FEDERAL AFFORDABLE HOUSING CORPORATION
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 February 28, 1999
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 February 28, 1999, there were 493,500 shares of Common Stock
outstanding and 7,450 Investor's Stock Purchase Warrants outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
Index
Page
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
February 28, 1999 and May 31, 1998........................1
Consolidated Statements of Operations -
Nine months ended February 28, 1999 and 1998..............2
Consolidated Statements of Cash Flows -
Nine months ended February 28, 1999 and 1998............3
Notes to Consolidated Financial Statements..................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of
Operations................................................................5 - 6
Part II - Other Information
Item 1. Legal
Proceedings...................................................................7
Item 6. Exhibits and reports on Form 8k.......................................7
Signatures..................................................7
Exhibit 11....................................................................8
i
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
Balance Sheets
Assets
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
-------------------- ---------------------
(Unaudited)
<S> <C> <C>
Current assets
Operating cash in bank $ 12,845 $ 68,214
Due from Suncoast Food Services, Inc. 22,343 -
Construction in process:
Land costs/site development 7,273 7,273
-------------------- ---------------------
Total current assets 42,461 75,487
-------------------- ---------------------
Other assets
Incorporation fees, legal expenses and registration
statement costs - unamortized 34,260 34,260
Utility deposits 424 424
Notes receivable 15,000 -
Mortgages receivable 242,662 241,475
-------------------- ---------------------
292,346 276,159
-------------------- ---------------------
Total assets 334,807 351,646
==================== =====================
Liabilities and Stockholders' Equity
Current liabilities
Due to RemProp, Inc. 13,198 24,713
Due to Key Management, Inc. 18,632 18,632
Note payable, R. Metz, demand, bearing interest at 7% 7,943 7,943
-------------------- ---------------------
Total current liabilities 39,773 51,288
-------------------- ---------------------
Stockholders' equity
Common stock, no par value
Authorized 20,000,000 shares,
493,500 issued and outstanding 486,887 486,887
Contributed capital 70,000 40,000
Accumulated deficit (261,853) (226,529)
-------------------- ---------------------
Total stockholders' equity 295,034 300,358
-------------------- ---------------------
Total liabilities and stockholders' equity $ 334,807 $ 351,646
==================== =====================
</TABLE>
See notes to financial statements.
1
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
February 28,
--------------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Income
Sales $ - $ 79,900
Less cost of sales
Cost of sales - 65,295
----------------- ------------------
Gross profit - 14,605
Selling, general and administrative
expenses 50,943 14,097
----------------- ------------------
Other income (expense)
Interest Income 15,619 -
----------------- ------------------
Net income (loss) $ (35,324) $ 508
================= ==================
Basic income (loss) per common share $ (0.072) $ 0.001
================= ==================
Weighted average number of
common shares outstanding 493,500 493,500
================= ==================
</TABLE>
See notes to financial statements.
2
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
February 28,
-----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash
used in operating activities
Net income (loss) $ (35,324) $ 508
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of fees and costs - -
Changes in assets and liabilities
Net decrease in intercompany loans,
Construction in process, fees
and costs, and deposits - 43,501
---------------- ---------------
Net cash used in operating activities (35,324) 44,009
---------------- ---------------
Cash flows from investing activities
Contributed capital 30,000 -
Reduction to certificate of deposit - 300,000
Increase in notes receivable (38,530) (19,975)
---------------- ---------------
Net cash used in investing activities (8,530) 280,025
---------------- ---------------
Cash flows from financing activities
Principal payments on notes payable (11,515) (326,202)
---------------- ---------------
Net cash provided by financing activities (11,515) (326,202)
---------------- ---------------
Net increase (decrease) in cash (55,369) (2,168)
Cash beginning 68,214 3,845
---------------- ---------------
Cash ending $ 12,845 $ 1,677
================ ===============
</TABLE>
See notes to financial statements.
3
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited financial statements, which are for interim periods,
do not include all disclosures provided in the annual financial statements.
These unaudited financial statements should be read in conjunction with the
financial statements and the footnotes thereto contained in the Audited
Financial Statements for the year ended May 31, 1998 and 1997 of Federal
Affordable Housing Corporation. (the "Company").
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the nine month period ended February 28, 1999 are not necessarily indicative
of the results to be expected for the full year.
Note 2 - Per share calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the nine month period ended February 28, 1999. The
weighted average shares outstanding for the nine months ended February 28, 1999
and 1998 were 493,500.
Note 3 - Subsequent events
Please refer to the Audited Financial Statements consisting of the Company's
balance sheet as of May 31, 1998, and related statements of operations, changes
in stockholders equity, and cash flows ended May 31, 1998. Please refer to the
form 8K dated March 5, 1999 and filed June 17, 1999.
4
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-QSB, that are not purely
historical, are forward-looking information and statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These include statements regarding the Company's
expectations, intentions, or strategies regarding future matters. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements contained in this Form 10-QSB. The forward-looking
statements contained here-in are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments regarding, among other things, the Company's ability to secure
financing or investment for capital expenditures, future economic and
competitive market conditions, and future business decisions. All these matters
are difficult or impossible to predict accurately and many of which may be
beyond the control of the Company. Although the Company believes that the
assumptions underlying its forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this form 10-QSB will prove to be
accurate.
GENERAL
The company was established to develop residential subdivisions, and construct,
market and sell affordable homes in the Tampa, Florida market. The company was
organized on March 5, 1993, as a Minnesota corporation and completed a 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 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 31, 1999,
without revenues from operations.
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 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, 1999.
Land ( five lots ) to be used for building of residential housing was acquired
on April 27, 1993 from Remprop, Inc., a Florida corporation. The consideration
given for the land was 90,000 shares of no-par value stock issued to Remprop,
Inc. Also included was an option to purchase 81 additional lots located in
Zephyrhills, Florida and Dade City, Florida. Subsequent to the acquisition of
the five lots, and the option for 81 additional lots, the company acquired an
additional seven lots. All of the lots have been sold as of May 31, 1998.
Construction costs of $7,274 for site development and homes have been incurred
for the parcel of land called Dade City development. Although the land has not
been acquired as of May 31, 1998, these expenditures have been paid by the
company for future development.
5
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
RESULTS OF OPERATIONS
Nine months ended February 28, 1999 compared to nine months ended February 28,
1998
There were no revenues for the nine months ended February 28, 1999 compared to
$79,900 for the same period of 1998. Revenues for the nine months ended February
28, 1998 were attributed to the sale of a home on lot 22.
Cost of goods sold for the nine month period ended February 28, 1999 were zero
compared to $65,295 for the same period in 1998 attributed to the sale of the
home on lot 22.
For the nine month period ended February 28, 1999, total selling, general and
administrative expenses were $50,943, as compared to $14,097 for the previous
nine month period, an increase of $36,846 or 261%. This increase was due to a
$30,000 disclosure requirement in SAB 1:B regarding compensation expense for the
fair value of services provided by management. The company records $10,000 per
quarter for the fair value of these services.
Interest income increased from zero to $15,619 for the nine months ended
February 28, 1998 and 1999. This increase in interest income is attributed to
the mortgage receivable and note receivables from the sales of homes and lots in
the fiscal year ended May 31, 1998.
Net loss was $35,324 for the nine month period ended February 28, 1999, as
compared to a net income of $508 for the previous nine month period ended
February 28, 1998. This increase net loss for the nine months ended February 28,
1999 was primarily attributable to a $30,000 disclosure requirement in SAB 1:B
regarding compensation expense for the fair value of services provided by
management which increased general and administrative expense.
LIQUIDITY AND FINANCIAL RESOURCES
At February 28, 1999, the company had a cash balance of $12,845, as compared to
$68,214 in cash for the previous nine months ended February 28, 1998. Cash flows
provided by operations for the nine month period ended February 28, 1999
decreased to $(35,324) from $44,009 for the same period in 1998. The decrease in
cash and cash equivalents in the period ended February 28, 1999 was attributed
to payment of notes payable of $11,515 and increases in notes receivable of
$38,530.
INFLATION
The amounts presented in the financial statements do not provide for the effect
of inflation on the company's operations or its financial position. It is not
expected that inflation will have a material impact on the Company's business in
the foreseeable future.
6
<PAGE>
FEDERAL AFFORDABLE HOUSING CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant is not currently a party to any legal proceedings.
Item 6. Exhibits and reports on Form 8k
Not applicable
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: June 14, 1999
By: /s/ Richard E. Metz
---------------------------------------------
Richard E. Metz
President & CEO
7
FEDERAL AFFORDABLE HOUSING CORPORATION
Computation of Income (Loss) Per Common Share
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
February 28,
-----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Shares outstanding: 493,500 493,500
Weighted average shares outstanding 493,500 493,500
Net income (loss) $ (35,324) $ 508
Net income (loss) per common share $ (0.072) $ 0.001
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> MAY-31-1998
<PERIOD-END> FEB-28-1999
<CASH> 12,845
<SECURITIES> 0
<RECEIVABLES> 22,343
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,461
<PP&E> 7,273
<DEPRECIATION> 0
<TOTAL-ASSETS> 334,807
<CURRENT-LIABILITIES> 39,773
<BONDS> 0
0
0
<COMMON> 486,887
<OTHER-SE> (191,853)
<TOTAL-LIABILITY-AND-EQUITY> 334,807
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 50,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,324)
<EPS-BASIC> (.072)
<EPS-DILUTED> (.072)
</TABLE>
