) $ (962,019)

(Loss) per share $ (.053) $ (.37)

Weighted average number of shares 2,612,500 2,612,500

See Independent Auditors' Report and Notes to Consolidated Financial Statements.

<PAGE>

F- 4

The Harmat Organization, Inc. and subsidiaries

Consolidated Statements of Stockholders' Equity

Common Stock
Additional Total
Number of Amount Paid-In Accumulated Stockholders'
(At Par)
Shares Capital (Deficit) Equity

Balance - September 30, 1996 2,612,500 2,612 $4,253,604 $ (565,300) $ 3,690,916

Net (Loss) (962,019) (962,019)
- - -

Balance - September 30, 1997 2,612,500 2,612 4,253,604 (1,527,319) 2,728,897

Net (Loss) (139,550) (139,550)
- - -

Balance - September 30, 1998 2,612,500 $ 2,612 $4,253,604 $(1,666,869) $2,589,347

See Independent Auditors' Report and Notes to Consolidated Financial Statements.

<PAGE>

F- 5

The Harmat Organization, Inc. and subsidiaries

Consolidated Statements of Cash Flows

For The Years Ended September 30,

1998 1997
OPERATING ACTIVITIES:
Net (loss) income $ (139,550) $ (962,019)
Adjustments to reconcile net (loss) income to net cash
(used for) provided by operating activities:
Depreciation and amortization 32,736 37,317
Gain on sale of marketable securities (37,227) (13,638)
Change in unrealized loss on investments 3,206 3,268
Gain on sale of storage facility (114,840) -

Changes in assets and liabilities:
Accounts receivable (28,446) (73,472)
Other deposits 45,749 (45,749)
Land and construction costs 2,683,383 (2,919,354)
Prepaid expenses 28,421 (13,472)
Accounts payable and accrued expenses (206,322) 159,558
Customer deposits 349,405 44,543

Total Adjustments 2,756,065 (2,820,999)

Net Cash Provided (Used) by Operating 2,616,515 (3,783,018)
Activities

INVESTING ACTIVITIES:
Acquisition of land, property and equipment (32,031) (123,228)
Deposits on land 25,000 (110,000)
Investment in partnership (50,000) -
Proceeds from sale of storage facility 673,100 -
Purchase of marketable securities (5,000) -
Sale of marketable securities 42,227 22,240
Loans receivable - other (133,000) (75,000)

Net Cash Provided (Used) by Investing 520,296 (285,988)
Activities

See Independent Auditors' Report and Notes to Consolidated Financial Statements.

<PAGE>

F- 6

The Harmat Organization, Inc. and subsidiaries

Consolidated Statements of Cash Flows

For The Years Ended September 30,

1998 1997

NET CASH - OPERATING ACTIVITES - brought forward $ 2,616,515 $ (3,783,018)

NET CASH - INVESTING ACTIVITIES - brought forward $ 520,296 $ (285,988)

FINANCING ACTIVITIES:
Loan receivable - stockholder (52,311) (165,939)
Other receivables - related party (186,696) (90,000)
Proceeds of notes and mortgages payable 304,344 1,463,510
Repayments of notes and mortgages payable (2,006,580) (148,238)

Net Cash Provided (Used) by Financing Activities (1,941,243) 1,059,333

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,195,568 (3,009,673)

CASH AND CASH EQUIVALENTS - beginning of period 193,996 3,203,669

CASH AND CASH EQUIVALENTS - end of period $ 1,389,564 $ 193,996

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 316,043 $ 222,734
Income taxes $ 20,253 $ 34,379

See Independent Auditors' Report and Notes to Consolidated Financial Statements.

<PAGE>
F-7

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 1: PRINCIPLES OF CONSOLIDATION AND 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 September 30, 1998 and 1997 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.
Entity Nature of Business

Parent Company:

The Harmat Organization, Inc. - Delaware Holding Company

Subsidiaries:

Harmat Homes, Inc. ("Harmat Homes") Construction of custom homes and
residential and commercial rental
properties, in the eastern portion of Long
Island, New York

Harmat Holding Corp. ("Harmat Holding") Subdivision and development of undeveloped
land in the eastern portion of Long
Island, New York

Northside Woods, Inc. ("Northside") Rental of residential property in the
eastern portion of Long Island, New York.

Harmat Capital Corp. ("Harmat Capital") Rental of residential property in the
eastern portion of Long Island, New York

Harmat Management, Inc. Limited partner in real estate partnership
in the eastern portion of Long Island, New
York

Quick Storage, Inc. Short-term rental of storage facilities in
the eastern portion of Long Island, New
York. Asset sold in July 1998.

Harmat Hospitality Inc. Purchase and operate resort properties

<PAGE>

F-8

NOTE 1: PRINCIPLES OF CONSOLIDATION AND BUSINESS (continued)

The principal stockholder of the Company is a general partner
in the partnership in which the Company has limited
partnership interests.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 $1,315,207
at September 30, 1998. Cash includes $58,816 set aside to
satisfy a Suffolk County bonding requirement.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents.
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
$1,315,207 at September 30, 1998. The Company believes no
significant concentration of credit risk exists with respect
to these cash equivalents.

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; trade securities; and available-for-sale
securities.

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 September 30, 1998, 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 for buildings and building
improvements and accelerated methods for furniture and
equipment, as follows:

Building and Building Improvements 10 to 40 years
Furniture and Equipment 5 to 7 years

<PAGE>

F- 9

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 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

o The Company 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. This
method provides that all construction costs be recorded as
incurred and monies received from the purchases be
recorded as deposits until the purchase contracts close at
which time all revenue costs and profits are recognized.

The Company classifies all land and construction costs
that are expected to be completed within one year as a
current asset. At September 30, 1998, such land and
construction costs totaled $1,029,821. Customer deposits
on such contracts totaled $404,271 at September 30, 1998.

o Rental income is recognized as it is earned pursuant to
the term of each lease on a straight-line basis. Leases
generally have an initial or remaining term of one year or
less.

<PAGE>

F- 10

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

Under FAS No. 109, "Accounting for Income Tax", deferred
income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising
the Company's deferred taxes as of September 30, 1998 are as
follows:

Deferred Tax Assets:
Federal and State Net Operating Loss Carryforwards $ 589,000
Less: Valuation Allowance (589,000)
-----------

Net Deferred Tax Liability $ -
================

The Company will have net operating loss carryforwards of
approximately $1,472,000 available to reduce future taxes.
These carryforward losses expire through the year 2013.
Pursuant to Section 382 of the Internal Revenue Code regarding
substantial changes in Company ownership, utilization of these
losses may be limited.

Stock Options and Similar Equity Instruments Issued to Employees

The Company currently accounts for its stock-based
compensation plans using the accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (see Note 8). Since the Company is
not required to adopt the fair value based recognition
provisions prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, it
has elected only to comply with the disclosure requirements
set forth in the Statement, which includes disclosing pro
forma net income as if the fair value based method of
accounting had been applied (See Note 8).

NOTE 3: MARKETABLE SECURITIES

Marketable securities consist of investments in equity and
debt securities at fair value. The cost of such securities is
$25,118. The change in the unrealized loss account for the
years ended September 30, 1998 and 1997 was $(3,206) and
$(3,268), respectively.

<PAGE>

F- 11

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 4: PROPERTY AND EQUIPMENT

Property and equipment consist of the following at September
30, 1998:

Land $ 176,736
Building and building improvements 694,787
Furniture and office equipment 70,230
-------------

Total 941,753
Less: Accumulated depreciation (207,011)

Property and Equipment - Net $ 734,742
==========

Depreciation expense for the year ended September 30, 1998 and 1997 totaled $32,736 and $37,317,
respectively.

NOTE 5: LOANS RECEIVABLE

Stockholder

The loan to Mr. Schilowitz, its primary stockholder, evidenced
by a Promissory Note with simple interest at the Prime Rate
charged by Chase Manhattan Bank, NA. Mr. Schilowitz pledged
500,000 shares of Common Stock of the Company as collateral.
The balance of this loan as of September 30, 1998 is $218,250.

Other

The Company loaned $175,000 to Axxess, Inc., an unaffiliated
third party. The loan is evidenced by a $175,000 Promissory
Note dated August 15, 1997. The note bears interest at 2%
above prime rate and unpaid interest and principal were due
August 15, 1998. The note is currently in default but the
Company expects it will be paid in full. Axxess, Inc. pledged
600,000 shares of its common stock as collateral and
authorized warrants to purchase its common stock for a price
of $.25 per share (as amended) expiring August 14, 2000 (see
Note 11).

The Company loaned $25,000 to an unaffiliated third party. The
loan is evidenced by a Promissory Note dated August, 1997. The
Note bears interest at 12% per annum. The note was repaid in
October 1998.

The Company made a $28,000 non-interest bearing loan to an
unaffiliated third party in October 1997. The balance due as
of September 30, 1998 was $8,000 and is due on January 15,
1999.

<PAGE>

F- 12

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 6: NOTES AND MORTGAGES PAYABLE

At September 30, 1998, the notes and mortgages payable consist
of the following:

Two mortgages payable, dated August 19, 1996, in the original amount of
$250,000 each, payable in monthly installments of $1,971 each, bearing
interest at 8.25% and maturing on September 1, 2021. The mortgages are
secured by rental properties. $ 486,547

Mortgage payable dated January 17, 1991 and amended June
14, 1994 in the original amount of $180,000, payable in
monthly installments of $1,934 including interest through
February 1, 2006. Interest is payable at an adjustable
interest rate (10.125% at September 30, 1998) which is
determined annually. The mortgage is secured by land and
building having an original cost of approximately $200,000.
120,715

Construction loan dated February 1998, in the original amount of $465,000,
payable monthly with interest only at 9.75% until June 1999 when the
principal and unpaid interest is due. The loan is secured by a building
lot on Beach Lane, West Hampton. 304,344

Legal settlement obligation 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 $6,560. 6,560

Other notes and mortgages 2,604
--------------
Total Notes and Mortgages Payable 920,770
Less: Current Portion (332,761)
------------

Total Long Term Notes and Mortgages Payable $ 588,009
===========

Annual maturities of notes and mortgages payable are as
follows:

For the Period Ended
September 30,

1999 $ 332,761
2000 21,146
2001 23,221
2002 25,507
2003 28,017
Thereafter 490,118
-----------
Total Notes and Mortgages Payable $ 920,770
==========

During the fiscal year ended September 30, 1998, interest of
$138,354 was incurred, of which $15,308 has been capitalized.

<PAGE>

F- 13

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective December 31, 1995, the Company adopted SFAS No. 107,
"Disclosure about Fair Value Financial Instruments", 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 herein 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.

For certain financial instruments, including cash and cash
equivalents, trade receivables and payables, short term loans,
customer deposits and short-term debt, it is estimated 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. The
fair value of other receivables - related parties is not
practicable to determine due to the nature of the
transactions.

NOTE 8: COMMITMENTS AND CONTINGENCIES

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 to the inherent uncertainty
of the legal process, however, this assessment may be subject
to change in the near term.

Commitments and Stock Option Plans

The Company has two stock-based compensation plans, which
are described below. The Company applies APB Opinion No. 25
and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized.

a) The Plan for Incentive Compensation of Matthew Schilowitz
(the "Schilowitz Incentive Plan"), who is the principal
stockholder, was adopted by the Board of Directors and
approved by the Company's sole stockholder on March 1,
1996 and amended August 3, 1996. 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 $5.75 per share ($.35, as amended). In
the event the Company's earnings before taxes first equals
or exceeds an 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 levels 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 may result in substantial
compensation expense to the Company in future years.

<PAGE>

F- 14

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 8: COMMITMENTS AND CONTINGENCIES (continued)

b) In February 1996, the Board of Directors adopted the 1996
Joint Incentive and Non-Qualified Stock Option Plan (the
"Plan") providing for the granting of up to 400,000 shares
of the Company's common stock. In January 1997, the
Company granted five year options under the Plan providing
for 10,000 shares at a price of $2.125 per share ($.35 as
amended) to four directors and two key employees of the
Company. During 1998, 10,000 of these options were
forfeited with the termination of employment of a key
employee. In March 1998, the Company's chief executive
officer and principal shareholder was granted 300,000
shares at an exercise price of $2.337 per share ($.35, as
amended).

The fair value of each option grant is estimated on the grant
date using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in
1997: dividend yield of 0%, risk-free interest rate of 6.3%,
expected volatility of 109%, and expected lives of 5 years for
the options.

If the Company had used the fair value based method of
accounting for its employee stock option plan, as prescribed
by Statement of Financial Accounting No. 123, compensation
cost included in the net loss for the year ended September 30,
1997 would have increased by approximately $614,000, resulting
in a net loss of $(1,576,000), net of tax, and loss per share
of $(.60).

A summary of the status of the Company's stock option plan as
of September 30, 1998, and the changes during the year ending
September 30, 1998 is presented below:

Weighted-Averaged
Fixed Options Shares Exercise Price
------------- ------ ------------------
October 1, 1997 360,000 $ .35
Granted 0
Exercised 0 -
Forfeited (10,000) -
--------- ---------------------

September 30, 1998 350,000 $ .35
======= ====================

Exercisable at September 30, 1998 350,000
Weighted-average fair value of
options granted during the year $ -

<PAGE>

F- 15
The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 8: COMMITMENTS AND CONTINGENCIES (continued)

The following table summarizes information about fixed stock
options outstanding at September 30, 1998.

Outstanding Options Exercisable Options
Number Weighted average Weighted - Number
Outstanding Outstanding Remaining Average Exercisable Weighted-average
Exercise Price Contractual Life Exercise Price At 9/30/98 Exercise Price
-------------- --------- ---------------- -------------- ---------- --------------
9/30/98

$ .35 350,000 $ .35 350,000 $ .35
3.5 years

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 stockholder,
effective September 1996, 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 options to purchase up to an aggregate of
500,000 shares of the Company common stock for ten years,
exercisable at $1.125 ($.35 as amended) per share with rights
vesting upon attainment of certain earnings levels (see
above). During 1998 Mr. Schilowitz received $24,512 as
additional compensation.

Consulting Agreement

In February 1998, the Company entered into a one year
consulting agreement with Spencer Trask to advise the Company
on financial matters in connection with the operation of the
business including acquisitions, mergers and other similar
business combinations. The Company paid Spencer Trask an
initial $10,000 retainer fee and is required to pay an
additional $3,500 per month. In addition, Spencer Trask is to
receive a transaction fee for any transactions consummated by
the Company during the term of the agreement or within two
years after the end of the term. In connection with this
agreement Spencer Trask was granted five year warrants to
purchase 200,000 shares of the Company's common stock at $.35.

<PAGE>

F- 16

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 9: RELATED PARTY TRANSACTIONS

The Company purchased two building lots from related companies
for an aggregate cost of $310,000 and constructed and sold
houses on such lots. The Company purchased 2 additional
building lots from Emerald Woods in December, 1997 for
$190,000 and simultaneously sold them to an unaffiliated third
party for $200,000.

In 1998, the Company loaned an additional $187,000 to related
entities. Loans to the related entities totaled approximately
$254,000 as of September 30, 1998. Such loans are due on
demand and have no stated interest rate. Subsequent to
September 30, 1998 approximately $100,000 was
repaid.

Accrued interest of $42,000 was paid during the year ended
September 30, 1998, to a related party.

The Company paid legal fees of approximately $19,000 and $35,000 in 1998 and 1997, respectively, to a
firm in which a director of the Company is a partner.

NOTE 10: SEGMENT AND OTHER INFORMATION

The Company's operations are classified into two industry segments: construction and rental. The
following is a summary of segment information for 1998 and 1997:

Construction Consolidated
Rental
Revenue from Non-Affiliates:
1998 $ 5,585,126 $ 192,697 $ 5,777,823
=========== ============ ===========
1997 $ 1,390,883 $ 200,908 $ 1,591,791
=========== ============ ===========

(Loss) Income from Operations:
1998 $ (376,728) $ 76,090 $ (300,638)
============= ============== ============
1997 $(1,055,687) $ 107,301 $ (948,386)
============ ============= ============

Identifiable Assets:
1998 $ 3,315,558 $ 778,456 $ 4,094,014
=========== ============ ===========
1997 $ 4,439,120 $ 1,353,595 $ 5,792,715
=========== =========== ===========

Depreciation and Amortization:
1998 $ 6,216 $ 26,520 $ 32,736
============== ============= =============
1997 $ 6,215 $ 31,102 $ 37,317
============== ============= =============

Capital Expenditures:
1998 $ -0- $ 17,500 $ 17,500
================== ============= =============
1997 $ -0- $ 123,228 $ 123,228
================== ============ ============

<PAGE>

F- 17

The Harmat Organization, Inc. and subsidiaries

Notes to Consolidated Financial Statements

NOTE 10: SEGMENT AND OTHER INFORMATION (continued)

Land and construction costs for properties sold in the first
three quarters of the fiscal year ended September 30, 1998
were inadvertently omitted from the interim financial
statements resulting in a fourth quarter charge of $450,000.

NOTE 11: SUBSEQUENT EVENTS

The Company on November 16, 1998 completed a private placement
investment of $750,000 in newly-issued equity securities of
Socket Communications, Inc., a publicly traded company. The
Socket securities include 750,000 shares of Series D
Convertible Preferred Stock, with dividends accruing at eight
percent per annum, convertible into common shares at $0.5735
per share. In addition, the Company was issued three year
warrants to purchase an additional $250,000 of Socket common
stock at an exercise price of $0.5735 per share. Spencer Trask
Securities, Inc. was the investment banker for the
transaction. In connection with this transaction a related
party received a warrant to purchase 60,000 shares of common
stock of Socket Communications Inc. and entered into a
consulting agreement for a fee of $50,000.

As of December 15, 1998 the Company notified Axxess Inc.
that it was exercising its warrants to purchase 175,000
shares of Axxess Inc. for an aggregate subscription price of
$43,750 with a current market price of approximately $18 a
share or an aggregate of $3,150,000.

The Company is in contract to sell 15 acres of land known as
the Agricultural Reserve to an unaffiliated third party for
$350,000. The Company will recognize income of approximately
$275,000 on this transaction.

</TABLE>

<PAGE>

SIGNATURES

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

Dated: January 14, 1999

The Harmat Organization, Inc.

BY: /s/ Matthew C. Schilowitz
Matthew C. Schilowitz,
President and Chairman of the Board of
Directors

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities on
the dates indicated.

BY: /s/ Matthew C. Schilowitz
Matthew C. Schilowitz
President and Chairman of the Board of
Directors (Chief Executive Officer)
Date: January 14, 1999

BY: /s/ Seymour G. Siegel
Seymour G. Siegel
Treasurer and a Director (Chief financial
and Accounting officer)
Date: January 14, 1999

BY: /s/ Scott Prizer
Scott Prizer
Secretary and a Director
Date: January 14, 1999

BY: /s/ David W. Sass
David W. Sass
Director
Date: January 14, 1999

BY: /s/ David S. Eiten
David S. Eiten
Director
Date: January 14, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-KSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,389,564
<SECURITIES> 7,431
<RECEIVABLES> 742,458
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,197,823
<PP&E> 734,742
<DEPRECIATION> 32,736
<TOTAL-ASSETS> 4,094,014
<CURRENT-LIABILITIES> 916,658
<BONDS> 0
0
0
<COMMON> 2,612
<OTHER-SE> 2,586,735
<TOTAL-LIABILITY-AND-EQUITY> 4,094,014
<SALES> 5,585,126
<TOTAL-REVENUES> 5,777,823
<CGS> 4,983,946
<TOTAL-COSTS> 6,078,461
<OTHER-EXPENSES> (161,088)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,691
<INCOME-PRETAX> (139,550)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,550)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,550)
<EPS-PRIMARY> (.053)
<EPS-DILUTED> 0

</TABLE>