<PAGE>  1

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                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB

     [ X ]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended June 30, 1998 

                                     OR

     [   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934


               For the transition period from        to        
                                               -----    -----

                     Commission file number 001-12212

                      DRUMMOND FINANCIAL CORPORATION
             (Name of small business issuer in its charter)

          Delaware                                         95-4426690
 (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                       Identification  No.)

             6 Rue Charles-Bonnet, 1206 Geneva, Switzerland
                (Address of principal executive offices)

      Issuer's telephone number, including area code:  (41 22) 818 2999

    Securities registered under Section 12(b) of the Exchange Act:  None
 
      Securities registered under Section 12(g) of the Exchange Act:  

                     Common Stock, $0.01 Par Value
                      15 Year Variable Rate Bonds

     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   X    No   
    -----     -----

     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. [  ]

     The issuer's revenues for the most recent fiscal year were $1.4 million.

     The aggregate market value of the voting and non-voting common equity of 
the Registrant held by non-affiliates of the Registrant as of September 22, 
1998 was approximately $100,000.  

     The number of shares outstanding of the Registrant's Common Stock as of 
September 22, 1998 was 2,718,600.

                     DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the 1998 Proxy Statement to be filed within 120 days of the 
fiscal year ended June 30, 1998 are incorporated by reference into Part III.  
Certain exhibits in Part III are incorporated by reference from prior filings 
made by the Registrant under the Securities Act of 1933, as amended, and the 
Securities Exchange Act of 1934, as amended.

      Transitional Small Business Disclosure Format:  Yes       No   X 
                                                          -----    -----
=============================================================================

<PAGE>  2

FORWARD-LOOKING STATEMENTS

Statements in this report, to the extent that they are not based on 
historical events, constitute forward-looking statements.  Forward-looking 
statements include, without limitation, statements regarding the outlook for 
future operations, forecasts of future costs and expenditures, evaluation of 
market conditions, the outcome of legal proceedings, the adequacy of 
reserves, or other business plans. Investors are cautioned that forward-
looking statements are subject to an inherent risk that actual results may 
vary materially from those described herein.  Factors that may result in such 
variance, in addition to those accompanying the forward-looking statements, 
include changes in interest rates, prices, and other economic conditions; 
actions by competitors; natural phenomena; actions by government authorities; 
uncertainties associated with legal proceedings; technological development; 
future decisions by management in response to changing conditions; and 
misjudgments in the course of preparing forward-looking statements.

                                      2

<PAGE>  3

                              TABLE OF CONTENTS
                              -----------------

                                                                        PAGE
                                                                        ----
                                   PART I

ITEM 1.   DESCRIPTION OF BUSINESS.........................................4

ITEM 2.   DESCRIPTION OF PROPERTY.........................................5

ITEM 3.   LEGAL PROCEEDINGS...............................................5

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY 
          HOLDERS.........................................................5

                                   PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.............................................5

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................6

ITEM 7.   FINANCIAL STATEMENTS...........................................10

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE............................10

                                   PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
          CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
          OF THE EXCHANGE ACT............................................10

ITEM 10.  EXECUTIVE COMPENSATION.........................................10

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT.................................................10

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................10

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K...............................10

SIGNATURES...............................................................29

                                      3

<PAGE>  4

                                   PART I
                                   ------

ITEM 1.  DESCRIPTION OF BUSINESS

The Corporation
---------------

Drummond Financial Corporation was incorporated in June 1993 pursuant to the 
laws of the State of Delaware and commenced operations in August 1993.  In 
October 1996, the Corporation changed its name from "CVD Financial 
Corporation" to "Drummond Financial Corporation".

In this document, unless the context otherwise requires, the "Corporation" 
refers to Drummond Financial Corporation and its subsidiaries.

General
-------

The Corporation operates in the financial services business in both the 
United States and Canada, engaging in investment and merchant banking 
activities and asset-based commercial lending.  The Corporation's merchant 
banking activities include seeking controlling interests in businesses or 
assets which the Corporation believes are undervalued, and its asset-based 
commercial lending primarily involves the administration and realization of 
an existing loan portfolio comprised of loans to emerging companies.

During fiscal 1998, the Corporation proceeded to collect and/or settle its 
existing loan portfolio. During the year, the Corporation collected and/or 
settled loans to eight borrowers, including two loans which had been advanced 
by the Corporation during the year in the aggregate principal amount of $9.7 
million.  As a result, at June 30, 1998, the Corporation's loan portfolio 
consisted of a finance receivable of $2.1 million which was subject to an 
allowance for credit losses of $2.1 million, and the Corporation had no 
unfunded loan commitments. 

The Corporation has de-emphasized its asset-based commercial lending and is 
focusing on expanding its merchant banking activities. The Corporation 
intends to seek controlling interests in businesses or operating companies as 
opportunities arise.  The Corporation has no such interest to date and has 
not identified any opportunities as at the date hereof.  The Corporation 
anticipates that substantial capital may be required to further its merchant 
banking activities, and anticipates that such capital will be provided from 
cash on hand, through the sale or exchange of assets, or through debt or 
equity financing.  No assurance can be given that any necessary capital will 
be available when required.

Competition
-----------

The Corporation competes against investment bankers, merchant banks and other 
investment managers for appropriate investments.  This business is highly 
competitive and is subject to fluctuations based upon many factors over which 
the Corporation has no control, such as the condition of public markets, 
interest rates and the state of capital markets.  Many of the Corporation's 
competitors are national or international companies with far greater 
resources, capital and access to information than the Corporation.  As a 
result, the Corporation may become involved in transactions with more risk 
than if it had greater resources.

                                      4

<PAGE>  5

While the Corporation has nominally competed with commercial banks, leasing 
companies and asset-based lenders with respect to its asset-based lending 
activities, its primary competitors have been venture capital firms which 
also invest in emerging growth companies.  

As at June 30, 1998, the Corporation had two employees.

ITEM 2.  DESCRIPTION OF PROPERTY

The Corporation's corporate and administrative office is located in Geneva, 
Switzerland and is leased.  

ITEM 3.  LEGAL PROCEEDINGS

The Corporation is involved in claims and matters of litigation arising in 
the ordinary course of its business, including collection and related actions 
concerning delinquent loans made by the Corporation.  The Corporation does 
not believe that the outcome of such litigation will have a material adverse 
effect on its business or financial condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Corporation held a special meeting of the registered holders of the 
Corporation's 15 Year Variable Rate Bonds (the "Bonds") on March 26, 1998, at 
which such holders approved an arrangement to exchange all of the outstanding 
Bonds, other than Bonds held in treasury by the Corporation, for 8% 
Convertible Subordinated Bonds of MFC Bancorp Ltd. ("MFC"). At the meeting, 
the arrangement was approved as follows:

                                           Principal       Percentage of
                                         Amount Voted      Amount Voted
                                         ------------      -------------
     FOR                                 $13,056,800            86%
     AGAINST                              $2,117,000            14%
     Abstentions and Broker Non-Votes         -                  -

                                   PART II
                                   -------

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

(a)  Market Information.  In March 1997, the Corporation's common stock and 
the Bonds were listed and posted for trading on the Vancouver Stock Exchange 
under the trading symbols "DFC.U" and "DFC.DB.U", respectively.  Since August 
1995, the Corporation's common stock has been quoted on the OTC Bulletin 
Board and the Bonds have been listed in the National Quotation Bureau Yellow 
Sheets. 

The following table sets forth the quarterly high and low sales prices per 
share of the Corporation's common stock for the fiscal years ended June 30, 
1997 and 1998, respectively, and the period ended September 22, 1998: 

                                      5

<PAGE>  6

        Fiscal Quarter Ended             High        Low
        --------------------             ----        ---

        1996
        ----
        September 30....................$1.44      $1.13
        December 31.....................$2.06      $1.25

        1997
        ----
        March 31........................$1.69      $0.50
        June 30.........................$1.25      $0.50
        September 30....................$1.38      $1.00
        December 31.....................$1.33      $0.94

        1998
        ----
        March 31........................$1.09      $0.63
        June 30.........................$1.00      $0.16
        Period Ended September 22.......$0.25      $0.07

(b)  Shareholders.  As of September 22, 1998, there were approximately 38 
holders of record of the Corporation's common stock.

(c)  Dividends.  The Corporation has not paid any dividends on its common 
stock and the directors do not contemplate the payment of such dividends.  
The indenture governing the Bonds (the "Bond Indenture") prohibits the 
payment of dividends under certain circumstances, including with respect to a 
default in the payment of principal or interest when due.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results 
of operations of the Corporation for the year ended June 30, 1998 should be 
read in conjunction with the consolidated financial statements and related 
notes included elsewhere herein.

Results of Operations - Year Ended June 30, 1998
------------------------------------------------

Revenues for the year ended June 30, 1998 decreased to $1.4 million from $4.3 
million in the comparative period of 1997, primarily as a result of a 
decrease in revenues from interest and loan fees and losses on investments. 
Revenues from interest and loan fees decreased to $1.4 million for the year 
ended June 30, 1998 from $2.1 million in the year ended June 30, 1997, 
primarily as a result of a reduction in the dollar amount of outstanding 
performing loans.  The Corporation's loans generally earn interest at the 
prime rate charged by a major U.S. bank (the "Bank") plus 2% to 7%. The 
Bank's prime rate was 8.50% at June 30, 1998 and 1997, respectively. In the 
year ended June 30, 1998, the Corporation reported a net loss on investments 
of $0.5 million, compared to a net gain on investments of $0.9 million in the 
comparative period of 1997. Revenues from other activities decreased to $0.2 
million for the year ended June 30, 1998 from $0.9 million in the comparative 
period of 1997. In the year ended June 30, 1997, revenues from other 
activities included $0.6 million from a consent dismissal of a court action 
for which the Corporation had made a provision.

                                      6

<PAGE>  7

Costs and expenses for the year ended June 30, 1998 decreased to $3.5 million 
from $4.6 million in the comparative period of 1997.  General and 
administrative expenses decreased to $1.4 million for the year ended June 30, 
1998 from $1.7 million for the comparative period of 1997, primarily as a 
result of lower professional fees and loan collection costs in fiscal 1998.  
In the year ended June 30, 1998, the Corporation reported a recovery of 
credit losses of $0.4 million, compared to $0.7 million for the comparative 
period of 1997.

Interest expense decreased to $2.5 million for the year ended June 30, 1998 
from $3.6 million for the comparative period of 1997, primarily as a result 
of a reduction in the principal amount outstanding of the Bonds.  For the 
year ended June 30, 1998, interest was accrued at the rate of approximately 
8.50% per annum, compared to approximately 8.32% per annum for the year ended 
June 30, 1997.

No income tax provision was recognized for the years ended June 30, 1998 and 
1997, respectively, except for the payment of a minimum tax of $1,000.  The 
Corporation has deferred tax benefits with respect to net operating loss 
carry-forwards which have not been recognized as there is no assurance that 
they will be realized.

For the year ended June 30, 1998, the Corporation reported a net loss of $2.1 
million, or $0.89 per share, compared to net income of $2.3 million, or $0.74 
per share, in the comparative period of 1997. The Corporation's results of 
operations for the year ended June 30, 1998 included $0.5 million, or $0.18 
per share, of extraordinary gains on the early extinguishment of debt, 
compared to $3.0 million, or $1.09 per share, for fiscal 1997.  The net loss 
in the current period was primarily attributable to the decrease in revenues 
from interest and loan fees, the net loss on investments and reduced revenues 
from other activities, which were partially offset by reduced interest 
expense and the extraordinary gain on debt extinguishment.

Liquidity and Capital Resources
-------------------------------

The Corporation's cash and cash equivalents at June 30, 1998 were $3.7 
million, which represents an increase of $2.1 million from June 30, 1997.

Cash used by operations for the year ended June 30, 1998 was $7.9 million, 
compared to cash provided by operations of $7.5 million for the comparative 
period of 1997.  The Corporation used cash of $3.6 million in operating 
activities before any activities in trading securities in the year ended June 
30, 1998, compared to $5.6 million in the comparative period of 1997. Net 
purchases of trading securities used cash of $4.3 million in the year ended 
June 30, 1998, compared to net sales of trading securities providing cash of 
$13.0 million in the year ended June 30, 1997. An increase in other 
receivables used cash of $1.6 million in fiscal 1998, compared to $3.1 
million in fiscal 1997.  A decrease in accounts payable and accrued 
liabilities used cash of $1.3 million in the year ended June 30, 1998, 
compared to an increase in accounts payable and accrued liabilities providing 
cash of $1.0 million in the year ended June 30, 1997.  

Cash provided by investing activities was $4.3 million during the year ended 
June 30, 1998, compared to cash used by investing activities of $4.9 million 
during the comparative period of 1997. Collections on loan receivables 
provided cash of $17.4 million in the year ended June 30, 1998, compared to 
$3.7 million in the comparative period of 1997, primarily as a result of the 
collection and/or settlement of eight loans during the year ended June 30, 
1998, including two loans which had been advanced by the Corporation during 
the 

                                      7

<PAGE>  8

year in the aggregate principal amount of $9.7 million. A net increase in 
notes receivable used cash of $3.4 million in the year ended June 30, 1998, 
compared to $7.5 million in the year ended June 30, 1997. 

Financing activities for the year ended June 30, 1998 provided cash of $5.7 
million, compared to using cash of $15.5 million in the year ended June 30, 
1997. During fiscal 1998, an increase in a note payable provided cash of $7.0 
million.  During the year ended June 30, 1998, the Corporation used cash of 
$1.0 million to purchase $1.5 million in aggregate principal amount of the 
Bonds.  As at June 30, 1998, the Corporation had $45 million in principal 
amount of the Bonds issued, of which approximately $23.5 million was 
repurchased and held by the Corporation in treasury.  The Corporation used 
$0.3 million to pay a cash dividend to the holder of its preferred shares in 
fiscal 1998.

During the year ended June 30, 1998, the Corporation entered into an 
Arrangement Agreement with MFC, the largest shareholder of the Corporation, 
and Drummond Financial (B.C.) Ltd. ("Drummond B.C."), a wholly-owned 
subsidiary of the Corporation, pursuant to which the parties effected an 
arrangement (the "Arrangement"), in accordance with the terms of a Plan of 
Arrangement, to exchange all of the outstanding Bonds, other than Bonds held 
in treasury by the Corporation, for 8% Convertible Subordinated Bonds of MFC 
(the "MFC Bonds"). 

The Arrangement was approved by more than 75% of the votes cast by the 
registered holders of the Bonds at a meeting thereof and by the Supreme Court 
of British Columbia, and was effected on March 31, 1998 (the "Effective 
Date").  On the Effective Date, each Bond in the principal amount of $1,000 
was deemed to be transferred to MFC in exchange for an aggregate principal 
amount of $720 of MFC Bonds and each registered holder of the Bonds ceased to 
be the holder thereof and such holder was removed from the register of 
bondholders of the Corporation and Drummond B.C. Accordingly, MFC is now the 
sole holder of all of the outstanding Bonds.

During the year ended June 30, 1998, the Corporation proceeded to collect 
and/or settle and restructure the non-performing loans in its portfolio.  The 
Corporation anticipates that its cash and investments on hand and interest 
income will be sufficient to service the Corporation's debt costs and cover 
the day-to-day general and administrative expenses of the Corporation during 
the short-term.

Finance Receivables
-------------------

The Corporation's loan portfolio at June 30, 1998 aggregated $2.1 million in 
finance receivables (principal plus interest and reimbursable costs less 
unamortized commitment fees) due from a borrower, compared to an aggregate of 
$11.4 million in finance receivables due from seven borrowers at June 30, 
1997.  During the year ended June 30, 1998, the Corporation collected and/or 
settled loans to eight borrowers, including two loans which had been advanced 
by the Corporation during the year in the aggregate principal amount of $9.7 
million.

Non-performing Loans at June 30, 1998
-------------------------------------

At June 30, 1998, the Corporation's loan to Heartland, Inc., which totaled 
$2.1 million, had been classified as non-performing and the borrower had 
filed a petition for bankruptcy and had ceased to operate. The Corporation 
designates finance receivables as non-performing when interest and/or 
principal payments are contractually delinquent for more than 90 days, or 
earlier if the Corporation has material evidence of the 

                                      8

<PAGE>  9

borrower's inability to meet its commitments under the loan agreement (e.g., 
the borrower files for bankruptcy protection). 

Allowance for Credit Losses
---------------------------

The Corporation maintains an allowance for credit losses against which 
amounts deemed uncollectible are charged off and subsequent recoveries, if 
any, are credited.  See Note 4 to the financial statements herein with 
respect to the allowance for credit losses during the years ended June 30, 
1998 and 1997, respectively.

Year 2000
---------

Many of the world's computer systems currently record years in a two-digit 
format.  These computer systems will be unable to properly interpret dates 
beyond the year 1999, which could lead to business disruptions and is 
commonly referred to as the "Year 2000 issue". Based on its current 
information, management of the Corporation has determined that the Year 2000 
issue will not pose significant operational problems for its computer systems 
as it only utilizes commercially available software and personal computers.  
The total cost to the Corporation of Year 2000 compliance activities has not 
been and is not currently anticipated to be material to its financial 
position or results of operations in any given year.  In addition, management 
of the Corporation has initiated communications with clients to ascertain 
their Year 2000 readiness and develop contingency plans as required, and 
management intends to address this issue with any prospective client. The 
determination by management and costs relating to the Year 2000 issue are 
based on management's best estimates, which were derived utilizing numerous 
assumptions of future events.  However, there can be no assurance that these 
estimates will be achieved and actual results could vary materially from 
those anticipated.

ITEM 7.  FINANCIAL STATEMENTS

The consolidated financial statements of the Corporation to be provided 
pursuant to this Item 7, and as listed in Item 13 of this report, are 
included in this report commencing on page 12.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

                                   PART III 
                                   --------

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Incorporated by reference from the Registrant's definitive proxy statement to 
be filed within 120 days of the end of the Registrant's fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

Incorporated by reference from the Registrant's definitive proxy statement to 
be filed within 120 days of the end of the Registrant's fiscal year.

                                      9

<PAGE>  10

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT   

Incorporated by reference from the Registrant's definitive proxy statement to 
be filed within 120 days of the end of the Registrant's fiscal year.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Registrant's definitive proxy statement to 
be filed within 120 days of the end of the Registrant's fiscal year.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a) (1) Index to Financial Statements
        -----------------------------

        Independent Auditors' Report
        Consolidated Balance Sheet 
        Consolidated Statement of Operations
        Consolidated Statement of Cash Flows
        Consolidated Statement of Shareholders' Equity 
        Notes to the Consolidated Financial Statements

    (2) Exhibits
        --------
 
       2.1 Arrangement Agreement among Drummond Financial (B.C.) Ltd., MFC 
           Bancorp Ltd. and Drummond Financial Corporation dated February 23, 
           1998. Incorporated by reference to Form T-3 of MFC Bancorp Ltd. 
           dated March 2, 1998.
       2.2 Amendment Agreement among Drummond Financial (B.C.) Ltd., MFC 
           Bancorp Ltd. and Drummond Financial Corporation dated March 23, 
           1998.
       3.1 Certificate of Incorporation dated June 1, 1993.  Incorporated 
           by reference to Form S-1 filed June 7, 1993.
       3.2 Certificate of Designations dated July 19, 1996.  Incorporated 
           by reference to Form 10-KSB dated September 20, 1996.
       3.3 Certificate of Amendment to the Certificate of Incorporation of 
           Drummond Financial Corporation dated October 14, 1996. 
           Incorporated by reference to Form 10-QSB dated November 11, 1996.
       3.4 Bylaws.  Incorporated by reference to Form S-1 filed June 7, 1993.
       3.5 Amendment to the Bylaws adopted as of July 20, 1993. 
           Incorporated by reference to Amendment No. 1 to Form S-1 filed 
           July 26, 1993.
       4.1 Form of Indenture between CVD Financial Corporation and Harris 
           Trust Company of New York, as Trustee.  Incorporated by reference 
           to Form S-1 filed June 7, 1993. 
       4.2 Second Supplemental Indenture between Drummond Financial 
           Corporation and Harris Trust Company of New York, as Trustee,  
           dated for reference October 23, 1996.  Incorporated by reference 
           to Form 10-QSB dated November 11, 1996.

                                      10

<PAGE>  11

       4.3 Third Supplemental Indenture among Drummond Financial 
           Corporation, Harris Trust Company of New York and The Bank of Nova 
           Scotia Trust Company of New York dated for reference May 13, 1997. 
           Incorporated by reference to Form 10-KSB dated September 24, 1997.
       4.4 Fourth Supplemental Indenture among Drummond Financial 
           Corporation, The Bank of Nova Scotia Trust Company of New York and 
           Drummond Financial (B.C.) Ltd. dated for reference February 4, 
           1998.
      10.1 1993 Stock Option Plan.  Incorporated by reference to Form S-1 
           filed June 7, 1993.
      10.2 Profit Sharing Plan.  Incorporated by reference to Amendment No. 1 
           to Form S-1 filed July 26, 1993.
      10.3 Stock Purchase Agreement between CVD Financial Corporation and 
           Mercer International Inc. dated March 22, 1995.  Incorporated by 
           reference to Form 8-K dated March 22, 1995.
      10.4 Subscription Agreement between CVD Financial Corporation and Logan 
           International Corp. dated for reference June 20, 1996.  
           Incorporated by reference to Form 8-K dated June 27, 1996.
      10.5 Subscription Agreement between CVD Financial Corporation and 
           Arbatax International Inc. dated for reference June 20, 1996. 
           Incorporated by reference to Form 8-K dated June 27, 1996.
      21.  List of subsidiaries of the Registrant.
      27.  Article 5 - Financial Data Schedule for year ended June 30, 1998 - 
           Form 10-KSB.

(b)   Reports on Form 8-K
      -------------------

None.

                                      11

<PAGE>  12

                         INDEPENDENT AUDITORS' REPORT





To the Shareholders of
Drummond Financial Corporation


We have audited the consolidated balance sheet of Drummond Financial 
Corporation as at June 30, 1998 and 1997 and the related consolidated 
statements of operations, shareholders' equity and cash flows for the years 
then ended.  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 in the United States of America.  Those standards require that we 
plan and perform an audit to obtain reasonable assurance whether the 
financial statements are free of material misstatement.  An audit includes 
examining, on a test basis, evidence supporting the amounts and disclosures 
in the financial statements.  An audit also includes assessing the accounting 
principles used and significant estimates made by management, as well as 
evaluating the overall financial statement presentation.  We believe that our 
audit provides a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in 
all material respects, the financial position of the Company as at June 30, 
1998 and 1997 and the results of their operations and cash flows for the 
years then ended in accordance with generally accepted accounting 
principles in the United States of America.

                                                      /s/ Davidson & Company
Vancouver, Canada                                      Chartered Accountants

September 28, 1998 

                                      12

<PAGE>  13

DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars stated in thousands)
AS AT JUNE 30

=============================================================================
                                                          1998         1997
-----------------------------------------------------------------------------


ASSETS  


Cash and cash equivalents                            $    3,699   $    1,625
  
Finance receivables, net (Note 4)                            -         8,142
  
Other receivables (Note 5)                                8,661       10,948
  
Due from affiliate                                          780          541
  
Investments (Note 6)                                     15,244        8,035
  
Investment - at equity (Note 7)                              -           917
  
Deferred debt issuance costs, net of 
  accumulated amortization of $463 (1997 - $770)          1,151        1,348
  
Other assets                                                 -             4
                                                     ----------   ----------
                                                     $   29,535   $   31,560
=============================================================================

             The accompanying notes are an integral part of these 
                      consolidated financial statements.

                                      13

<PAGE>  14

DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars stated in thousands)
AS AT JUNE 30

=============================================================================
                                                          1998         1997
-----------------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY  


Accounts payable and accrued liabilities             $      761   $    1,788
  
Interest payable                                          1,349          964
  
Note payable                                              2,526           -
  
Accrued dividends payable                                   149          149
  
Bonds payable (Note 8)                                   21,515       23,002
                                                     ----------   ----------
                                                         26,300       25,903
                                                     ----------   ----------
  
Shareholders' equity (Note 9)  
  Capital stock  
    Preferred stock, $0.01 par value  
      5,000,000 shares authorized  
      3,000,000 shares issued and outstanding                30           30
    Additional paid-in capital                            5,970        5,970
                                                     ----------   ----------
                                                          6,000        6,000
                                                     ----------   ----------
  
    Common stock, $0.01 par value  
      10,000,000 shares authorized  
       4,264,000 shares issued and outstanding               43           43
    Additional paid-in capital                           17,767       17,767
                                                     ----------   ----------
                                                         17,810       17,810
                                                     ----------   ----------
  
  Deficit                                               (17,519)     (15,097)
                                                     ----------   ----------
                                                          6,291        8,713
  Less:  1,545,400 common shares held
    as treasury stock                                    (3,056)      (3,056)
                                                     ----------   ----------
                                                          3,235        5,657
                                                     ----------   ----------
                                                     $   29,535   $   31,560
=============================================================================

             The accompanying notes are an integral part of these
                      consolidated financial statements.

                                      14

<PAGE>  15

DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS 
(Dollars stated in thousands; except per share amounts)
YEAR ENDED JUNE 30

=============================================================================
                                                          1998         1997
-----------------------------------------------------------------------------


REVENUE  
  Interest and loan fees                             $    1,405   $    2,079
  (Loss) gain on investments, net                          (507)         938
  Dividend income                                           300          322
  Other                                                     156          914
                                                     ----------   ----------
                                                          1,354        4,253
                                                     ----------   ----------
COST AND EXPENSES  
  Interest                                                2,470        3,571
  Recovery of credit losses                                (360)        (673)
  General and administrative                              1,430        1,704
                                                     ----------   ----------
                                                          3,540        4,602
                                                     ----------   ----------
Equity loss of investee                                    (420)        (289)
                                                     ----------   ----------
Loss from operations                                     (2,606)        (638)
  
Income tax expense                                           (1)          (1)
                                                     ----------   ----------
Loss before extraordinary gain                           (2,607)        (639)
  
Extraordinary gain on early extinguishment of debt,
  net of $Nil provision for income taxes 
  for 1998 and 1997                                         485        2,977
                                                     ----------   ----------
Net income (loss) for the year                       $   (2,122)  $    2,338
=============================================================================

Earnings (loss) per share  
  Loss before extraordinary gain                     $    (1.07)  $    (0.35)
  Extraordinary gain                                       0.18         1.09
                                                     ----------   ----------
                                                     $    (0.89)  $     0.74
=============================================================================

Weighted average number of shares outstanding         2,718,600    2,718,600
=============================================================================

              The accompanying notes are an integral part of these 
                      consolidated financial statements.

                                      15

<PAGE>  16

DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars stated in thousands)
YEAR ENDED JUNE 30

=============================================================================
                                                          1998         1997
-----------------------------------------------------------------------------


CASH FLOWS FROM OPERATING ACTIVITIES:  

  Net income (loss) for the year                     $   (2,122)  $    2,338
  Adjustments to reconcile income (loss)
    to cash from operating activities:
    Extraordinary gain on early 
      extinguishments of debt                              (485)      (2,977)
    Loss (gain) on investments, net                         507         (938)
    Recovery of credit losses                              (360)        (673)
    Equity in loss of investee                              420          289
    Amortization of deferred debt issuance costs            138          (78)
  
  Changes in non-cash working capital balances:  
    Interest receivable                                     976          127
    Commitment fees                                         (25)        (106)
    Other receivable                                     (1,605)      (3,133)
    Due from affiliate                                     (239)        (541)
    Interest payable                                        438         (823)
    Accounts payable and accrued liabilities             (1,277)         953
    Other                                                     3           -
  
  Purchase of trading securities                        (10,500)      (3,037)
  Proceeds from sales of trading securities               6,197       16,082
                                                     ----------   ----------
  Net cash provided by (used in) 
    operating activities                                 (7,934)       7,483
                                                     ----------   ----------


CASH FLOWS FROM INVESTING ACTIVITIES:  

  Advances on loans                                      (9,700)      (1,100)
  Payments collected on loans                            17,407        3,740
  Increase in notes receivable, net                      (3,407)      (7,502)
                                                     ----------   ----------
  Net cash provided by (used in) 
    investing activities                                  4,300       (4,862)
                                                     ----------   ----------

                                - continued -

              The accompanying notes are an integral part of these 
                      consolidated financial statements.

                                      16

<PAGE>  17

DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars stated in thousands)
YEAR ENDED JUNE 30

=============================================================================
                                                          1998         1997
-----------------------------------------------------------------------------


Continued....  
  
CASH FLOWS FROM FINANCING ACTIVITIES:
  
  Note payable                                       $    7,000   $       -
  Purchase of treasury bond payable                        (992)     (15,301)
  Dividends paid                                           (300)        (173)
                                                     ----------   ----------
  Net cash provided by (used in) 
    financing activities                                  5,708      (15,474)
                                                     ----------   ----------

Increase (decrease) in cash and cash 
  equivalents for the year                                2,074      (12,853)


Cash and cash equivalents, beginning of year              1,625       14,478
                                                     ----------   ----------

Cash and cash equivalents, end of year               $    3,699   $    1,625
=============================================================================

Cash paid during the year for:  

    Interest expense                                 $    1,915   $    3,521
    Income taxes                                              1            1
=============================================================================

              The accompanying notes are an integral part of these 
                      consolidated financial statements.

                                      17


<PAGE>  18

DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars stated in thousands)
<TABLE>
<CAPTION>
===============================================================================================
                  Preferred Stock               Common Stock
           ---------------------------  ---------------------------
                                                                                        Total
                            Additional                  Additional   Accum-            Share-
               Number          Paid-in     Number          Paid-in   ulated  Treasury holders'
            of Shares  Amount  Capital  of Shares  Amount  Capital  Deficit     Stock  Equity
-----------------------------------------------------------------------------------------------
<S>         <C>        <C>     <C>      <C>        <C>     <C>      <C>       <C>      <C>
Balance at
  June 30,
  1996      3,000,000  $  30  $ 5,970   4,264,000  $  43  $ 17,767  $(17,113) $(3,056) $3,641

Net income
  for the 
  year             -      -        -           -      -         -      2,338       -    2,338

Dividends
  paid and
  payable          -      -        -           -      -         -       (322)      -     (322)
            ---------  -----  -------   ---------  -----  --------  --------  -------  ------

Balance at
  June 30,
  1997      3,000,000  $  30  $ 5,970   4,264,000  $  43  $ 17,767  $(15,097) $(3,056) $5,657

Net loss for
  the year         -      -        -           -      -         -     (2,122)      -   (2,122)

Dividends
  paid and
  payable          -      -        -           -      -         -       (300)      -     (300)
            ---------  -----  -------   ---------  -----  --------  --------  -------  ------

Balance at
  June 30,
  1998      3,000,000  $  30  $ 5,970   4,264,000  $  43  $ 17,767  $(17,519) $(3,056) $3,235
===============================================================================================

</TABLE>


              The accompanying notes are an integral part of these
                      consolidated financial statements.

                                      18

<PAGE>  19

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


1.   NATURE OF OPERATIONS

     Drummond Financial Corporation (the "Company"), a Delaware corporation, 
     was formed in June 1993.  In August 1993, the Company completed an 
     initial public offering of common stock concurrent with a debenture 
     offering.  

     The Company presently operates in the financial services industry, which 
     is comprised of investment and merchant banking activities and asset-
     based commercial lending.  The merchant banking activities are expected 
     to include the acquisition of controlling interests in businesses or 
     assets which the Company believes are under-valued.  The asset-based 
     commercial lending primarily involves the administration and realization 
     of an existing loan portfolio comprised of loans to emerging companies. 
     The Company now focuses on investment and merchant banking activities 
     while de-emphasizing asset-based commercial lending.


2.   BASIS OF PRESENTATION

     These consolidated financial statements have been prepared by management 
     in conformity with generally accepted accounting principles applicable 
     in the United States of America, and are stated in United States 
     dollars.


3.   SIGNIFICANT ACCOUNTING POLICIES

     In preparing these financial statements, management is required to make 
     estimates and assumptions that affect the reported amounts of assets and 
     liabilities as of the date of the balance sheet and revenues and 
     expenses for the year.  Actual results in future periods could be 
     different from these estimates made in the current year.  The following 
     is a summary of the significant accounting policies of the Company:

     Basis of consolidation
     ----------------------

     These consolidated financial statements included the accounts of the 
     Company and its subsidiaries.  Significant inter-company accounts and 
     transactions have been eliminated.  


     Cash and cash equivalents
     -------------------------

     Cash equivalents consist of highly liquid investments with an original 
     maturity of three months or less.  These are recorded at cost which 
     approximates fair value based on the reported market value.  In addition, 
     the Company maintains cash balances at foreign financial institutions in 
     excess of insured limits.

     Financial instruments
     ---------------------

     The Company's financial instruments consist of cash and cash 
     equivalents, other receivables, due from affiliate, investments, 
     accounts payable and accrued liabilities, interest payable, note payable, 
     accrued dividends payable and bonds payable.  Unless otherwise noted, it
     is management's opinion that the Company is not exposed to significant 
     interest, currency or credit risks arising from these financial 
     instruments.  The fair value of these financial instruments approximate
     their carrying values, unless otherwise noted.

     Finance receivables and allowance for credit losses
     ---------------------------------------------------

     Finance receivables, also known as recorded investments in loans, 
     include the outstanding loan balance (net of any charge-off's), accrued 
     interest, reimbursable expenses and are net of deferred loan fees.

     The Company maintains an allowance for credit losses at an amount 
     estimated to cover potential losses on finance receivables which have 
     experienced an event of impairment or for which future collection of 
     outstanding principal, interest and reimbursable expenses has become 
     doubtful.  Amounts deemed to be uncollectible are charged off against 
     the allowance and subsequent recoveries, if any, are credited to the 
     allowance.  The amount of the allowance is based on the Company's 
     evaluation of numerous factors, including the adequacy of the collateral 
     securing the loans, the operating environments of the various borrowers 
     and the historical experience of the various borrowers' management, and 
     reflect the Company's best estimate of the necessary level of the 
     allowance for credit losses.

                                      19

<PAGE>  20

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


3.   SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)

     Finance receivables and allowance for credit losses (cont'd.....)
     ---------------------------------------------------

     Under the provisions of Financial Accounting Standards Board ("FASB") 
     Statement No. 114, "Accounting by Creditors for Impairment of a Loan", 
     when a loan is impaired as defined in the statement, a lender shall 
     measure impairment at the present value of expected future cash flows 
     discounted at the loan's effective interest rate, or as a practical 
     expedient, based on a loan's observable market price or the fair value 
     of the collateral if the loan is collateral dependent.  The Company has 
     adopted a measurement method on a loan-by-loan basis.   By definition, 
     the Company's non-performing loans are impaired.  A specific reserve is 
     established for each impaired loan equal to the amount by which the 
     Company's recorded investment in the loan exceeds the net present value 
     of the loan determined in accordance with FASB Statement No. 114.

     The Company continues to apply FASB Statement No. 5 "Accounting for 
     Contingencies" to provide an allowance on a pool of unimpaired loans.

     Investments
     -----------

     The Company's available-for-sale and trading securities are stated at 
     their fair values.  Any unrealized holding gains or losses of available-
     for-sale securities are excluded from earnings and reported as a 
     separate component of shareholders' equity until realized.  If a loss in 
     value in available-for-sale securities is considered to be other than 
     temporary, it is recognized in the determination of net income.  Gains 
     and losses on trading securities are included in earnings.  Cost is 
     based on the specific identification method to determine realized gains 
     or losses.

     Warrants to acquire common stock of the various borrowers held by the 
     Company for which a readily determinable fair market value is available 
     and the Company has an unrestricted right to sell the warrant and/or 
     underlying securities within one year, are included in trading 
     securities.

     Investments in other companies where control is temporary or ownership 
     is less than 20%, are carried using the cost method of accounting.  The 
     Company accounts for its investments in companies where the ownership is 
     20% or more under the equity method.

     Deferred debt issuance costs
     ----------------------------

     Debt issuance costs consist of underwriters' fees and expenses and other 
     costs capitalized in connection with the Company's August 1993 debenture 
     offering.  These costs are being amortized on a straight-line basis 
     which approximates the interest method over the term of the related 
     debt.  The amortization is included in interest expense.

     Revenue recognition
     -------------------

     Revenue consists principally of interest income from finance 
     receivables, temporary investments of cash and cash equivalents, and 
     amortization of loan commitment fees, net of related costs, received in 
     connection with the making of loans, as well as sales of trading 
     securities.  Interest income is recognized when earned using the 
     interest method.  The Company, as a general policy, suspends the 
     recognition of income on loans which are more than 90 days contractually 
     delinquent or earlier if the Company has material evidence of the 
     borrower's inability to meet its commitments under the loan agreement 
     (e.g. the borrower files for bankruptcy protection).  The recognition of 
     income is generally resumed, and suspended income is recognized as 
     interest revenues, when the loan becomes contractually current or 
     collection of suspended amounts is assured.  Loan commitment fees, net 
     of related costs, are deferred and recognized over the term of the loan 
     using the interest method.  For delinquent loans, amortization of the 
     corresponding net loan commitment fees is suspended and subsequently 
     resumed concurrently with the related recognition of interest income.

                                      20

<PAGE>  21

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


3.   SIGNIFICANT ACCOUNTING POLICIES (cont'd....)

     Income taxes
     ------------

     Certain revenue and expense items, primarily related to the allowance 
     for credit losses, are accounted for in different time periods for 
     financial reporting purposes as compared to income tax reporting 
     purposes.  Deferred taxes are recognized using the liability method, and 
     tax rates are applied to cumulative temporary differences based on when 
     and how they are expected to be included for income tax reporting 
     purposes.  Valuation allowances are established, when necessary, to 
     reduce deferred tax assets to the amount which management believes is 
     more likely than not to be realized.

     Earnings (loss) per share
     -------------------------

     Earnings (loss) per share is computed using the weighted average number 
     of shares outstanding during the year, after considering outstanding 
     stock options and warrants.

     Stock-based compensation
     ------------------------

     FASB Statement No. 123, "Accounting for Stock-Based Compensation", 
     encourages, but does not require, companies to record compensation cost 
     for stock-based employee compensation plans at fair value.  The Company 
     has chosen to account for stock-based compensation using Accounting 
     Principles Board Opinion No. 25, "Accounting for Stock Issued to 
     Employees".  Accordingly, compensation cost for stock options is 
     measured as the excess, if any, of the quoted market price of the 
     Company's stock at the date of the grant over the amount an employee is 
     required to pay for the stock.

     Comprehensive income
     --------------------

     In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive 
     Income".  SFAS No. 130 establishes standards for the reporting and 
     display of comprehensive income and its components (revenues, expenses, 
     gains and losses).  The purpose of reporting comprehensive income is to 
     present a measure of all changes in shareholders' equity that result 
     from recognized transactions and other economic events of the year, 
     other than transactions with owners in their capacity as owners.  SFAS 
     No. 130 is effective for financial statements issued for periods 
     beginning after December 15, 1997.  Adoption of SFAS No. 130 may result 
     in additional disclosures in the Company's financial statements but will 
     not impact the Company's reported net income (loss) or net earnings 
     (loss) per share.

     Segmented information
     ---------------------

     In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments 
     of an Enterprise and Related Information".  SFAS No. 131 specifies 
     revised guidelines for determining an entity's operating segments and 
     the type and level of financial information to be disclosed.  SFAS No. 
     131 is effective for fiscal years beginning after December 15, 1997.  
     Adoption of SFAS No. 131 will not have a material impact on the 
     Company's current geographic disclosures.

     Comparative figures
     -------------------

     Certain comparative figures have been reclassified to conform with the 
     current year's presentation.


4.   FINANCE RECEIVABLES 

     The Company engages in the asset-based commercial lending business.  
     Generally, loans are due over periods of one to five years and are 
     collateralized by security agreements on various types of equipment, 
     commercial real estate, borrowers' eligible accounts receivable and 
     inventory and other tangible assets.  The loans generally earn interest 
     at a major bank's (the "Bank") prime rate (8.5 percent at June 30, 1998 
     and 1997) plus two to seven percent.  The Bank's weighted daily average 
     prime rate was 8.50 percent and 8.32 percent during the years ended June 
     30, 1998 and 1997, respectively.

                                      21

<PAGE>  22

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


4.   FINANCE RECEIVABLES (cont'd....)

<TABLE>
<CAPTION>
     ========================================================================================
                                    June 30, 1998                     June 30, 1997
                        ----------------------------------  ---------------------------------
     <S>                 <C>       <C>          <C>         <C>       <C>          <C>
                                                 Allowance                          Allowance
                           Number    Recorded   for Credit    Number     Recorded  for Credit
                         of Loans Investments       Losses  of Loans  Investments      Losses
     ----------------------------------------------------------------------------------------

     Impaired loans             1   $   2,100    $   2,100          2   $   5,071   $   3,223
     Unimpaired loans          -           -            -           5       6,364          70
                         --------   ---------    ---------   --------   ---------   ---------
                                1   $   2,100    $   2,100          7   $  11,435   $   3,293
     ========================================================================================
     Net book value                 $      -                            $   8,142
     ========================================================================================
</TABLE>

     The net book value of the finance receivables approximate their fair 
     market value which is based on the discounted present value of the 
     estimated future cash flows.

     The Company has established allowances for credit losses at June 30, 1998
     and 1997 as follows:

<TABLE>
<CAPTION>
     ========================================================================================
                                                              1998 
                                             ------------------------------------
                                               Specific      General       Total       1997
     ----------------------------------------------------------------------------------------
     <S>                                     <C>              <C>       <C>         <C>
     Balance, beginning of year              $    3,223       $   70    $  3,293    $  7,202
     Provision (recovery) for the year             (290)         (70)       (360)       (673)
     Charge-offs for the year, net                 (833)          -         (833)     (3,236)
                                             ----------       ------    --------     -------
     Balance, end of year                    $    2,100       $   -     $  2,100    $  3,293
     ========================================================================================
</TABLE>

     Contractual maturities of finance receivables are as follows:

       Principal, currently due                                     $  2,000
       Interest receivable, currently due                                 23
       Reimbursable expenses, currently due                               91
       Deferred commitment fees, net of related costs                    (14)
                                                                    --------
                                                                       2,100
       Less:  allowance for credit losses                             (2,100)
                                                                    --------

       Finance receivables, net                                     $     - 
                                                                    ========

     The Company does not have sufficient operating history to determine 
     whether the loan portfolio will generally be repaid or renewed before 
     contractual maturity dates.  The above tabulation, therefore, is not to 
     be regarded as a forecast of future cash collections.

     At June 30, 1998 and 1997, the Company does not have any unfunded loan 
     commitments.

                                      22

<PAGE>  23

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


5.   OTHER RECEIVABLES

     ========================================================================
                                                        1998           1997
     ------------------------------------------------------------------------
  
     Notes receivable                               $   8,236      $   7,502
     Accrued dividend receivable                          149            149
     Other receivables                                    276          3,297
                                                    ---------      ---------
                                                    $   8,661      $  10,948
     ========================================================================

     The carrying  amount of receivables approximates their fair value which 
     is based on the discounted present value of their estimated future cash 
     flows.


6.   INVESTMENTS

     ========================================================================
                                                       1998            1997
     ------------------------------------------------------------------------
     Trading securities:  
       Bonds and debentures                         $   1,720      $      -  
       Equity securities                                7,524          2,035
                                                    ---------      ---------
                                                        9,244          2,035
     Available-for-sale security                        6,000          6,000
                                                    ---------      ---------
                                                    $  15,244      $   8,035
     ========================================================================

     For the year ended June 30, 1998, the Company recognized an unrealized 
     holding loss of $186,000 (1997 - $435,000) and a realized loss of 
     $321,000 (1997 - $1,373,000 gain) on sales of trading securities.

     Available-for-sale securities consist of preferred shares in an 
     affiliate.  The preferred shares are stated at cost of $6,000,000 at 
     June 30, 1998 and 1997 because there is no market for the shares.  The 
     carrying amount approximates their fair value which is based on their 
     retractibility feature and dividend rate compared to market rate.


7.   INVESTMENT - AT EQUITY

     The Company's investment is comprised of 1,070,320 (1997 - 1,470,320)
     shares of Ichor Corporation which represents 21.81% (1997 - 29.95%) of 
     the total outstanding shares.  The Company has accounted for its 
     investment using the equity method of accounting.

                                      23

<PAGE>  24

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


8.   BONDS PAYABLE

     Under an indenture dated August 26, 1993 (the "Master Indenture") the 
     Company is authorized to issue up to $500 million of unsecured, 
     subordinated variable rate bonds (the "Bonds").  The Bonds may be issued 
     in series, each substantially identical in form pari passu in right and 
     having substantially identical terms except for the date of issuance.  
     The Company may not issue any subsequent series of Bonds unless no event 
     of default under the Master Indenture has occurred or has been 
     continuing with respect to any Bond previously issued within the 12 
     month period immediately preceding the date of issuance of such 
     subsequent series, and not less than 75 percent of the net proceeds 
     received from the issuance of the immediately preceding series of Bonds 
     have been utilized or formally committed.


     In August 1993, the Company made an initial issuance of Bonds at par in 
     the aggregate principal amount of $50 million  in a public offering 
     concurrent with the Company's initial public offering of Common Stock.  
     The sale of the Bonds generated net proceeds of $46.9 million after 
     related debt issuance costs.  No other issuances of Bonds have since 
     occurred.

     Interest on the Bonds is payable semi-annually on January 25 and July 25 
     to holders of record on the preceding December 31, and June 30, 
     respectively.  The interest paid for each semi-annual period is the 
     greater of: (i) the Bank's prime rate as of the first day of the semi-
     annual period, (ii) the Bank's weighted daily average prime rate during 
     the semi-annual period, (iii) a rate specified by the Company prior to 
     the commencement of the semi-annual period, and, (iv) 80 percent of the 
     "portfolio yield".  Portfolio yield is defined as: (i) the aggregate of 
     interest received from the Company's loan portfolio and gains less 
     losses, if any, realized from the disposition of equity securities or 
     warrants to acquire equity securities received in connection with the 
     making or purchasing of loans; less (ii) the provision for credit 
     losses.

     The Company did not make its semi-annual interest payments due on 
     January 25, 1997, July 25, 1997, January 25, 1998 and July 25, 1998 
     until February 21, 1997, August 20, 1997, February 17, 1998 and 
     September 25, 1998, respectively.  The delinquent payments did not 
     result in an event of default as the subsequent interest payments 
     discharged the Company's interest payment obligation under the terms of 
     the Master Indenture.

     The Bonds mature on July 31, 2008 and are subject to mandatory 
     redemption by the Company in annual instalments commencing July 31, 2004 
     through July 31, 2008.  The annual instalment amount is equal to 20 
     percent of the outstanding principal on June 30, 2004.  The Bonds are 
     also subject to mandatory redemption generally upon the sale or transfer 
     of substantially all of the assets of the Company.

     During 1998, $1,487,000 (1997 - $19,045,000) in aggregate principal 
     amount of Bonds were repurchased  resulting in an extraordinary gain of 
     $485,000 (1997 - $2,977,000).  At June 30, 1998, the Company had 
     remaining issued and outstanding $45 million principal amount of bonds 
     of which approximately $23.5 million were repurchased and are held by 
     the Company in treasury.

     The Bonds had a carrying amount of $21,515,000 (1997 - $23,002,000). 
     The Bonds had a fair value of $21,515,000 as of June 30, 1998 which is 
     based on the present value of future cash flows.  As of June 30, 1998, 
     MFC Bancorp Ltd., which indirectly owns 43.6% of the Company's common 
     shares and 100% of the preferred shares, also owns all of the Bonds as 
     approved by a court order.

     For semi-annual periods ended December 31, 1996, June 30, 1997, December 
     31, 1997 and June 30, 1998, interest has been incurred at per annum 
     coupon rates of 8.25 percent, 8.38 percent, 8.50 percent and 8.50 
     percent, respectively.


9.   SHAREHOLDERS' EQUITY

     In June 1996, the Company issued 3,000,000 shares of its Preferred 
     Stock, Series 1 for $6,000,000 cash.  The Preferred Stock, Series 1 pays 
     a cumulative dividend at 5% per annum on paid-up amount; accrued 
     interest at 8% per annum on accrued and unpaid dividends; is redeemable 
     by the Company at any time at the paid-up amount plus 10% premium; and 
     has variable voting rights which limit the votes thereon so that any 
     holder thereof has less than 48% of total votes attached to all the 
     outstanding voting shares of the Company, subject to certain 
     adjustments.

                                      24

<PAGE>  25

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


9. SHAREHOLDERS' EQUITY (cont'd....)

     In connection with its initial public offering, the Company issued 
     warrants to its underwriters representing the right to purchase 200,000 
     shares of the Company's Common Stock at $4.50 per share.  The number of 
     shares and exercise price are subject to adjustment for certain changes 
     in the Company's capital structure.  These warrants expired unexercised 
     on August 16, 1998.


10.  STOCK OPTION PLAN

     In June 1993, the Board of Directors approved the adoption of the Stock 
     Option Plan.  Under the plan, substantially all employees, consultants 
     and non-employee directors are eligible to receive options to purchase 
     up to an aggregate of shares of the Company's Common Stock at exercise 
     prices which cannot be less than the fair market value of the shares on 
     the date the options are granted.  The term of each option can be no 
     more than 10 years.  Non-employee directors of the Company can be 
     granted options to purchase 25,000 shares of Common Stock on the date 
     they become a director and additional options to purchase 3,500 shares 
     of Common Stock are granted upon the completion of each full year of 
     service and at the Annual Meeting of Shareholders thereafter.  
     Information with respect to options granted under the plan is as 
     follows:

     ========================================================================

                                                                    Exercise
                                                                       Price
                                                                   Per Share
                                                    Number           (Not in
                                                 of Shares         Thousands)
     ------------------------------------------------------------------------

     Outstanding, June 30, 1996                     75,000     $1.81 - $1.88
       Expired                                     (50,000)            $1.81
                                               -----------

     Outstanding, June 30, 1997                     25,000             $1.88
     Expired                                       (25,000)            $1.88
                                               -----------

     Outstanding, June 30, 1998                         -    
     ========================================================================

     At June 30, 1998 and 1997 options to purchase 375,000 and 350,000 
     shares, respectively, of the Company's common stock are available for 
     future grant.

     The Company applies Accounting Principles Board Opinion No. 25 in 
     accounting for its stock option plan.  There were no options granted in 
     either 1998 or 1997.

     The disclosure requirements of FASB Statement No. 123 are effective for 
     the Company's financial statements starting from the fiscal year ended 
     June 30, 1997.  No pro forma disclosures are presented because there 
     have been no options granted after the fiscal year ended June 30, 1995.

                                      25

<PAGE>  26

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


11.  INCOME TAXES

     There was no provision for income taxes for the years ended June 30, 
     1998 and 1997 (other than the payment of state minimum income tax of 
     $1,000 each in 1998 and 1997).

     Differences between the United States federal statutory and the 
     Company's effective tax rates are as follows:

     ========================================================================
                                                     1998              1997
     ------------------------------------------------------------------------

     United States federal statutory rate 
       on income (loss) from operations           $  (721)          $   795
     Timing differences on credit losses             (406)           (1,329)
     Other timing differences                         315               305
     Valuation allowance                              812               229
                                                  -------           -------
                                                  $    -            $    - 
     ========================================================================

     The net deferred tax assets at June 30, 1998 and 1997 consist of the 
     following:

     ========================================================================
                                                     1998              1997
     ------------------------------------------------------------------------

     Provision for credit losses                  $   714           $ 1,120
     Net operating loss carryforwards               4,174             3,264
     Other timing differences                         879               571
     Valuation allowance                           (5,767)           (4,955)
                                                  -------           -------
     Deferred tax asset, net                      $    -            $    - 
     =======================================================================

     At June 30, 1998, the Company has $12.3 million in net operating loss 
     carryforwards for United States federal income tax purposes and $3.1 
     million for California income tax purposes.  The carryforwards expire in 
     the fiscal years ending in 2009 to 2013 for United States federal income 
     tax purposes and 1999 to 2001 for California income tax purposes.  
     Utilization of net operating loss carryforwards for United States 
     federal income tax purposes may be limited by the Internal Revenue Code 
     because of changes in the ownership of the Company. 


12.  RELATED PARTY TRANSACTIONS

     During the year ended June 30, 1998, the Company incurred $300,000 (1997 
     - $300,000) in fees payable to MFC Bancorp Ltd., and $300,000 (1997 - 
     $306,000) to Logan International Corp. which has a common director.  
     These fees were paid for the accounting, administration of the Company 
     and reimbursement of office expenses.  The Company also paid $22,000 
     (1997 - $22,000) in consulting fees and expense reimbursements to a 
     company which is owned and controlled by an officer of the Company.  
     During fiscal 1998, the Company paid $300,000 (1997 - $173,000) of 
     dividends on its preferred shares held by a subsidiary of MFC Bancorp 
     Ltd.  The Company also collected $300,000 (1997 - $173,000) of dividends 
     on its investments in preferred shares issued by another subsidiary of 
     MFC Bancorp Ltd.  The Company has an amount of $780,000 (1997 - 
     $541,000) due from Ichor Corporation.

                                      26

<PAGE>  27

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


13.  COMMITMENTS AND CONTINGENCIES

     The Company is involved in various claims and matters of litigation 
     arising in the ordinary course of its business including collection and 
     related actions concerning delinquent loans made by the Company.  The 
     Company does not believe that the outcome of such litigation will have a 
     material adverse effect on its business or financial conditions.


14.  SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CONSOLIDATED
       STATEMENT OF CASH FLOWS

     Significant non-cash transactions in 1998 include:

     a)  The Company received securities with fair value of $2,915,000 as a 
         partial settlement of a note receivable.

     b)  The Company's note receivable in the amount of $4,474,000 was partially
         offset against its note payable.

     Significant non-cash transaction in 1997 include:

     a)  The Company received a loan re-payment of $1,205,662 in the form of 
         shares of Ichor Corporation which was then related to the respective 
         borrower.


15.  DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY
       ACCEPTED ACCOUNTING PRINCIPLES
       
     The Company's consolidated financial statements have been prepared in 
     accordance with United States Generally Accepted Accounting Principles 
     ("U.S. GAAP") which conform in all material respects with Canadian 
     Generally Accepted Accounting Principles ("Canadian GAAP") except as set 
     forth below:

     ========================================================================
                                                      June 30,       June 30,
                                                         1998           1997
     ------------------------------------------------------------------------

     Net income (loss) for the year 
       in accordance with U.S. GAAP                 $  (2,122)     $   2,338
  
     Reconciliation                                        -              - 
                                                    ---------      ---------
     Net income (loss) for the year 
       in accordance with Canadian GAAP                (2,122)         2,338
  
     Accumulated deficit, beginning of year           (15,097)       (17,113)
  
     Dividends paid and payable                          (300)          (322)
                                                    ---------      ---------
     Accumulated deficit, end of year 
       in accordance with Canadian GAAP             $ (17,519)     $ (15,097)
     ========================================================================

     Basic earnings (loss) per share 
       in accordance with Canadian GAAP             $   (0.89)     $    0.74
     ========================================================================

     Fully diluted earnings (loss) per share 
       in accordance with Canadian GAAP             $   (0.89)     $    0.71
     ========================================================================

                                      27

<PAGE>  28

DRUMMOND FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables stated in thousands)
JUNE 30, 1998

=============================================================================


15.  DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY
       ACCEPTED ACCOUNTING PRINCIPLES (cont'd....)

     (a)  Investments
          -----------

          U.S. GAAP require that trading securities be carried at fair market 
          value with holdings gains and losses included in annual earnings.  
          Warrants to acquire common stock for which a readily determinable 
          fair market value is available and the Company has an unrestricted 
          right to sell the warrant and/or underlying securities within one 
          year are included in trading securities.  Canadian GAAP would 
          require that such securities be carried at the lower of cost or 
          market with gains recorded only as realized.  There were no 
          differences between U.S. and Canadian GAAP in the determination of 
          net income (loss) for the years ended June 30, 1998 and 1997.

     (b)  Extinguishment of Debt
          ----------------------

          U.S. GAAP require gains and losses on the extinguishment of debt to 
          be classified as an extraordinary item.  Under Canadian GAAP, the 
          gain or loss would be included in income (loss) from operations.

                                      28

<PAGE>  29

                                  SIGNATURES


In accordance with Section 13 or 15(d) of the Securities Exchange Act of 
1934, the Registrant has caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

                                   DRUMMOND FINANCIAL CORPORATION 


Date: September 28, 1998           By:  /s/ Michael J. Smith 
                                        ------------------------------------
                                        Michael J. Smith
                                        President, Chief Executive Officer,
                                        Chief Financial Officer and Director

In accordance with 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 and on the dates indicated.


/s/ Michael J. Smith                   Date:   September 28, 1998
-------------------------------
Michael J. Smith
President, Chief Executive Officer,
Chief Financial Officer and Director


/s/ Roy Zanatta                        Date:   September 28, 1998
-------------------------------
Roy Zanatta
Director


/s/ Oq-Hyun Chin                       Date:   September 28, 1998
-------------------------------
Oq-Hyun Chin
Director

                                      29

<PAGE>  30

                                EXHIBIT INDEX


   Exhibit No.                     Document
   -----------                     --------

     2.1  Arrangement Agreement among Drummond Financial (B.C.) Ltd., MFC 
          Bancorp Ltd. and Drummond Financial Corporation dated February 23, 
          1998. Incorporated by reference to Form T-3 of MFC Bancorp Ltd. 
          dated March 2, 1998.
     2.2  Amendment Agreement among Drummond Financial (B.C.) Ltd., MFC 
          Bancorp Ltd. and Drummond Financial Corporation dated March 23, 
          1998.
     3.1  Certificate of Incorporation dated June 1, 1993.  Incorporated by 
          reference to Form S-1 filed June 7, 1993.
     3.2  Certificate of Designations dated July 19, 1996.  Incorporated by 
          reference to Form 10-KSB dated September 20, 1996.
     3.3  Certificate of Amendment to the Certificate of Incorporation of 
          Drummond Financial Corporation dated October 14, 1996. Incorporated 
          by reference to Form 10-QSB dated November 11, 1996.
     3.4  Bylaws.  Incorporated by reference to Form S-1 filed June 7, 1993.
     3.5  Amendment to the Bylaws adopted as of July 20, 1993. Incorporated 
          by reference to Amendment No. 1 to Form S-1 filed July 26, 1993.
     4.1  Form of Indenture between CVD Financial Corporation and Harris 
          Trust Company of New York, as Trustee.  Incorporated by reference 
          to Form S-1 filed June 7, 1993. 
     4.2  Second Supplemental Indenture between Drummond Financial 
          Corporation and Harris Trust Company of New York, as Trustee, dated 
          for reference October 23, 1996.  Incorporated by reference to Form 
          10-QSB dated November 11, 1996.
     4.3  Third Supplemental Indenture among Drummond Financial Corporation, 
          Harris Trust Company of New York and The Bank of Nova Scotia Trust 
          Company of New York dated for reference May 13, 1997.  Incorporated 
          by reference to Form 10-KSB dated September 24, 1997.
     4.4  Fourth Supplemental Indenture among Drummond Financial Corporation, 
          The Bank of Nova Scotia Trust Company of New York and Drummond 
          Financial (B.C.) Ltd. dated for reference February 4, 1998.
    10.1  1993 Stock Option Plan.  Incorporated by reference to Form S-1 
          filed June 7, 1993.
    10.2  Profit Sharing Plan.  Incorporated by reference to Amendment No. 1 
          to Form S-1 filed July 26, 1993.
    10.3  Stock Purchase Agreement between CVD Financial Corporation and 
          Mercer International Inc. dated March 22, 1995.  Incorporated by 
          reference to Form 8-K dated March 22, 1995.

<PAGE>  31

    10.4  Subscription Agreement between CVD Financial Corporation and Logan 
          International Corp. dated for reference June 20, 1996.  
          Incorporated by reference to Form 8-K dated June 27, 1996.
    10.5  Subscription Agreement between CVD Financial Corporation and 
          Arbatax International Inc. dated for reference June 20, 1996. 
          Incorporated by reference to Form 8-K dated June 27, 1996.
      21. List of subsidiaries of the Registrant.
      27. Article 5 - Financial Data Schedule for year ended June 30, 1998 - 
          Form 10-KSB.