SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the Quarterly Period Ended February 28, 1997 Commission File Number 33-67536-A FEDERAL AFFORDABLE HOUSING CORPORATION (Exact Name of Small Business Issuer as specified in its charter) Minnesota 59-3169033 (State or other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 1616 Gulf-to-Bay Boulevard Clearwater, Florida 34615 (813) 446-7981 (Address of Principal Executive Offices, including Zip Code, and telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No x As of February 28, 1997, there were 164,500 shares of Common Stock outstanding and 74,500 Investor's Stock Purchase Warrants outstanding. Transitional Small Business Disclosure Format: Yes x No INFORMATION REQUIRED IN QUARTERLY REPORT OF TRANSITIONAL SMALL BUSINESS ISSUERS. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The information required by Item 310(b) of Regulation S-B is attached. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION [The Registrant is a transitional small business issuer which relied upon Alternative 2 under "Information Required in Annual Report of Transitional Small Business Issuers" in its most recent 10-KSB, and accordingly chooses here to update the response to Item 6(a)(3)(i) to Model B of Form 1-A.] The Company completed its public offering on June 6, 1995, and received net proceeds of $359,336. The Company's plan of operation for the twelve month period ended May 31, 1997 calls for continued development of infrastructure scaled according to the net proceeds of its offering and aggressive marketing. Management believes that the balance remaining of its net proceeds of $359,336 from its offering is sufficient to carry out its plan of operation for the twelve months through May, 1997, without revenues from operations. The Company anticipates that its major expense during the twelve month period ending May 31, 1997 will be infrastructure development. Upon completion of infrastructure development, the Company anticipates that its only expenses will be executive compensation, real estate taxes, general corporate purposes (including marketing and sales) and perhaps model home construction. In addition, the Company plans to limit additional property acquisitions and infrastructure development until purchase agreements have been executed for approximately half of the developed lots. The Company believes that its plan of scaled infrastructure development and limitation on acquisition and development will enable it to operate with the net proceeds of its public offering, without revenues from operations for the twelve month period ending May 31, 1997. The Company anticipates that it will hire additional commissioned sales persons prior to June, 1997. However, such sales persons will be paid only on a straight commission basis and will be entitled to payment only upon revenue generation. Accordingly, the Company does not expect that hiring such commissioned sales persons will have a significant impact on the Company's ability to operate without revenues from operations. The Company does not intend to conduct any product research or development or to purchase or sell any plant or equipment prior to June , 1997. PART II ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITIES HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See the Index to Exhibits, below. (b) Reports on Form 8-K. Not applicable. INDEX TO EXHIBITS. All of the items below are incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 33-67536-A, effective March 10, 1995, except for Item 27.1, which is included with this filing. Number Description 4.1 Form of Common Stock Certificate (Exhibit 4.A. of Form SB-2) 4.2 Form of Investor's Stock Purchase Warrant Certificate (Exhibit 4.B. of Form SB-2) 10.1 Option Agreement between Registrant, RemProp, Inc., and Key Management, Inc. (Exhibit 10.A. of Form SB-2) 10.2 First Amendment to Option Agreement (Exhibit 10.B. of Form SB-2) 10.3 Second Amendment to Option Agreement (Exhibit 10.C. of Form SB-2) 10.4 Lease Agreement between Registrant and RemProp, Inc. (Exhibit 10.D. of Form SB-2) 27.1 Financial Data Schedule * 99.1 Registrant's Registration Statement on Form SB-2, as amended. 99.2 Registrant's Final Prospectus, dated March 10, 1995, filed under Rule 424(b) of the 1933 Act. * Included with this report. All other items are incoporated by reference to the Registrant's Form SB-2, File No. 33-67536-A, effective March 10, 1995. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FEDERAL AFFORDABLE HOUSING CORPORATION Date: May 24, 1997 By: /s/ Richard E. Metz Richard E. Metz President, CEO (Principal Executive Officer) By: /s/ Wayne A. Weyrauch Wayne A. Weyrauch Vice President of Finance, CFO (Principal Financial Officer, Principal Accounting Officer) J. MICHAEL DAILY & ASSOCIATES 1822 DREW STREET, SUITE 1 CLEARWATER, FLORIDA 34625 May 9, 1997 FEDERAL AFFORDABLE HOUSING P.O. BOX 6163 CLEARWATER, FL 34618 We have compiled the accompanying balance sheet of FEDERAL AFFORDABLE HOUSING as of February 28, 1997, and the related statement of revenues and expenses for the three months and nine months then ended, and the comparative statement of income for the three months and nine months ended February 28, 1997 and 1996, and the statement of cash flows for the three months and nine months then ended in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them. Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles. If the disclosures were included in the financial statements, they might influence the user's conclusions about the Company's financial position, results of operations and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters. J. MICHAEL DAILY, CPA FEDERAL AFFORDABLE HOUSING CORPORATION BALANCE SHEET FEBRUARY 28, 1997 ASSETS CURRENT ASSETS CASH IN BANK - SUNTRUST $ 7,567.75 CD - SUN BANK 300,000.00 DUE FROM SUNCOAST FOOD 67,271.38 LAND HELD FOR DEVELOPMENT 58,512.00 COSTS- 35 LOTS 175,915.61 HOUSE CONSTRUCTION IN PROCESS 113,785.49 DADE CITY CONSTRUCTION IN PROGRESS 1,907.20 ------------ TOTAL CURRENT ASSETS $ 724,959.43 OTHER ASSETS REGISTRATION STATEMENT COSTS 55,672.64 DEPOSIT - UTILITY 423.53 ------------- TOTAL OTHER ASSETS 56,096.17 ------------- TOTAL ASSETS $ 781,055.60 ============= SEE ACCOUNTANT'S COMPILATION REPORT J. MICHAEL DAILY & ASSOCIATES CLEARWATER, FL FEDERAL AFFORDABLE HOUSING CORPORATION BALANCE SHEET FEBRUARY 28, 1997 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES DUE TO REMPROP $ 29,719.70 NOTE PAYABLE - R. METZ 8,931.00 COMMERCIAL LOAN-SUNTRUST 266,074.00 CONST. LOAN, SUNTRUST #21 47,700.00 CONST. LOAN, SUNTRUST #22 15,906.00 ------------- TOTAL CURRENT LIABILITIES $ 368,330.70 ------------- TOTAL LIABILITIES 368,330.70 EQUITY COMMON STOCK 486,887.00 RETAINED EARNINGS (48,544.86) CURRENT/YTD PROFIT OR LOSS (25,617.24) ------------- TOTAL EQUITY 412,724.90 ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 781,055.60 ============= SEE ACCOUNTANT'S COMPILATION REPORT J. MICHAEL DAILY & ASSOCIATES CLEARWATER, FL FEDERAL AFFORDABLE HOUSING CORPORATION STATEMENT OF REVENUES AND EXPENSES FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1997 CURRENT PERIOD YEAR TO DATE AMOUNT PERCENT AMOUNT PERCENT INCOME ------ ------ --------- ------ TOTAL INCOME $ 0.00 0.00 $ 0.00 0.00 ----- ------ ------ ------ EXPENSES AMORTIZATION OF ORG. EXPENSE 4,282.50 0.00 12,847.50 0.00 BANK CHARGES 125.43 0.00 318.11 0.00 GAS AND OIL 507.31 0.00 547.30 0.00 INTEREST EXPENSE 4,423.95 0.00 11,706.04 0.00 LEGAL AND ACCOUNTING 2,070.00 0.00 7,915.86 0.00 RENT 0.00 0.00 1,070.00 0.00 TELEPHONE 70.54 0.00 70.54 0.00 UTILITIES 398.74 0.00 1,882.84 0.00 ------- ------ ------- ------ TOTAL EXPENSES 11,878.47 0.00 36,358.19 0.00 -------- ------ --------- ------ INCOME FROM OPERATIONS (11,878.47) (0.00) (36,358.19) (0.00) ----------- ------ ---------- ------ OTHER INCOME INTEREST INCOME - CD 3,549.47 0.00 10,740.95 0.00 ---------- ------ ---------- ------ TOTAL OTHER INCOME 3,549.47 0.00 10,740.95 0.00 ----------- ------ ---------- ------ NET INCOME $ (8,329.00) (0.00) $(25,617.24) (0.00) =========== ===== =========== ===== SEE ACCOUNTANT'S COMPILATION REPORT J. MICHAEL DAILY & ASSOCIATES CLEARWATER, FL FEDERAL AFFORDABLE HOUSING CORPORATION COMPARATIVE STATEMENT OF REVENUES AND EXPENSES FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1996 1997 1996 1997 1996 CURRENT PERIOD CURRENT PERIOD YEAR TO DATE YEAR TO DATE AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT INCOME TOTAL INCOME 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ----- ------ ------ ------ ------ ------ ------- ------ ADVERTISING 0.00 0.00 0.00 0.00 0.00 0.00 66.81 0.00 AMORTIZATION OF ORG. EXPENSE 4,282.50 0.00 0.00 0.00 12,847.50 0.00 0.00 0.00 BANK CHARGES 125.43 0.00 18.97 0.00 318.11 0.00 137.52 0.00 GAS AND OIL 507.31 0.00 0.00 0.00 547.30 0.00 0.00 0.00 INTEREST EXPENSE 4,423.95 0.00 1,096.78 0.00 11,706.04 0.00 1,096.78 0.00 LEGAL AND ACCOUNTING2,070.00 0.00 1,200.00 0.00 7,915.86 0.00 1,700.00 0.00 MANAGEMENT FEES 0.00 0.00 7,500.00 0.00 0.00 0.00 24,000.00 0.00 OFFICE EXPENSE 0.00 0.00 211.32 0.00 0.00 0.00 715.67 0.00 RENT 0.00 0.00 2,105.00 0.00 1,070.00 0.00 5,315.00 0.00 TAXES AND LICENSES 0.00 0.00 0.00 0.00 0.00 0.00 7,029.33 0.00 TELEPHONE 70.54 0.00 386.42 0.00 70.54 0.00 951.29 0.00 UTILITIES 398.74 0.00 264.30 0.00 1,882.84 0.00 1,396.01 0.00 -------- ------ -------- ----- -------- ----- -------- ----- TOTAL EXPENSES 11,878.47 0.00 12,782.79 0.00 36,358.19 0.00 42,408.41 0.00 --------- ----- --------- ----- ---------- ---- --------- ---- INCOME FROM OPERATIONS(11,878.47)(0.00)(12,782.79) (0.00)(36,358.19)(0.00)(42,408.41)(0.00) ---------- ------ ------- ------ -------- ------ --------- ------ OTHER INCOME INTEREST INCOME - CD 3,549.47 0.00 3,857.89 0.00 10,740.95 0.00 10,284.61 0.00 INTEREST INCOME - ESCROW 0.00 0.00 0.00 0.00 0.00 0.00 1,691.46 0.00 ESCROW FEES 0.00 0.00 0.00 0.00 0.00 0.00 (813.76)(0.00) ------ ------ -------- ------ ------- ------ -------- ----- TOTAL OTHER INCOME 3,549.47 0.00 3,857.89 0.00 10,740.95 0.00 11,162.31 0.00 --------- ----- --------- ------ ---------- ----- -------- ----- NET INCOME $(8,329.00)(0.00)$(8,924.90)( 0.00 )$(25,617.24)(0.00)$(31,246.10)(0.00) ========== ====== ======= ====== ========= ====== ======= ====== SEE ACCOUNTANT'S COMPILATION REPORT J. MICHAEL DAILY & ASSOCIATES CLEARWATER, FL FEDERAL AFFORDABLE HOUSING CORPORATION STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED FEBRUARY 28, 1997 CURRENT PERIOD YEAR TO DATE ______________ ____________ CASH FLOWS FROM OPERATING ACTIVITIES ___________________________________ NET INCOME (LOSS) $ (8,329.00) $ (25,617.24) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED: AMORTIZATION - DEBITS TO INCOME 4,282.50 12,847.50 DECREASE (INCREASE) IN OPERATING ASSETS: ACCOUNTS RECEIVABLE (12,847.18) (31,422.63) INVENTORY (68,144.84) (122,816.41) OTHER OPERATIONS-RELATED ASSETS 0.00 31.47 __________ _____________ TOTAL ADJUSTMENTS (76,709.52) (141,360.07) _____________ _____________ NET CASH FLOW FROM OPERATIONS (85,038.52) (166,977.31) CASH FLOWS FROM FINANCING ACTIVITIES ____________________________________ INFLOWS: INCREASES IN MISC PAYABLE 29,719.70 29,719.70 INCREASES IN SHORT-TERM NOTES PAYABLE 63,606.00 143,606.00 _____________ _____________ NET CASH FROM FINANCING ACTIVITIES 93,325.70 173,325.70 _____________ _____________ NET INCREASE (DECR) IN CASH & EQUIVALENTS 8,287.18 6,348.39 BEGINNING CASH AND EQUIVALENTS (719.43) 1,219.36 _____________ _____________ ENDING CASH & CASH EQUIVALENTS $ 7,567.75 $ 7,567.75 ============= ============= DISCLOSURE OF ACCOUNTING POLICY: ________________________________ FOR PURPOSES OF THE STATEMENT OF CASH FLOWS, THE COMPANY CONSIDERS ALL HIGHLY LIQUID DEBT INSTRUMENTS PURCHASED WITH A MATURITY OF THREE MONTHS OR LESS TO BE CASH EQUIVALENTS. SEE ACCOUNTANT'S COMPILATION REPORT J. MICHAEL DAILY & ASSOCIATES CLEARWATER, FL EXHIBIT 27.1