SECURITIES AND EXCHANGE COMMISSION
                                             Washington, D.C.  20549

                                                   FORM 10-KSB

[ ]  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, 1996 or
[x] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)

For the transition period from December 31, 1995 to September 30, 1996
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.
     Yes                                                X   No




<PAGE>




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

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

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

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

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

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

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

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


<PAGE>



                    4.5      Registrant's 1996 Stock Option Plan (Exhibit 4.5 to
                             Registrants 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
                             between the Registrant and Matthew Schilowitz.


                                                           3



<PAGE>





               10.3          Stock Sale Agreement between the Registrant and
                             Bennett Brokow, Lloyd Brokow and Donald Cohen
                             incorporated herein by Reference to Exhibit 10.3 to
                             Registrant's Registration Statement on Form SB-2,
                             File No. 333-3501.

               10.4        Stock Purchase Agreement dated March 1, 1996 between
                             the Registrant and Matthew Schilowitz incorporated
                             herein by Reference to Exhibit 10.4 to Registrant's
                             Registration Statement on Form SB-2, File No. 333-
                             3501.


           The Registrant has 2,500,000 shares of Common Stock outstanding as of
December 15, 1996.

           The Issuers  revenues for its most recent fiscal year ended September
30, 1996 is $2,727,870.

             The aggregate market value of the outstanding  common stock held by
non-affiliates of the Registrant on December 15, 1996 was $10,000,000.

                                                          4



<PAGE>




                                     PART I

Item 1.               Business
(a)          General Development of Business

                      The Harmat Organization, Inc. (hereinafter with its
Subsidiaries  collectively  "Harmat", or the "Company," or the "Registrant"),  a
Delaware corporation, is a construction,  architectural and landscape design and
real estate  development  firm based in Long  Island,  New York.  Harmat  builds
custom homes on either the client's land or on properties owned or controlled by
entities  affiliated  with  Harmat.  The  Company  also  builds  commercial  and
residential  rental  properties.   The  Company  also  offers  interior  design,
renovation and  restoration  services to its clients.  In addition,  Harmat owns
undeveloped land, storage facilities containing 115 units, rental properties and
is involved in real estate  development  projects.  Over the past ten years, the
Company  has focused  its  efforts in the  Suffolk  County area of eastern  Long
Island,  New York, where it has built  approximately 150 single-family  homes as
well as such  commercial/public  projects  as the 6,000  square  feet  center of
Jewish  Life in  Westhampton  Beach,  the  Hamptons  Synagogue.  The  Company is
currently constructing a 14 unit luxury condominium in Westhampton Beach on a 10
acre bayfront  property on Dune Road  consisting of club house, 6 tennis courts,
pool, patio, beach access and 30 boat slips.

             (b)      Financial Information about Industry Segments

                      The Company engages in only one industry segment.

             (c)      Narrative Description of Business

General

                      The Company has, since its inception in 1985, built in
excess of 150  single-family  homes in the Hamptons resorts area of Long Island.
New York. It has also been able to acquire  residential  and  commercial  rental
properties  which generated  additional cash flow for the Company.  In addition,
the Company has acquired a 12 lot subdivision,  Polo grounds, which is currently
in  development.  The Company is marketing  Polo Grounds and currently has three
contracts.  The  Company  is also in  contract  with a 57  unit  subdivision  in
Westhampton  Beach  [Jaegger]  which it  closed on  during  the  summer of 1996,
marketed immediately thereafter and delivered homes from such


<PAGE>



development  by year end 1996.  The  Company  provides  construction  management
services  to other  developers  and  charges  a fee for  providing  construction
supervision on a project.

             Currently,  the luxury housing market, which has been the Company's
primary target niche, has thousands of acres in and around the Hampton area that
are available for development.  Based upon prior experience, the Company expects
that its entry into the market

                                                          5



<PAGE>




for this usable  acreage which is spread in various size pockets  throughout the
Hampton area,  will not be a problematic.  The Company will not only continue to
invest in  properties  that are  scattered  throughout  the Hampton  area but in
markets that are more concentrated and are experiencing residential,  industrial
and/or  commercial  growth i.e.  Western  Suffolk County and Nassau County,  New
York.  The Company  feels that it has limited  competition  from a few large and
small real estate developers.

             Since there is significant customer concentration to high net worth
individuals  who are for the most part  impervious to economic  conditions,  the
Company does not expect to experience  any  significant  sales  volatility.  The
Company is also focusing on delivering more moderately-priced homes with similar
gross profit margins as its higher-priced homes. The Company expects to purchase
larger  tracts  of  land at  substantially  lower  costs  per  acre  than it has
historically  paid so that it can deliver  more homes to at least have a similar
impact on its operating results than the Company's higher-end  products.  At the
same time,  the Company  will be expanding  its appeal to customers  seeking not
only second vacation homes, but affordable primary homes as well.

             The  Company  expects to expand  into  commercial  and  residential
management,  construction  supervision  and consulting  services all of which it
will access primarily  through  reputation and referrals.  Management feels that
special projects requiring such services are readily available. In addition, the
Company intends to purchase  additional  rental units to add to its portfolio in
order to maintain cash flow during slow periods.

             To date,  the  Company's  strategy for growth has been to integrate
the foregoing  services into a "turn key" business which can offer its customers
the  convenience  of  obtaining  all  of the  necessary  elements  and  services
regarding  the  purchase  and  maintenance  of  a  home,   including  the  land,
architectural,  interior and landscape design services,  construction of a home,
swimming  pool or tennis court,  and  maintenance  of the property.  The Company
believes  that  it has  carved  a  niche  for  itself  as  one  of  the  premier
full-service builder/developers in the western portion of the Hamptons.

Since Harmat  Homes'  inception in 1985,  the  Company's  founder and  principal
shareholder,  Matthew C. Schilowitz, has sought to not only provide construction
services  through  the  Company  but also to invest in real  estate  development
ventures by purchasing large parcels of


<PAGE>



real property for  development.  To date, the majority of such  investments have
been made by Mr. Schilowitz  individually,  as a general partner, joint venturer
or principal  stockholder  of a  corporation.  Mr.  Schilowitz  has been able to
invest in the majority of such properties using private  non-recourse  financing
with only a modest down payment on the purchase price. This type of financing is
attractive  because  the  investor  is often able to recoup its cash  investment
after selling only a small number of lots while being able

                                                          6



<PAGE>




to market the balance  with minimal  exposure.  The Company  believes  that such
sources and terms of financing will be available for future  projects,  although
no assurances can be given that this will be the case.

These projects have involved the construction of single-family  homes as well as
the development and  construction of luxury  properties  where each home has its
own swimming  pool and tennis court.  Such  developments  have included  "Hidden
Cove" in  Southampton  (12 lots,  all of which have been sold);  "Woodridge"  in
Bridgehampton  (52 lots, 32 of which have been sold);  "The Woodlands" (52 lots,
37 of which have been sold) and "The Crossings," (14 lots, 11 of which have been
sold) each in East Quogue;  "Emerald Woods" in East Quogue (14 lots, 12 of which
have been sold) and "The Fairways" in Westhampton Beach (6 lots, 5 of which have
been sold).  All of these  projects are located in prime areas where the bulk of
the lots abut either a nature  preserve,  golf course or farm land.  The Company
also  anticipates  performing   construction  services  for  the  "Bridal  Path"
development in Westhampton.  The real property for all of the foregoing projects
is owned by entities affiliated with the Company.

The Company has built homes ranging in price from $200,000 to $2,000,000.  While
the bulk of the homes built in the  Hamptons  are  vacation  homes,  the Company
believes  that  approximately  25% of its  clients  live  in  their  homes  on a
year-round basis.

Strategy

Harmat is now seeking to expand, by providing first class  construction,  design
and homeowner and management  services to not only  residential  buyers but to a
broad array of commercial clients as well.

For  example,  the Company is  considering  developing  or  investing  in luxury
single-family  developments,  senior citizen  condominium  units and undeveloped
real property  (including  oceanfront  acreage) in such areas as western Suffolk
County,  the  Hamptons,  Florida  and the  Washington,  D.C./Maryland  area that
management  believes  provide  attractive  opportunities.  The  Company  further
believes  that it could  obtain  financing  similar to that used in its previous
projects,  (i.e. a modest down payment and no recourse  against the Company) and
that such projects would enhance its growth.  Furthermore,  Management of Harmat
is of the opinion  that all of such  potential  projects  involve  lots in prime
locations where homes (or commercial buildings) could


<PAGE>



be sold or leased  profitably  within a reasonable  amount of time,  although no
assurances can be given that such  transactions  will be consummated or that any
sales or  leases  thereunder  will  occur  within  any  particular  time  frame.
Depending on the project, the Company may either simply build model homes or may
be  required to put in the  required  infrastructure  such as roads,  etc. It is
presently  contemplated  that the Company  would  receive a  management  fee and
construction fees for services provided for such projects, although

                                                          7



<PAGE>

no  assurances  can be given  that such fees will be paid or that such  ventures
will be profitable.  The Company may also make construction  loans to either its
affiliates or to third parties during the course of such projects.

The  Company  also  intends to expand  into the  commercial  real  estate  field
including income producing  properties and will therefore  aggressively seek out
opportunities to construct, manage and/or invest in shopping malls, motels, golf
courses,  industrial parks and other  income-producing  properties.  The Company
believes that its officers and directors have the requisite skills, contacts and
experience to successfully enter this field, but no assurances can be given that
such  goals  will be  achieved  or  that  any of  Harmat's  future  real  estate
investments will be profitable.


Competition

The Company believes that it is one of the larger,  more sophisticated  builders
in the western Suffolk County area.  Unlike smaller local builders,  the Company
maintains a permanent  sales office and has a  registered  architect on staff to
supervise  construction  and work with  clients who request such  services.  The
construction  business is highly competitive,  however, and the Company is aware
of many  builders  who are able to meet or improve  upon a price the Company can
offer its clients for a given construction project. The Company seeks to compete
not  solely on the basis of price,  but on the  ability  to  provide  integrated
quality  real  estate,  design  and  construction  services  under one roof.  No
assurances  can be given that this  strategy  will enable the Company to compete
successfully.


Employees

As of  December  31,  1996,  the  Company  has five  full-time  employees,  3 in
management  and 2 in clerical.  Since 1990,  Harmat has not employed a full-time
construction  staff but has hired skilled non-union local labor on a per-project
basis.  The Company believes that its  relationships  with its employees and its
sub-contractors  are good,  and that the supply of skilled  labor in the area is
adequate for its needs.





<PAGE>

Item 2.  Properties

The Company's  wholly-owned  subsidiaries  hold title to certain real  property.
Such  properties  include (i) The Polo Grounds,  a development  with 12 one acre
lots in  Southampton,  New York,  each building lot contains room for house with
all amenities, pool and tennis court; three of the lots have been built upon and
sold; (ii) 2 single-family  residential  rental properties in the Hamptons;  one
six bedroom home in Westhampton  Beach, New York with eight horse stalls and the
other an 8  bedroom  house in  Southampton,  New York  both  rented on an annual
basis;  (iii) three acres of unimproved real property in  Westhampton,  NY; (iv)
the 4,000 square foot  premises in Quogue,  NY housing the  Company's  executive
offices and corporate sales office,  which the Company  believes is adequate for
its foreseeable  needs; and (v) a 115,000 square foot  mini-storage  facility in
Quogue, NY., which the Company expects to expand on adjacent property.

The Company issued 1,750,000 shares of its common stock to Mr.
Schilowitz upon transfer of the stock of the corporations holding
title to the foregoing properties.  See "Certain Transactions."

The Company currently has the following projects under contract:

             (A)      Jagger Woods at Westhampton Beach, N.Y. - A 41 acre parcel
                      with approvals to construct 57 single family residences on
                      -  to  3/4  acre  parcels   complete  with  the  following
                      amenities:  (community pool,  tennis court and clubhouse).
                      Homes will range between 1,271 and 2,160 square feet.

             (B)      Two 1 - acre  building  lots  with all  road  improvements
                      completed located in East Quogue, N.Y., - The lots will be
                      marketed  whereby  the  Company  shall  construct a single
                      family house complete with pool and tennis court.

             (c)      Vacant  parcel  located  adjacent  to the  Company`s  mini
                      storage  facility in Quogue,  N.Y. The Company  intends to
                      develop  this  property to expand its current  facility by
                      constructing approximately 5,000 additional square feet of
                      specialized storage.

Seasonality

The Company  generally  experiences  an increase in revenues in the fall when it
commences the majority of its construction  projects, and a decrease in revenues
during the summer,  when it does most of its marketing  and in the winter,  when
adverse weather may make construction difficult.  The Company`s projects usually
begin in the fall with most sales completed in the spring and early summer.  The
Company sometimes obtains bridge loans to cover  construction costs and utilizes
its rental income from apartments and the storage



<PAGE>




facility to cover its overhead during slow periods.

Licensing

The Company  does not require any State or County  license or permits to perform
services  as a  general  contractor,  but  does  require  (and  possess)  a home
improvement license from the Town of Southampton.

Government Regulation

In the construction  business,  the Company is required to meet and satisfy both
State and  local  building  and  zoning  regulations  as well as State and local
environmental  regulations.  Prior to the commencement of construction  building
plans must be approved which show full compliance with all applicable  rules and
regulations.  In addition, building permits are needed. To date, the Company has
had no problems in meeting and satisfying such requirements and in obtaining all
permits that it needs for its projects.

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, 1996, no matter was submitted to a vote of the security holders of
the Company.


                                                          10



<PAGE>





                                     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 for the last two quarters  since the  Company's  initial
public offering.

                1996                                       High Bid      Low Bid

             3rd Quarter
               (commencing
               September 9, 1996)

             4th Quarter


                      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 15, 1996, there were 25 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.



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


             Review of 1996 Results

The nine months ended September 30, 1996 and the year ended December


<PAGE>



31, 1995

Total  revenues for the nine months  ended  September  30, 1996 were  $2,727,870
compared to revenues of  $2,323,524  for the year ended  September  30, 1995, an
increase of approximately $404,000 or 17%.

Construction  Sales.  Deliveries  of 6 homes  resulted  in housing  revenues  of
$2,496,926  for the nine months ended  September  30,  1996.  For the year ended
December 31, 1995, the Company  delivered 6 homes which generated  $2,065,126 of
housing  revenues.  Housing revenues in 1996 increased  $431,800.  The Company's
plan is to move into the  commercial  construction  market and  concentrate  its
residential inventory toward affordable housing and the upscale market. Although
the same number of homes were delivered in 1995 and 1996, the gross

                                                          11



<PAGE>




profit  margin  decreased  [see  gross  profit  margin].   The  Company's  first
commercial   construction  venture  included  the  completion  of  The  Hamptons
Synagogue in Westhampton  Beach in 1994 which  generated  $650,000 in additional
revenues  for the  year  ended  September  30,  1994.  This  initial  commercial
construction  venture  has  given the  Company  publicity  towards  successfully
entering  this  market  with  plans to secure  future  commercial  ventures.  In
addition,  the Company has grown into a construction  management firm, where the
Company receives a management fee to supervise the construction of a project.

Rental Income.  Acquisition of additional  rental based  properties  resulted in
rental  income of $183,398 for the year ended  December  31, 1995.  For the nine
months  ended  September  30,  1996,  the  Company  generated  rental  income of
$153,944.  Rental income in 1996 decreased by $29,454 which reflects nine months
rental income of Quick Storage of Quogue, Inc., a self storage facility with 111
units.  This  facility  generated  rental  income of $77,100 for the nine months
ended  September 30, 1996. The Company plans to expand the existing  facility by
purchasing, constructing and expanding rental based properties.

Construction  Management Revenue.  Construction Management Services for the year
ended  December  31,  1995  generated  $75,000  compared to $25,000 for the nine
months ended  September  30, 1996.  This decrease  reflects the  completion of a
contract secured by the Company to perform construction  management  supervision
for a 14 unit condominium  development in Westhampton.  Construction  management
supervision is consistent  with the Company's  plans to emerge as a full service
real estate development  company.  The Company is currently pursuing  additional
construction management projects for future development.

Gross Profit Margin.  The Company's  gross profit margin on homes  delivered was
approximately  twenty  percent [20%] during the nine months ended  September 30,
1996, compared to twenty-nine percent [29%] in the year ended December 31, 1995.
The gross profit margin on homes decreased due to the competitive pricing of the
homes  built in 1996.  In 1995,  the  Company  positioned  itself in the upscale
market segment.

Selling, General and Administrative Expenses. The Company's Selling, General and
Administrative  expenses  increased to $702,290  [26% of Revenues]  for the nine
months ended September 30, 1996,  compared to $367,498 [16% of revenues] for the
year ended December 31, 1995. The increase  percentage is principally due to
<PAGE>



expenditures necessary to accomplish  the completed  initial public  offering -
Administrative  Staffing and Professional Fees ($225,000),  additional Insurance
Coverage, Office Expense and Improvements ($55,000).

Charge for Executive Compensation  Capitalized.  The $14,750 for the nine months
ended  September 30, 1996 and the $105,000 for the year ended December 31, 1995,
represents the fair value of services  provided for executive  compensation that
would have been paid had the Company chose to do so.

Income from Operations.  The Company's income loss from operations
for the nine months ended September 30, 1996 and for the year ended
December 31, 1995 was $227,939 and $131,710 respectively.  This

                                                          12



<PAGE>




decrease of approximately  $359,649 is primarily attributable to the increase in
Selling, General and Administrative Expenses for the nine months ended September
30, 1996 of approximately $335,000.

Gross  Interest  Costs.  Gross  interest costs were $175,972 for the nine months
ended  September 30, 1996  compared to $157,678 for the year ended  December 31,
1995.  The increase in gross  interest cost for the nine months ended  September
30, 1996 resulted from the acquisition of Quick Storage of Quogue,  Inc. [a self
storage  facility],  Polo Grounds [12 units  subdivision]  and other real estate
ventures whereby additional debt was incurred upon acquisition.

Other [Income] Expense. Included in other [income] expense in 1995 is $(245,022)
which represents gain on sale of marketable securities,  compared to $47,976 for
the nine months ended  September  30, 1996.  The Company  realizes that the real
estate  industry  is highly  speculative.  Land  values  and/or  home prices may
fluctuate  significantly,  and the rate of home sales can be slow. The Company's
building  has centered in the  Hamptons  resort area in Easter Long Island,  New
York,  where the bulk of the market consists of vacation homes.  The Company has
already  begun to expand into other areas of the real  estate  industry  [rental
properties,   primary   residences,   construction   management  and  commercial
construction  projects].  The  Company  has  acquired  key  personnel  with  the
requisite  skills,  contracts and experience to  successfully  expand into these
areas  within  the real  estate  field.  The  Company  will seek out  additional
opportunities to construct, manage and/or invest in family communities, shopping
centers, industrial parks, congregate care facilities and other income producing
properties.  The Company's belief that investing in income producing  properties
will insure a stable  growth for the future  should  adverse  market  conditions
arise.

Pro  Forma  Net  Income.   Pro  forma  net  income  gives  rise  to  income  tax
consideration  assuming  that  each of the  subsidiary  entities  had been a "C"
Corp., for the year ended December 31, 1995.  Since  each of the  subsidiary
entities was an "S" Corp.,  no  provision  for income  taxes was  necessary.  In
accordance therewith, an estimated pro forma income of $94,903 gave effect to an
income tax provision had each of the subsidiaries been a "C" Corp rather than an
"S" Corp. Effective March 1, 1996, each of the "S" Corporations terminated their
"S"  Corporation  status  and  became  "S"  Corporations.  The  Company  has net
operating losses of approximately  $370,000  available to reduce future taxes as
at September 30, 1996.



<PAGE>



Item 7.               Financial Statements

                      The financial information required by item 8 is included
elsewhere in this Report.  (See Part IV, Item 13).



                                                          13



<PAGE>




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

                      None.





                                                          14



<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              32               President, CEO & Chairman

Scott Prizer                       33               Secretary & Director

Seymour G. Siegel                  53               Treasurer & Director

David W. Sass                      61               Director

David S. Eiten                     36               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


<PAGE>



securities portfolios, in excess of $800,000,000. Mr. Prizer has a
B.A. from George Washington University and an M.B.A. from New York
University.  Mr. Prizer is Mr. Schilowitz' first cousin.

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

                                                          15



<PAGE>




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 35 years, Mr. Sass has been a practicing  attorney in New York City and
is  currently  a senior  partner  in the law firm of  McLaughlin  & Stern,  LLP,
counsel to the  Company.  Mr. Sass is a director  and officer of J.E.C.  Lasers,
Inc.,  a public  company  engaged in various  aspects of the laser  business;  a
director  and  officer  of  Carter,  Milchman  & Frank,  Inc.,  a company in the
wholesale  distribution of tools and related building  equipment;  an officer of
Ionic Fuel  Technology,  Inc., a company engaged in the sale and distribution of
emission  control  systems,  and a member  and  Vice  Chairman  of the  Board of
Trustees of Ithaca College.

David S. Eiten  Mr. Eiten became a director of the Company in January
1996.  From 1990 to the present he is the owner and operator of a
residential and commercial construction company. From 1986 to 1990 he
was Vice President of Field Operations for the Company.



                                                          16



<PAGE>




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.

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
<CAPTION>
                                                                        Long-Term Compensation
                              Annual Compensation                          Awards                  Payout

                                                                                                             All        Payouts
                                                         Other Annual   Restricted                           Other
Name and                                                 Compensation   Stock       Options    LTIP
                                                                                                       Compen-
Principal Position          Year    Salary($)   Bonus      ($)          Awards($)    SARs      Payouts(#)    sation($)
                                                                                                             
Matthew Schilowitz(1)(2)    1996     $52,000
Chief Executive Officer     1995                          197,000
Chief Financial Officer,    1994                          217,000

</TABLE>


-------

(1)          See the discussion of the Company`s employment agreement with
             Mr. Schilowitz as described in Item 13.

(2)          During the nine months ended  September  30, 1996 and the two years
             ended December 31, 1995, Mr. Schilowitz  received  distributions as
             the Companies were Sub Chapter S corporations  and/or  partnerships
             and no salary was paid during 1994 and 1995.

(3)          For the nine months ending September 30, 1996, the Company 
             distributed to Matthew Schilowitz marketable securities with a
             fair market value of $14,750 as additional compensation.



         (b)      Compensation Pursuant to Plans



<PAGE>



         None


         (c)      Other Compensation

         None




                                                        17



<PAGE>





         (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.

                  (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,  on a pro forma basis,  information as of December
15, 1996 concerning officers and directors as a group as well as each person who
beneficially  owned  more than five (5%)  percent of the  Company's  outstanding
common shares.

Name and Address of                         Common Shares       Percentage
Beneficial Owner                    Beneficially Owned          After Offering

Matthew C. Schilowitz                        500,000(1)               20%
c/o Harmat Homes Inc.
P.O. Box 539
Quogue, NY 11959

Scott Prizer                                    -0-                    0%
145 W.67th St.
New York, NY 10023

Seymour G. Siegel                               -0-                    0%
c/o Siegel Rich Resources, Inc.
1180 Avenue of the Americas
New York, NY 10036

David W. Sass                                   -0-                 0%
c/o McLaughlin & Stern, LLP
380 Lexington Ave.
New York, NY 10168



<PAGE>



David S. Eiten                                  -0-                  0%
7 Thorngrove Lane
Dix Hills, New York 11746


                                                                 18



<PAGE>







All officers and directors                       500,000              20%
 as a group (5 persons)
------------------
*        No shares owned.




Item 12.          Certain Relationships and Related Transactions

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

         On April 1,  1996  the  Company  entered  into a five  year  employment
agreement  which  was  amended  August  3,  1996  with  Matthew  Schilowitz,   a
stockholder,  director and officer of the Company (the "Schilowitz  Agreement").
Under the Agreement,  Mr.  Schilowitz`s  compensation  is $105,000 for the first
year,  $155,000 for the second year,  $205,000 for the third year,  $255,000 for
the fourth year and $305,000 for the fifth year.  In  addition,  Mr.  Schilowitz
will receive a bonus of 5% of the pre-tax earnings of the Company in each fiscal
year.

The foregoing  employment  agreement  terminates upon death or disability of the
employee and permits the Company to terminate the Schilowitz  Agreement upon the
occurrence of certain  events or the commission of certain acts or for any other
reason provided that the Company pays to such employee a severance payment equal
to the aggregate base salary  otherwise owed to such employee over the remaining
term of the  employment  agreement  (other  than for  instances  in  which  such
employee is terminated  for "cause" as defined in such  agreement).  Pursuant to
the provisions of his employment  agreement in the event that Mr.  Schilowitz is
not nominated or re-elected to serve as member of the Board of Directors, either
may  terminate  his  employment  with the  Company and will,  in such event,  be
entitled to continue to receive his base salary as set forth in such  employment
with the Company for the remainder of the term thereof. The employment agreement
also contains certain  confidentiality and non-competition  provisions which are
operative  during the term of the  agreement and for given periods of time after
termination thereof.


<PAGE>



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 and amended August 3, 1996. Pursuant to
such plan, Mr.  Schilowitz has been granted an option (the "Option") to purchase
up to an  aggregate of 500,000  shares of Common  Stock at an exercise  price of
$5.75 per share. The Option has a duration of ten years. The Option provides for
the grant of : (i) the right to  purchase  250,000  shares of Common  Stock such
right to vest and become  exercisable upon the Company realizing annual earnings
before taxes equaling or

                                                        19



<PAGE>




exceeding  $750,000;  and (ii) the right to  purchase  250,000  shares of Common
Stock such  right to vest and  become  exercisable  upon the  Company  realizing
annual earnings before taxes equaling or exceeding $1,500,000. Shares subject to
options granted under the Schilowitz Incentive plan are subject to adjustment in
the  event of the  Company`s  declaration  of  stock  dividends,  stock  splits,
reclassification  and the  occurrence of other similar  events.  The Company has
reserved  500,000  shares of  common  Stock for  issuance  under the  Schilowitz
Incentive  Plan.  Pursuant to the terms of the  Schilowitz  Incentive  Plan, the
Board  of  Directors  or a  committee  established  by the  Board  of  Directors
administers such plan.

The law firm of  McLaughlin  & Stern,  LLP.,  of which Mr. Sass is a  principal,
received  aggregate legal fees of $110,000 during 1996 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 table 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:

Company Name                        Mr. Schilowitz's Interest      Transactions

Woodlands Construction
 Corp. LLP                             50% shareholder
                                                                  Woodlands
                                                                  provides
                                                                  contracting
                                                                  services    on
                                                                  small  jobs  -
                                                                  Woodlands owns
                                                                  no   property.
                                                                  It is possible
                                                                  that       the
                                                                  Company    may
                                                                  provide
                                                                  services    to
                                                                  Woodlands   in
                                                                  the future.


Crossings Associates, L.P.            1/9th interest
Services                                                          The  Crossings
                                                                  had  a 14  lot
                                                                  subdivision.
                                                                  There are only
                                                                  2    available
                                                                  lots.      The
                                                                  Company    may
                                                                  provide
                                                                  construction
                                                                  services    to
                                                                  the  crossings
                                                                  in the future.


<PAGE>




Emerald Woods Dev. Corp.              50% shareholder
 Services                                                         Emerald  had a
                                                                  14         lot
                                                                  subdivision.
                                                                  There are only
                                                                  3    available
                                                                  lots.      The
                                                                  Company    may
                                                                  provide
                                                                  construction
                                                                  services    to
                                                                  Emerald in the
                                                                  future.


Fairways at Westhampton, Inc.       50% shareholder
Services                                                         Fairways had 6 
                                                                 building lots.
                                                                 There

                                   



<PAGE>

                                                               is only one 
                                                               available lot.
                                                               Fairways owns no
                                                               other property.


Bridal Path Development Corp.      50% shareholder
 Services                                                      Bridle    Path
                                                               had  a  14-lot
                                                               subdivision.
                                                               There  are  10
                                                               available
                                                               lots.      The
                                                               Company    may
                                                               provide
                                                               construction
                                                               services    to
                                                               Bridle Path in
                                                               the future.

Woodland Development
Association, a partnership          1/9th interest
                                                                Woodland  owns
                                                                4     building
                                                                lots   located
                                                                in        East
                                                                Quogue,   N.Y.
                                                                The    Company
                                                                may    provide
                                                                construction
                                                                to Woodland in
                                                                the future.

Woodland Pines Associates,
a partnership                    Joint Venture
                                                                  Woodland Pines
                                                                  owns        10
                                                                  building  lots
                                                                  located     in
                                                                  East   Quogue,
                                                                  N.Y.       The
                                                                  Company    may
                                                                  provide
                                                                  construction
                                                                  to    Woodland
                                                                  Pines  in  the
                                                                  future.

The Company  issued  1,750,000  shares of its Common Stock to Mr.  Schilowitz in
connection with the transfer to the Company of all of the issued and outstanding
stock of Harmat Homes,  Inc. a construction  and sales  company;  Harmat Capital
Corp.  which owns the corporate  headquarters,  and vacant l and in Southampton,
New York and  Southold,  New York;  Northside  Woods,  Inc.,  which owns  rental
property  in  Westhampton,  New  York;  Harmat  Holding  Corp.,  which  owns the
subdivision known as the Polo Grounds;  Harmat  Organization Inc., which owns an
interest in Woodland Development Associates, a partnership;  and a fifty percent
interest in Quick  Storage of Quogue,  Inc.  which owns the storage  facility in
Quogue,  New York.  The Company has a contract to  purchase  the  remaining  50%
interest from unrelated parties for a purchase price of $150,000.

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 Arnaud escrow of
750,000 shares.



<PAGE>



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 bears interest at 6% per annum, matures on
December 31, 1996 and will be repaid from the proceeds of this offering; $70,000
from Carol

                                                        21



<PAGE>




Bernstein, the mother of Matthew Schilowitz, which loan bears interest at 8% per
annum and matures on December  31, 1996 and will be repaid from the  proceeds of
this  offering;  $150,000  payable to three  former  owners of Quick  Storage of
Quogue,  Inc. in connection with the purchase by the Company of such persons 50%
interest  in such  company.  The  monies due to Carol  Bernstein,  and the three
former  owners of the Quick  Storage of Quogue,  Inc.,  have been repaid in full
subsequent to September 30, 1996.

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.




                                                        22



<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

                  Balance Sheets as of September 30,
                  1996 and December 31, 1995                        F-2

                  Consolidated Statement of Operations
                  for the nine months ended
                  September 30, 1996 and the year
                  ended December 31, 1995                           F-4

                  Consolidated    Statements   of   Shareholders    Equity   and
                  Consolidated  Statements  of Cash  Flows  for the nine  months
                  ended September 30, 1996 and the year ended
                  December 31, 1995                                      F-5

                  Notes to Financial Statements                          F-8


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


<PAGE>



                             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

                                       23



<PAGE>




                             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 (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 between
                             the Registrant and Matthew
                             Schilowitz.

               10.3          Stock Sale Agreement between
                             the Registrant and Bennett
                             Brokow, Lloyd Brokow and Donald
                             Cohen incorporated herein by
                             Reference to Exhibit 10.3 to
                             Registrant's Registration
                             Statement on Form SB-2, File
                             No. 333-3501.

               10.4          Stock Purchase Agreement dated
                             March 1, 1996 between the


<PAGE>



                             Registrant and Matthew
                             Schilowitz incorporated herein
                             by Reference to Exhibit 10.4 to
                             Registrant's Registration
                             Statement on Form SB-2, File
                             No. 333-3501.



                                       24



<PAGE>

(b)        Reports on Form 8-K
           One report on Form 8-K was filed  during  the  last  quarter of the
fiscal year ended September 30, 1996.


                                                        25



<PAGE>

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

                  We have audited the accompanying consolidated balance sheet of
The Harmat Organization, Inc. and its subsidiaries as of September 30, 1996, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for the nine month period  ended  September  30,  1996,  and the year
ended  December  31,  1995.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material  respects,  the consolidated  financial
position of The Harmat  Organization,  Inc. and its subsidiaries as of September
30, 1996, and the consolidated  results of their operations and their cash flows
for the nine month period ended  September 30, 1996, and the year ended December
31, 1995, in conformity with generally accepted accounting principles.

                                                        MOORE STEPHENS, P.C.
                                                 Certified Public Accountants.
Cranford, New Jersey
December 17, 1996

                                                        F-1



<PAGE>




THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
----------------------------------------------------------------------



CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
-----------------------------------------------------------------------






Assets:
Current Assets:
   Cash and Cash Equivalents                                $3,203,669
   Marketable Securities                                        22,507
   Accounts Receivable                                          27,594
   Land and Construction Costs                                 698,185
   Prepaid Expenses                                             43,498

   Total Current Assets                                      3,995,453

Property and Equipment - Net                                  1,152,115

Other Assets:
   Goodwill - Net                                               66,346
   Investment in Partnership                                    26,447
   Land Deposits                                                85,000

   Total Other Assets                                          177,793

   Total Assets                                             $5,325,361





The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.



                                       F-2


<PAGE>








THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
---------------------------------------------------------------------------

Liabilities and Stockholder's Equity:
Current Liabilities:
   Current Portion of Mortgage Payable                         $       230,668
   Notes Payable - Related Parties                                      90,000
   Other Notes and Loans Payable                                       171,500
   Accounts Payable and Accrued Expenses                               224,790
   Customer and Security Deposits                                       11,924

   Total Current Liabilities                                           728,882

Commitment and Contingencies [9]                                         --

Other Liability:
   Mortgages Payable - Net of Current Maturities                       905,563

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]                                              (565,300)

   Total Stockholders' Equity                                        3,690,916

   Total Liabilities and Stockholders' Equity               $        5,325,361

The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.


                                       F-3



<PAGE>


THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
--------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------

                                         Nine months ended   Year ended
                                            September 30,   December 31
                                                1 9 9 6        1 9 9 5
Revenues:
   Construction Sales                    $2,496,926          $2,065,126
   Sale of Land Held for Development         52,000                --
   Rental Income                            153,944             183,398
   Management Fee Income                     25,000              75,000
   Total Revenues                         2,727,870           2,323,524

Cost of Sales and Direct Operating
Expenses                                  2,238,769           1,719,316
   Gross Profit                             489,101             604,208
Selling, General and Administrative
Expenses                                    702,290             367,498
Charge for Executive Compensation
Capitalized                                  14,750             105,000
   [Loss] Income from Operations           (227,939)            131,710
Other Income [Expense]:
   Gain on Sale of Marketable
Securities                                   47,976             245,022
   Unrealized Gain on Marketable
Securities                                    4,394               5,575
   Interest and Dividend Income               5,050              11,274
   Interest Expense                        (175,972)           (157,678)
   Total Other [Expense] Income            (118,552)            104,193
   Net [Loss] Income: Historical          $(346,491)            235,903
Charge in Lieu of Income Taxes [1]                              (94,903)
  Pro Forma Net Income [2]                                   $ 141,000
   [Loss] Per Share: Historical              $(.19)      $       ---
Pro Forma Earnings Per Share:
   Net Income                                                      $.08
   Weighted Average Number of Shares      1,806,661           1,750,000

The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.

                                       F-4



<PAGE>



THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
-----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------
               Common Stock  Additional                                  Total
                 Number of     Amount        Paid-in       Accumulated
Stockholders'
               Shares        [At Par]        Capital       [Deficit]     Equity

Balance -
January 1, 1995 1,250,000      $1,250        $24,250       $55,654      $81,154

   Net Income    --            --               --         235,903      235,903
Executive Compensation
     Capitalized --            --           105,000           --        105,000
Stockholder 
 Distributions    --           --              --        (603,987)    (603,987)
Balance - December  
31, 1995        1,250,000     1,250          129,250     (312,430)   (181,930)
March 1, 1996 - Transfer
of S Corporation 
Deficit to Additional
 Paid-in Capital   --            --        (342,437)      342,437        --
Proceeds from Private
 Placement      500,000         500          499,500         --        500,000
Net Proceeds from an Initial
Public Offering of Common Stock
 on September 13, 
  1996          862,500          862         3,928,811       --      3,929,673
Contribution of 
Capital by a
 Shareholder     --               --           23,730        --         23,730
Executive Compensation
    Capitalized      --           --          14,750         --         14,750
   Net [Loss]        --           --            --        (346,491)   (346,491)
Distribution to
 Stockholder          --          --             --        (248,816)   (248,816)
Balance - September
 30, 1996          2,612,500   $2,612        $4,253,604   ($565,300) $3,690,916
                          
The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.
                                       F-5



<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------
                                    Nine months ended             Year ended
                                   September 30,                  December 31,
                                    1 9 9 5                          1996
Operating Activities:
   Net [Loss] Income               (346,491)                   $235,903
   Adjustments to Reconcile Net
[Loss] Income to Net Cash [Used for] Provided by
Operating Activities:
     Depreciation and Amortization   27,063                      29,414
     Gain on Sale of Marketable
Securities                          (47,976)                   (245,022)
     Change in Unrealized [Gain]
Loss on Investments                  (4,394)                      8,228
     Loss on Partnership Investment   3,280                       1,000
Executive Compensation Capitalized   14,750                     105,000
   Changes in Assets and Liabilities:
     Contract Receivables           (12,830)                     153,706
     Accrued Interest Receivable       --                        (16,665)
     Purchase of Marketable
Securities                          (242,148)                  (2,905,276)
Sales of Marketable Securities       456,105                    3,402,329
     Costs and Profits in Excess of Billings on
 Uncompleted Contacts                  --                        345,123
     Billing in Excess of Costs and Profits on
Uncompleted Contracts                  --                       (32,478)
     Prepaid Expenses                (42,323)                      1,080
Accounts Payable and Accrued Expenses  (421,985)                 135,234
    Customer Deposits               (85,576)                     97,500
     Total Adjustments              (356,034)                  1,079,173
Net Cash - Operating Activities - 
 Forward                            (702,525)                  1,315,076
Investing Activities:
 Acquisition of Quick Storage         --                        (150,000)
   Less: Cash of Quick
Storage at Acquisition                --                           4,737
   Acquisition of Property
and Equipment                        (48,079)                    (19,825)
   Deposit on Land                   (10,000)                    (75,000)
   Land and Construction Costs       193,031                    (406,070)
   Advances from/to Affiliates
and Related Parties                    --                         92,152
   Land Held for Development:          72,298                            --
   Net Cash -
Investing Activities - Forward       $207,250                  $(554,006)

The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.

                                      F-6



<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
----------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------
                                          Nine months ended      Year ended
                                          September 30,          December 31,
                                             1 9 9 6             1 9 9 5
   Net Cash - Operating Activities -
   Forwarded                            ($702,525)                $1,315,076
   Net Cash - Investing Activities -
   Forwarded                              207,250                   (554,006)
Financing Activities:
   Contribution by Shareholder             23,730                    --
   Repayment of Notes Payable -
   Related Party                         (125,000)                   --
   Net Proceeds of Sale of
   Common Stock                         3,929,673
   Proceeds from New Loans                --                          309,500
   Proceeds of Mortgage Payable           500,000                       --
   Repayments of Mortgages Payable       (624,619)                    (14,764)
   [Repayments] Proceeds of Notes 
     Payable - Stockholder               (277,000)                     150,000
   Proceeds of Notes Payable - Other       38,700                        --
   Repayments of Notes Payable - Other    (6,560)                      (8,120)
   [Repayment] of Due to Stockholder        --                       (608,463)
   Distribution to Stockholders          (65,419)                    (587,322)
   Proceeds of Private Placement         500,000                        --
   Repayment to Bank                    (240,000)                       --
   Deferred Offering Costs                30,000                      (30,000)
   Net Cash - Financing Activities      3,683,505                     (789,169)
  Net Increase [Decrease] in Cash
   and Cash Equivalents                3,188,230                     (28,099)
Cash and Cash Equivalents - Beginning 
 of Periods                               15,439                       43,538
   Cash and Cash Equivalents - End 
   of Periods                        $ 3,203,669                      $15,439
Supplemental Disclosures of Cash Flow Information:
   Cash paid during the periods for:
     Interest                       $   180,319                     $  50,666
     Income Taxes                   $    14,567                     $    --

Supplemental Disclosures on Non-Cash Investing and Financing Activities:
   During the nine moths ended September 30, 1996, the Company distributed
marketable securities with a fair value of $186,400 to its then sole stockholder
as a distribution.

   On August 3, 1996, the major stockholder of the Company contributed

                                       F-7



<PAGE>




500,000 shares of the Company's common  stock to the Company [See Note
8A].


The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.


                                      F-7(continued)



<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------
[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, 1996 and December 31, 1995  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

Harmat Companies: [Subsidiaries]

Harmat Homes, Inc. ["Harmat"]               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
                                 F-8

<PAGE>

                                            of Long Island, New York.

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

Harmat Organization, Inc. - New York         Limited Partner in real estate 
                                             partnership in the
                                             eastern portion of Long Island,
                                             New York.

                                      
                                F-8(Continued)


<PAGE>




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

The construction industry poses certain inherent risks to the Company, such as a
shortage  of skilled  labor.  In  addition,  certain  other  problems  may arise
resulting in construction  delays such as weather  delays,  cost of supplies and
late  deliveries  and/or  cost  overruns  that the  Company  may have to absorb.
Furthermore,  the Company may incur  unexpected  costs with  respect to warranty
service on completed projects even though it carries warranty insurance to cover
such  contingencies.  Such construction risks can affect the Company's cash flow
and  profits.  To date,  the  Company has not been  materially  affected by such
construction  risks.  The  Company  faces  competition  from a  number  of local
builders,  many of which can offer either the same or lower  building costs than
the Company.



                                      F-8(continued)



<PAGE>




THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
-----------------------------------------------------------------------
[1] Principles of Consolidation and Business [Continued]

The principal stockholder of the Company is a general partner in the partnership
in which the  Harmat  Organization,  Inc.  - New York has a limited  partnership
interest.

The Plan for  Incentive  Compensation  of Matthew  Schilowitz  [the  "Schilowitz
Incentive Plan"] who is the principal, was adopted by the Board of Directors and
approved by the Company's  sole  stockholder on March 1, 1996 and amended August
3, 1996.  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. 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                      Shares to be
                        Taxes                              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 would result in substantial compensation expense to the Company in
future years.

[2] Summary of Significant Accounting Policies

Accounting  Period - Effective  September  30,  1996,  the Company  changed to a
fiscal year ending on  September  30th.  Prior to 1996,  the Company  utilized a
calender  year  end.  The  accompanying  financial  statements  include  audited
financial  statements  for  the  nine  month  period  transaction  period  ended
September 30, 1996 and the previously

                                     F-9
<PAGE>



reported fiscal year ended December 31, 1995.

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 $1,000,000 at September 30, 1996.

Concentration of Credit Risk - Financial  instruments which potentially  subject
the Company to  concentrations  of credit risk are cash and cash equivalents and
accounts receivable arising from the normal business
activities.  The  Company  routinely  assesses  the  financial  strength  of its
customers and based upon factors  surrounding  the credit risk of its customers,
establishes  an allowance  for  uncollectible  accounts,  and as a  consequence,
believes  that  its  accounts   receivable  credit  risk  exposure  beyond  such
allowances  is  limited.  Deposits  are usually  required on house  construction
contracts.  The Company  places its cash and cash  equivalents  with high credit
quality  financial  institutions.  The amount on deposit in any one  institution
that exceeds federally insured limits is subject to credit risk. Such amount was
approximately  $2,900,000  at  September  30,  1996.  The  Company  believes  no
significant  concentration  of credit  risk  exists  with  respect to these cash
equivalents.



                                      F-9(continued)



<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
--------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]

Economic Dependency - There were five and six construction  contracts which were
deemed major customers and accounted for approximately 99% of total construction
sales for the nine months ended  September 30, 1996 and the year ended  December
31,  1995.  For the nine  months  ended  September  30,  1996,  these  contracts
represented  25%,  20%,  19%,  18% and 17% of total  sales.  For the year  ended
December 31, 1995,  five contracts  represented  16% each of total sales and one
contract  represented  19% of total  sales.  At September  30,  1996,  there was
$25,000  due  under  one  contract.  Most  of  the  Company's  business  is of a
nonrecurring  nature.  The Company must continually market its homes in order to
attract new  purchasers.  Unless the Company is  successful  in  attracting  new
purchasers for its homes, a lack of new purchasers  will have a severe  negative
impact to the Company in the near term.

Marketable  Securities - The Company  accounts for its  investments  pursuant to
Statement of Financial  Accounting  Standards ["SFAS"] No. 115,  "Accounting for
Certain  Investments in Debt and Equity  Securities." SFAS No. 115 addresses the
accounting and reporting for investments in equity  securities that have readily
determinable  fair  values and for all  investments  in debt  securities.  Those
investments  are  to  be  classified   into  the  following  three   categories:
held-to-maturity  debt securities;  trading securities;  and  available-for-sale
securities.  In accordance with SFAS No. 115, prior years' financial  statements
are not to be  restated to reflect  the change in  adopting  the new  accounting
method.

Management determines the appropriate  classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at  each  balance  sheet  date.  At  September  30,  1996,  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
                              
                               F-10

<PAGE>


marketable securities [See Note 3].

Property and Equipment and  Depreciation  - Property and equipment are stated at
cost.  Depreciation  is computed over the estimated  useful lives of the assets,
using the  straight-line  method and for building and building  improvements and
accelerated methods for furniture and equipment, as follows:

Building and Building Improvements                                 40 Years
Furniture and Equipment                                        5 to 7 Years

Earnings  [Loss] Per Share - Earnings  [Loss] per share are computed by dividing
the net income  [loss]  for the year by the  weighted  average  number of common
shares  outstanding.  Stock options and warrants are assumed converted to common
stock, when dilutive.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Land Development Costs - Costs that clearly relate to land development  projects
are  capitalized.  Costs are  allocated  to project  components  by the specific
identification  method  whenever  possible.  Otherwise,  acquisition  costs  are
allocated based on their relative fair value before development, and development
costs are allocated  based on their  relative  sales value.  Interest  costs are
capitalized while development is in progress.



                                      F-10(continued)



<PAGE>


THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
-------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]

Revenue Recognition

-      Harmat Holding and Harmat Homes - Harmat Holding and Harmat Homes
       recognizes revenue from the acquisition, development and sale of
       land and construction and sale of houses on such land.  Pursuant
       to the terms of such contracts and Statement of Financial
       Accounting Standards ["SFAS"] No. 66, "Accounting for Sales of
       Real Estate," the Company uses the deposit method of accounting.
       The method provides that all construction costs be recorded as
       incurred and monies received from the purchases recorded as
       deposits until the purchase contracts close when all revenue costs
       and profits are recognized.

       Harmat  Holding  classifies  all land  and  construction  costs  that are
       expected to be completed within one year as a current asset. At September
       30, 1996, such land and  construction  costs totaled  $698,185.  Customer
       deposits  received on such  contracts  totaled  $11,924 at September  30,
       1996.

-      Northside Woods and Harmat Capital - Rental income is recognized as it is
       earned pursuant to the terms of each lease on a straight line basis.  All
       leases have an initial or remaining term of one year or less.

Income Taxes - 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 net deferred tax
liability as of September 30,1996 are as follows:

Deferred Tax Liabilities:
   Difference between book and tax basis of property, plant and
equipment                                                         $(36,500)

                                       F-11
<PAGE>



Deferred Tax Assets:
   Federal and State Net Operating Loss Carryforwards            77,800
   Less: Valuation Allowance                                    (41,300)

   Net Deferred Tax Liability                               $      --

The  provision  for income  taxes  arises  from the amount  computed by applying
statutory rates for the reasons summarized below:

Provision Based on Statutory                                           34   %
Benefit of Graduated Rates                                            (19)  %
State Taxes Net of Federal Benefit                                      6   %
Benefit of NOL Carryforward                                           (21)  %

   Total                                                              --   %

The Company will have net operating loss carryforwards of approximately $370,000
available to reduce  future  taxes.  These  carryforward  losses expire in 2011.
Pursuant to Section  382 of the  Internal  Revenue  Code  regarding  substantial
changes in company ownership, utilization of these losses may be limited.


                                      F-11(continued)



<PAGE>



THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
-------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]

Income Taxes  [Continued]  - For the year ended  December 31, 1995,  each of the
subsidiaries  had elected  S-corporation  status under the Internal Revenue Code
and similar state statutes and, therefore, did not incur federal or state income
taxes except for a New York State  equalization tax on  S-corporation  earnings.
Taxes are passed through to the individual  shareholder for S-corporations.  Pro
forma net income and earnings per share are presented as if the  companies  were
C-corporations.  On March 1, 1996, each of the  S-corporations  terminated their
S-corporation status and became C-corporations.

Goodwill - The cost of the newly acquired  subsidiary,  Quick Storage, in excess
of the fair  value of the net  assets of such  subsidiary  has been  charged  to
goodwill.  The Company has decided to amortize its goodwill  over a period of up
to ten  years  under  the  straight-line  method.  Accumulated  amortization  at
September 30, 1996 was $14,073.  The Company's policy is to evaluate the periods
of goodwill  amortization  to determine  whether later events and  circumstances
warrant revised  estimates of useful lives.  The Company also evaluates  whether
the  carrying  value of goodwill has become  impaired by comparing  the carrying
value of goodwill  to the value of  projected  undiscounted  cash flows from the
acquired assets of Quick Storage,  Inc.  Impairment is recognized if the Company
value of  goodwill  is less  than the  projected  undiscounted  cash  flow  from
acquired assets or business.

Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize cost in
accordance with Accounting Principal Board Opinion No. 25, "Accounting
for Stock Issued to Employees."

[3] Marketable Securities

Marketable  securities  consist of investments in equity and debt  securities at
fair value. The cost of such securities is $31,592.
                            
                         F-12

<PAGE>



The  change in the  unrealized  gain  account  for the nine month  period  ended
September  30,  1996 and for the year  ended  December  31,  1995 was $4,394 and
$5,575, respectively.

[4] Property and Equipment

Property and equipment consist of the following at September 30, 1996:

Land                                                              $   450,496
Building and Building Improvements                                    821,566
                             
Furniture and Office Equipment                                         44,566

Total                                                               1,316,628
Less:  Accumulated Depreciation                                       164,513

   Property and Equipment - Net                                 $   1,152,115

Depreciation  expense for the nine months ended  September 30, 1996, and for the
year ended December 31, 1995 totaled $21,032 and $21,580, respectively.


                                      F-12(continued)



<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
-------------------------------------------------------------------
[5] Notes and Mortgages Payable

[A] Mortgages - At September  30, 1996,  the  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 having a
cost of approximately $500,000.  The proceeds of the mortgages
were used to repay previously existing mortgages secured by the
rental properties.                                                   $ 499,496

Mortgage payable, dated November 30, 1992, in the original
principal amount of $400,000, bearing interest at 4% plus 
contingent interest participation payments upon the sale of
subdivided lots.  This mortgage is secured by property with
a cost of approximately $450,000 and the personal guaranty of 
the principal stockholder of the Company.  This mortgage 
requires semi-annual payments of interest only commencing 
June 30, 1993 through October 30, 1997 when the
mortgage matures and contingent interest participation payments 
upon the sale of subdivided lots becomes due.  For the nine
months ended September 30, 1996, three subdivided lots were
sold under this participation agreement. Pursuant to such sales,
mortgage repayments totaling $120,000 and interest participation
payments totaling $54,000 were made.                                   280,000

                          F-13
<PAGE>



Mortgage payable, dated March 11, 1994, in the original
amount of $215,400, with monthly interest at prime plus 3%
until December 15, 1994 when all unpaid principal and 
interest is due.  This loan is past due, however, the Company
and the bank have reached an agreement to extend this obligation.
The mortgage is secured by land and building having a cost 
of  approximately $415,000.                                            215,400

Mortgage  payable  dated  January 17,  1991,  and  amended 
June 14, 1994 in the original  amount  of  $180,000
payable  in  monthly  installments  of $1,975
including interest through February 1, 2006. Interest is
payable at an adjustable interest rate [9.875% at September 30, 
1996] which is determined annually.  The mortgage is secured
by land and building having a cost of approximately $200,000.          141,335

   Total                                                             1,136,231
   Less: Current Portion                                               230,668

   Total Mortgages Payable                                           $ 905,563

                                      F-13(continued)



<PAGE>




THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
-------------------------------------------------------------------------
[5] Notes and Mortgages Payable [Continued]

[B] Related Party Notes Payable

Notes payable to two related parties due on demand for 
$70,000 and $20,000,  bearing interest at 8% and 6% per
annum, respectively.                                                  $90,000

In September 1996, the Company repaid a related party 
note payable of $125,000.

[C] Other Notes and Loans Payable

In 1994 and 1995,  there was a loan to an  individual 
with  interest at 12% per annum. This loan was due 
February 1, 1996 and has been extended to January 31, 1997.
Repayment of this loan is guaranteed by the principal 
stockholder of the Company.                                          $  100,000

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 $8,120.                 32,800

Notes payable dated September 24, 1996, issued pursuant to the
purchase and financing of a commercial insurance policy.  
Such note is payable in monthly installments of $4,048 including
principal and interest calculated at 9.95% per annum through
July 9, 1997.                                                            38,700

   Total                                                         $      171,500


                                  F-14
<PAGE>



[D] Other Notes  Repayment - A note  payable to a bank
 in the amount of $240,000 and notes  payable to 
 shareholders  totaling  $277,000 were repaid in September 
 1996.

Annual maturities of mortgages payable are as follows:

 For the Period Ended
     September 30,
       1997                                                     $     230,668
       1998                                                           297,371
       1999                                                            19,133
       2000                                                            21,076
       2001                                                            23,192
       Thereafter                                                     544,791

       Total Notes and Mortgages Payable                          $ 1,136,231

                                      F-14(continued)



<PAGE>




THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
---------------------------------------------------------------
[6] 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.
The following table summarizes financial instruments by individual balance sheet
accounts as of September 30, 1996:

                                                                   Carrying
                                                     Amount         Fair Value

Debt Maturing Within One Year                 $    492,168      $   492,168
Long-Term Debt                                     905,563          905,563

   Totals                                     $  1,397,731      $  1,397,731

For certain financial  instruments,  including cash and cash equivalents,  trade
receivables and payables, 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.

[7]  Private Placement

In February of 1996, Harmat Organization,  Inc. [Delaware] offered 500,000 units
at $1.00 per unit as part of a private placement transaction.  The units consist
of one share of common  stock,  three Series A warrants  entitling the holder to
purchase  three  shares of common stock for $6.00 for a period of four years and
one Series B warrant  entitling the holder to purchase one share of common stock
for $9.00 for a period of four years. The shares of common stock and the

                                    F-15
<PAGE>



Series A warrants were  registered as part of the initial  public  offering.  On
February 22, 1996,  the Company  received  proceeds of $500,000 from the private
placement.

The following is a schedule of warrants:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                            FMV at        No. of
                                                         No. of             Exercise        Date of      Warrants
   Date of Grant               Type                  Warrants Issued          Price        of Grant      Exercised

February 1996                  Series A                   1,500,000           $  6.00      $ 5.75          --
February 1996                  Series B                     500,000           $  9.00      $ 5.75          --

     Total                                                2,000,000
</TABLE>

[8] Common Stock

[A]  Capital   Contribution  -  On  August  3,  1996,  the  Company's  principal
stockholder  contributed  500,000  shares of the  Company's  common stock to the
Company in lieu of an escrow of  750,000 of his shares  [See Note 1]. The escrow
was part of the "Arnaud" agreement [See Note 1]. The 500,000  contributed shares
were  canceled.  The  contribution  has been  reflected  retroactively  in these
financial statements as a recapitalization.

[B] Initial  Public  Offering - In September  1996,  the Company  completed  the
initial public  offering of 862,500 units  [including the 112,500  underwriter's
over-allotment shares] at 5.75 per unit resulting in net proceeds to the Company
of $3,929,673.

                                      F-15 (continued)



<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
-----------------------------------------------------------------------


[9] Commitments and Contingencies

[A] Land Contract - Pursuant to an agreement dated December 1995, the
Harmat Organization, Inc. has agreed to purchase three parcels of
undeveloped land located in Westhampton, New York for $1,247,000.  The
Harmat Organization, Inc. has deposited $75,000 pursuant to the terms
of such contract.  This contract is subject to the Company receiving
a commitment for the financing of land acquisitions.

[B] Legal  Proceedings - The Company is involved in legal  proceedings which are
considered routine and incidental to its business. The Company believes that the
legal proceedings which are presently pending have no potential  liability which
would have an adverse material effect on the financial condition,  operations or
cash flows of the Company.  Due the inherent  uncertainty  of the legal process,
however, this assessment may be subject to change in the near term.

[C] Commitments and Stock Option Plan - In 1996, the Board of Directors  adopted
a stock option plan  providing  for the granting of up to 400,000  shares of the
Company's common stock. This Plan excludes the Company's chief executive officer
and principal  shareholder.  No shares have been granted  pursuant to this stock
option plan.

[D]  Employment  Agreement - On April 1, 1996,  the Company  entered into a five
year employment agreement with the President and Chief Executive Officer, who is
also the  Company's  principal  shareholder  for a base salary of $105,000  with
increments  of $50,000  each year  thereafter.  In  addition,  the Officer  will
receive a bonus of 5% of pre tax  annual  earnings  and is granted  warrants  to
purchase up to an  aggregate of 500,000  shares of the Company  common stock for
ten years  exercisable at $5.75 per share with rights vesting upon attainment of
certain earnings levels [See Note 1].

[10] Segment Information

The Company's operations are classified into two industry segments:
construction and rental.  The following is a summary of segment
 
                                     F-16

<PAGE>

information for 1996 and 1995:

                              Construction          Rental        Consolidated
Revenue from Non-Affiliates:
1996                     $      2,573,836  $       153,944  $       2,727,780
1995                     $      2,140,126  $       183,398  $       2,323,524
[Loss] Income from Operations:
1996                   $       (251,043) $        23,104  $        (227,939)
1995                   $         69,460  $        62,250  $         131,710
Identifiable Assets:
1996                  $      3,932,763  $     1,392,598  $       5,325,361
1995                  $      1,064,945  $     1,629,610  $       2,694,555
Depreciation and Amortization:
1996                  $          4,658  $        22,405  $          27,063
1995                  $          1,193  $        28,221  $          29,414

                                    F-16(continued)

<PAGE>

THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------



[10] Segment Information [Continued]

                             Construction          Rental        Consolidated

Capital Expenditures:

1996                    $         16,457  $        31,622  $          48,079

1995                    $         14,594  $         5,231  $          19,825

[11] New Authoritative Pronouncement

The FASB has issued SFAS No. 123, "Accounting for Stock-Based  Compensation," in
October  1995.  SFAS No. 123 uses a fair value based method of  recognition  for
stock options and similar equity  instruments  issued to employees as contrasted
to the  intrinsic  value based method of  accounting  prescribed  by  Accounting
Principles  Board  ["APB"]  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees." The optional accounting recognition requirements of SFAS No. 123 are
effective  for  transactions  entered  into in fiscal  years  that  begin  after
December  15,  1995.  The Company  will  continue to apply APB Opinion No. 25 in
recognizing  its stock based employee  arrangements as permitted under generally
accepted accounting principles.  The disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company  adopted the disclosure  requirements on January 1, 1996. SFAS
123  also  applies  to  transactions  in  which  an  entity  issues  its  equity
instruments to acquire goods or services from non-employees.  Those transactions
must be accounting for based on the fair value of the consideration  received or
the fair value of the  equity  instrument  issued,  whichever  is more  reliably
measurable.  This requirement is effective for  transactions  entered into after
December 15, 1995.




                                 F-17
 

<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 13, 1997


                                  The Harmat Organization, Inc.

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


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

Name                               Titles                              Date

/s/ Matthew C. Schilowitz       President and Chairman     January 13, 1997
Matthew C. Schilowitz          of the Board of Directors
                            (Chief Executive Officer)

/s/ Seymour G. Siegel      Treasurer and a Director           January 13, 1997
Seymour G. Siegel           (Chief financial and
                             Accounting officer)

/s/ Scott Prizer        Secretary and a Director         January 13, 1997
Scott Prizer

/s/ David W. Sass       Director                         January 13, 1997
David W. Sass

/s/ David S. Eiten      Director                        January 13, 1997
David S. Eiten






<PAGE>



                                             MCLAUGHLIN & STERN, LLP
                                         260 Madison Avenue, 18th Floor
                                            New York, New York 10016
                                                  (212)448-1100
                                               Fax:(212) 448-0066


                                                    January 13, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

    Re: The Harmat Organization, Inc.

Gentlemen:

           We herewith file with you, through Edgar,  Form 10KSB,  with Exhibits
Incorporated be Reference
for The Harmat Organization, Inc.

           The wire  transfer of funds to cover the filing fee was  completed as
of December 30, 1996. The reference Number is 0082.

          The SEC Edgar filing numbers for The Harmat Organization, Inc., are
as follows:

    CIK:  0001013690
    Password: u6uj*atn
    CIK Confirmation Code: sbqp6bm$
    PMAC: qrkbw@f6
                                                               
                                             Very truly yours, 

                                             David W. Sass