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

                                                         1

<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).


                                                         2

<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.




                                                         3

<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

                                                         4

<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

                                                         5

<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.



                                                         6

<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


                                                      7

<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.


                                                         8

<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

                                                         9

<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).



                                                        10

<PAGE>



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

                  Not Applicable


                                                        11

<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.


                                                        12

<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.







                                                        13

<PAGE>
<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
                                       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."












                                                        14

<PAGE>



         (b)      Compensation Pursuant to Plans

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                           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.

         (c)      Other Compensation

                  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.

         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.
The exercise price of the options is $.35.



                                                        15

<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 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.  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

                                                        17

<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 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 $2.125. On June 19, 1998 the exercise price was 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,  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.

         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. 


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.




                                             18

<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.

         All  transactions  between  the  Company  and  its  affiliates  will be
reviewed solely by the Company's outside directors, who will determine the value
of any  services  provided by the Company for any  affiliated  entity.  All sums
received by the Company will be equivalent  to those granted by unrelated  third
parties.

         The Company  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., including interest, 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.


                                                        19

<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.

                                                        20

<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.


                                                        21

<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.





                                                        22

<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>


<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                                                       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