U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended November 30, 1998 FEDERAL AFFORDABLE HOUSING CORPORATION -------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) Minnesota 59-3169033 --------- ---------- (state or other Jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1616 Gulf-to-Bay Boulevard Clearwater, Florida 34615 - ---------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (727) 446-7981 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 January 28, 1999, there were 493,500 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 12 month period ended May 31, 1999 calls for continued development of infrastructure and aggressive marketing. Management believes that the Company has sufficient capital to carry out its plan of operation for the twelve months through May 31, 1999. In the year ended May 31, 1998, the Company generated $481,400 in revenues from its operations which provided the company additional working capital for the continued development of its business. 1 The Company anticipates that its major expense during the twelve month period ending May 31, 1999 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 does not intend to conduct any product research or development or to purchase or sell any plant or equipment prior to June, 1998. PART II. ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES On December 23, 1997, the shareholders voted in favor of a three-for-one forward stock split and to increase the authorized stock of the Company to twenty million (20,000,000) shares. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS A special meeting of shareholders was held on December 23, 1997 to consider a number of initiatives. The shareholders voted in favor of a three-for-one forward stock split; to increase the authorized stock of the Company to twenty million (20,000,000) shares; and to permit the officers and directors to explore a possible merger. ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See the Indexes 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) 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. to Form SB-2) 10.3 Second Amendment to Option Agreement (Exhibit 10.C. to Form SB-2) 10.4 Lease Agreement between Registrant and RemProp, Inc. (Exhibit 10.D. to 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 incorporated 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: January 28, 1999 By: /s/ Richard E. Metz -------------------------------------- Richard E. Metz, President, CEO By: /s/ Wayne A. Weyrauch -------------------------------------- Wayne A. Weyrauch Vice President of Finance, CFO (Principal Financial officer, Principal Accounting officer) 3 FEDERAL AFFORDABLE HOUSING CORPORATION TABLE OF CONTENTS PAGE ------- ACCOUNTANT'S REPORT PAGE 5 BALANCE SHEETS 6 STATEMENTS OF OPERATIONS 7 STATEMENTS OF CASH FLOWS 8 4 J. MICHAEL DAILY & ASSOCIATES Certified Public Accountants 1822 Drew Street, Suite 1 Clearwater, Florida 34625 727-447-6860 Fax 727-441-1840 Members American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants January 28, 1999 Board of Directors Federal Affordable Housing Corporation 1616 Gulf-to-Bay Blvd. Clearwater, Florida 34615 Gentlemen: We have compiled the accompanying balance sheet of FEDERAL AFFORDABLE HOUSING as of November 30, 1998, and the related statement of revenues and expenses for the three months and six months then ended, and the comparative statement of income for the three months and six months ended November 30, 1998 and 1997, and the statement of cash flows for the three months and six 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. /s/ J. Michael Daily - ------------------------------- J. Michael Daily, CPA Clearwater, Florida January 28, 1999 5 FEDERAL AFFORDABLE HOUSING CORPORATION Balance Sheets Assets November 30, May 31, 1998 1998 ------------------- ------------------ Current assets Operating cash in bank $ 53,313 $ 68,214 Due from Suncoast Food 4,098 Construction in process: Land costs/site development 7,273 7,273 ------------------- ------------------ Total current assets 64,683 75,487 ------------------- ------------------ Other assets Incorporation fees, legal expenses and registration statement costs 34,260 34,260 Utility deposits 424 424 Mortgage receivables 242,663 241,475 ------------------- ------------------ 277,347 276,159 ------------------- ------------------ Total assets 342,030 351,646 =================== ================== Liabilities and Stockholders' Equity Current liabilities Due to RemProp, Inc. 13,198 24,713 Due to Key Management 18,632 18,632 Commercial loan payable, SunTrust - - Construction Loans, SunTrust houses - - Note payable, R. Metz, demand, bearing interest at 7% 7,943 7,943 ------------------- ------------------ Total current liabilities 39,774 51,288 ------------------- ------------------ Stockholders' equity Common stock, no par value Authorized 20,000,000 shares, 493,500 issued and outstanding 486,887 486,887 Accumulated deficit (184,631) (186,529) ------------------- ------------------ Total stockholders' equity 302,256 300,358 ------------------- ------------------ Total liabilities and stockholders' equity $ 342,030 $ 351,646 =================== ================== 6 FEDERAL AFFORDABLE HOUSING CORPORATION Statements of Operations For the Three Months Ended For the Six Months Ended November 30, November 30, ---------------------------------- --------------------------------- 1998 1997 1998 1997 --------------- ------------- ------------- -------------- Income Sales - homes $ - $ 79,900 $ - $ 79,900 Less cost of sales Cost of sales - homes - 65,215 - 65,215 --------------- ------------- ------------- -------------- Gross profit - 14,685 - 14,685 Selling, general and administrative expenses 4,506 4,555 9,290 7,773 --------------- ------------- ------------- -------------- Loss from operations (4,506) 10,130 (9,290) 6,912 Other income Interest income 4,430 - 8,960 - Other income - - 2,229 - --------------- ------------- ------------- -------------- Total other income 4,430 - 11,189 - Net income (loss) $ (76) $ 10,130 $ 1,899 $ 6,912 =============== ============= ============= ============== Basic loss per common share $ (0.00) $ 0.02 $ 0.004 $ 0.01 =============== ============= ============= ============== Weighted average number of common shares outstanding 493,500 493,500 493,500 493,500 =============== ============= ============= ============== 7 FEDERAL AFFORDABLE HOUSING CORPORATION Statements of Operations For the Three Months Ended For the Six Months Ended November 30, November 30, ------------------------------- ------------------------------ 1998 1997 1998 1997 -------------- -------------- --------------- ------------ Cash flows from operating activities: Reconciliation of net income (loss) to net cash used in operating activities Net income (loss) $ (76) $ 10,130 $ 1,899 $ 6,912 Adjustments to reconcile net loss to net cash used in operating activities Changes in assets and liabilities Net decrease in intercompany loans, Construction in process, fees and costs, and deposits (15,612) 38,425 (15,612) 38,426 -------------- -------------- --------------- ------------ Net cash used in operating activities (15,688) 48,555 (13,713) 45,338 -------------- -------------- --------------- ------------ Increase in notes receivable (1,188) (19,975) (1,188) (19,975) -------------- -------------- --------------- ------------ Net cash used in investing activities (1,188) (19,975) (1,188) (19,975) -------------- -------------- --------------- ------------ - 3,000 - 3,821 - (31,800) - (31,800) -------------- -------------- --------------- ------------ Net cash provided by financing activities - (28,800) - (27,979) -------------- -------------- --------------- ------------ Net increase (decrease) in cash (16,876) (220) (14,901) (2,616) 70,189 1,449 68,214 3,845 -------------- -------------- --------------- ------------ $ 53,313 $ 1,229 $ 53,313 $ 1,229 ============== ============== =============== ============