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 August 31, 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
<PAGE>

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
<PAGE>

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
<PAGE>

                     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
<PAGE>


                          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 August 31, 1998,  and the related  statement of revenues and expenses for the
three months then ended,  and the comparative  statement of income for the three
months ended August 31, 1998 and 1997,  and the  statement of cash flows for the
three  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
<PAGE>


                     FEDERAL AFFORDABLE HOUSING CORPORATION

                                 Balance Sheets


                                     Assets
<TABLE>
<CAPTION>

                                                                                            August 31,             May 31,
                                                                                               1998                 1998
                                                                                        -------------------   ------------------


<S>                                                                                    <C>                   <C>    
Current assets
   Operating cash in bank                                                               $           70,189    $          68,214
   Construction in process:
     Land costs/site development                                                                     7,273                7,273
                                                                                        -------------------   ------------------

         Total current assets                                                                       77,462               75,487
                                                                                        -------------------   ------------------

Other assets
   Incorporation fees, legal expenses and registration
   statement costs                                                                                  34,260               34,260
   Utility deposits                                                                                    424                  424
   Mortgage receivables                                                                            241,475              241,475
                                                                                        -------------------   ------------------
                                                                                                   276,159              276,159
                                                                                        -------------------   ------------------


         Total assets                                                                              353,621              351,646
                                                                                        ===================   ==================


                      Liabilities and Stockholders' Equity

Current liabilities
   Due to RemProp, Inc.                                                                             24,713               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                                                                  51,288               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                                                                            (184,554)            (186,529)
                                                                                        -------------------   ------------------

         Total stockholders' equity                                                                302,333              300,358
                                                                                        -------------------   ------------------


         Total liabilities and stockholders' equity                                     $          353,621    $         351,646
                                                                                        ===================   ==================

</TABLE>

                                       6
<PAGE>

                     FEDERAL AFFORDABLE HOUSING CORPORATION

                            Statements of Operations


<TABLE>
<CAPTION>

                                                                             For the Three Months Ended
                                                                                     August 31,
                                                                         -----------------------------------
                                                                              1998                 1997
                                                                         ---------------       -------------

<S>                                                                     <C>                   <C>
Income
     Sales                                                               $            -        $          -

Selling, general and administrative
     expenses                                                                     4,784               3,218
                                                                         ---------------       -------------

                  Loss from operations                                           (4,784)             (3,218)

Other income
     Interest income                                                              4,530                   -
     Other income                                                                 2,229                   -
                                                                         ---------------       -------------

                  Total other income                                              6,759                   -

                  Net income (loss)                                      $        1,975        $     (3,218)
                                                                         ===============       =============

Basic loss per common share                                              $        0.004        $      (0.01)
                                                                         ===============       =============

Weighted average number of
     common shares outstanding                                                  493,500             493,500
                                                                         ===============       =============

</TABLE>

                                       7
<PAGE>

                     FEDERAL AFFORDABLE HOUSING CORPORATION

                            Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                 For the Three Months Ended
                                                                                          August 31,
                                                                              ----------------------------------
                                                                                   1998               1997
                                                                              ---------------    ---------------

<S>                                                                          <C>                <C>
Cash flows from operating activities:
   Reconciliation of net income (loss) to net cash
     used in operating activities
       Net income (loss)                                                      $        1,975     $       (3,218)
       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                                                           -                  -
                                                                              ---------------    ---------------
               Net cash used in operating activities                                   1,975             (3,218)
                                                                              ---------------    ---------------

Cash flows from investing activities
                                                                              ---------------    ---------------
               Net cash used in investing activities                                       -                  -
                                                                              ---------------    ---------------

Cash flows from financing activities
   Principal payments on notes payable                                                     -                821
                                                                              ---------------    ---------------
               Net cash provided by financing activities                                   -                821
                                                                              ---------------    ---------------
               Net increase (decrease) in cash                                         1,975             (2,397)

Cash beginning                                                                        68,214              3,845
                                                                              ---------------    ---------------

Cash ending                                                                   $       70,189     $        1,449
                                                                              ===============    ===============
</TABLE>

                                       8