FEDERAL MORTGAGE MANAGEMENT, INC.

                       NOTES TO FINANCIAL STATEMENTS

                    

                                                                           


February 6, 1998



TO THE STOCKHOLDER
Federal Mortgage Management, Inc.
Sarasota, Florida


                 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


We  have  audited  the  accompanying statements of financial  condition  of
Federal  Mortgage Management, Inc., as of December 31, 1997 and  1996,  and
the  related  statements  of operations, changes in  stockholder  s  equity
(deficit)  and  cash  flows  for the years  then  ended.   These  financial
statements  are  the responsibility of the Corporation s  management.   Our
responsibility is to express an opinion on these financial statements based
on our audits.

We  conducted  our  audits in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audits  to
obtain reasonable assurance about 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  audits
provide a reasonable basis for our opinion.

In  our opinion, the financial statements referred to above present fairly,
in  all  material  respects,  the financial position  of  Federal  Mortgage
Management,  Inc.  at December 31, 1997 and 1996, and the  results  of  its
operations and its cash flows for the years then ended, in conformity  with
generally accepted accounting principles.

The  accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern.  As discussed in  Note  P  to
the  financial  statements, the Corporation has suffered  recurring  losses
from  operations  and has a net capital deficiency that raises  substantial
doubt about its ability to continue as a going concern.  Management s plans
in  regard  to  these matters are also described in Note P.  The  financial
statements  do  not  include any adjustments that  might  result  from  the
outcome of this uncertainty.

Certified Public Accountants


                                     
                     FEDERAL MORTGAGE MANAGEMENT, INC.

                     STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                                                    December 31,
                                                   1997           1996
ASSETS
<S>                                             <C>           <C>
Cash                                            $   71,877    $   177,283
Accounts receivable, net                               200            200
Accounts receivable - related party                209,505        217,730
Notes receivable                                    32,500         32,500
Notes receivable - affiliate, net                                 100,000
Portfolio of residential mortgage loans - net      257,911      1,745,094
Prepaid expenses                                                   29,225
Investments                                                       104,601
Other real estate owned                                           217,441
Deferred financing costs, net of
 accumulated amortization of
 $634,867 and $476,150                             158,717        317,433
                                                ----------    -----------
                                                $  730,710     $2,941,507
                                                ==========    ===========

LIABILITIES AND STOCKHOLDER S EQUITY (DEFICIT)

LIABILITIES

Interest payable                                $   19,850    $    27,413
Other liabilities                                    1,548         15,590
Current portion of notes payable                 2,688,400      1,230,523
Notes payable                                                   2,733,200
                                                ----------    -----------
                                                 2,709,798      4,006,726
                                                ----------    -----------
STOCKHOLDERS EQUITY (DEFICIT)

Common stock, $.01 par value, 150,000
 shares authorized, 100,000 shares
 issued and outstanding                              1,000          1,000
Preferred stock, $.01 par value,
 100,000 shares authorized,
 no shares issued and outstanding
Retained deficit                                (1,980,088)    (1,081,583)
Net unrealized appreciation on securities
 available for sale                                                15,364
                                                -----------   ------------
                                                (1,979,088)    (1,065,219)
                                                -----------   ------------
                                                $  730,710    $ 2,941,507
                                                ===========   ============

</TABLE>





                    See notes to financial statements.
                                     
                                     
                     FEDERAL MORTGAGE MANAGEMENT, INC.

                         STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                         For the Years Ended
                                             December 31,
                                     --------------------------
                                     1997          1996
<S>                                  <C>           <C>
REVENUE

Accretion - CD interest              $             $     6,577
Interest income - mortgage loans         220,693       249,252
Interest income                            7,180
Other income                               8,622         3,632
                                     -----------   ------------
                                         236,495       259,461
                                     -----------   -----------
EXPENSES

Amortization                             158,716       158,716
Bad debt expense                         295,499
Commissions                               13,588        15,942
Consulting fees                              793        13,250
Executive compensation                    20,520        81,157
Interest expense                         324,258       347,237
Legal and accounting                      14,746         6,755
Licenses and fees                          2,037         2,407
Loss on sale of mortgage loans
 and other real estate owned             244,609        11,699
Miscellaneous                              4,630         5,580
Office supplies                            3,886         1,398
Postage                                    3,386         4,039
Rent                                      11,459        11,529
Salary and benefits                       23,143
Service fees                               5,189        10,343
Taxes                                      4,399         1,373
Travel and entertainment                   4,142         7,187
                                     -----------   -----------
                                       1,135,000       678,612
                                     -----------   -----------
NET LOSS                             $  (898,505)  $  (419,151)
                                     ===========   ===========
LOSS PER COMMON SHARE                $    (8.985)  $    (4.192)
                                     ===========   ===========

</TABLE>


                    See notes to financial statements.
                                     
                                     
                                     
                     FEDERAL MORTGAGE MANAGEMENT, INC.

          STATEMENTS OF CHANGES IN STOCKHOLDER S EQUITY (DEFICIT)
<TABLE>
<CAPTION>

                                              Unrealized
                                              Appreciation
                                              on Securities
                      Common      Retained    Available
                      Stock       Deficit     For Sale      Total
<S>                 <C>         <C>           <C>           <C>
BALANCE,
at January 1, 1996  $  1,000    $  (662,432)  $             $  (661,432)

NET LOSS - 1996                    (419,151)                   (419,151)

CHANGE IN UNREALIZED
 APPRECIATION ON
 SECURITIES AVAILABLE
 FOR SALE                                          15,364        15,364
                    ---------   ------------  ----------- -------------
BALANCE,
at December 31, 1996    1,000    (1,081,583)       15,364    (1,065,219)

NET LOSS - 1997                    (898,505)                   (898,505)

Change in unrealized
 appreciation on
 securities available
 for sale                                         (15,364)      (15,364)
                    ---------   ------------  ------------   -------------
BALANCE
at December 31, 1997   $1,000   $(1,980,088)  $            $ (1,979,088)
                    =========   ============  ============   =============
</TABLE>

                    See notes to financial statements.
                                     
                     FEDERAL MORTGAGE MANAGEMENT, INC.

                         STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                   For the Years Ended
                                                       December 31,
                                                  ---------------------
                                                  1997             1996
<S>                                               <C>            <C>
OPERATING ACTIVITIES
Net loss                                          $   (898,505)  $(419,151)

Adjustments to reconcile net loss to net
cash provided (used) by operating activities:

Accretion                                                           (6,577)
Amortization                                           158,716     158,716

Changes in operating assets and liabilities:

Accounts and notes receivable, net                     108,225    (294,672)
Portfolio of residential mortgage loans              1,487,183     633,807
Prepaid expenses                                        29,225     (16,070)
Interest payable and other liabilities                 (21,605)    (36,966)
Other real estate owned                                217,441     (33,479)
                                                  -------------  ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES     1,080,680     (14,392)
                                                  -------------  ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES

Sale of certificates of deposit                         89,237
                                                  -------------  ----------
NET CASH USED BY FINANCING ACTIVITIES

Redemption of note holders                          (1,275,323)   (266,977)
                                                  -------------  ----------
DECREASE IN CASH                                      (105,406)   (281,369)

CASH, at beginning of year                             177,283     458,652
                                                  -------------  ----------
CASH, at end of year                              $     71,877   $ 177,283
                                                  =============  ==========

SUPPLEMENTAL DISCLOSURES:
Interest paid                                     $    331,821   $ 349,927
                                                  =============  ==========
</TABLE>



                    See notes to financial statements.
                                     
                                     
                     FEDERAL MORTGAGE MANAGEMENT, INC.

                       NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996



NOTE A - ORGANIZATION

Federal   Mortgage  Management,  Inc.  (the   Corporation  ),   a   Florida
corporation,  was  organized  on December 9,  1992.   The  purpose  of  the
Corporation is to acquire and deal in residential mortgage loans secured by
first  liens on real estate, and to acquire insured instruments of deposits
and/or  debt  securities  issued  by  the  United  States  government   and
instrumentalities  thereof.   Purchase of the residential  mortgage  loans,
instruments  of  deposits and debt securities are to be in accordance  with
policies  set  forth  in the Acquisition Policy of  the  Corporation.   The
purchases of the residential mortgage loans are to be financed by  issuance
of  notes  payable to investors.  Interest payments on the notes and  other
distributions will be made in accordance with the registration statement.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

Investment in Securities

The Corporation s investments in securities are classified in three
categories and accounted for as follows:

  Trading  Securities.  Securities held principally for resale in the  near
  term  are  classified as trading securities and recorded  at  their  fair
  values.  Unrealized gains and losses on securities are included in  other
  income.  The Corporation presently has no such securities.

  Securities to be Held to Maturity.  Instruments for which the Corporation
  has  the positive intent and ability to hold to maturity are reported  at
  cost,  adjusted for amortization of premiums and accretion  of  discounts
  which  are  recognized in interest income using the interest method  over
  the   period  to  maturity.   The  Corporation  presently  has  no   such
  securities.

  Securities Available for Sale.  Securities available for sale consist  of
  zero  coupon certificates of deposit which are not classified as  trading
  securities nor as securities to be held to maturity.

Declines in the fair value of individual held-to-maturity and available-for-
sale  securities  below  their costs that are other  than  temporary  would
result  in  write-downs of the individual securities to their  fair  value.
The Corporation presently has experienced no such declines.

Gains  and  losses  on  the  sale  of securities  available  for  sale  are
determined using the specific-identification method.

Portfolio of Residential Mortgage Loans

Residential  mortgage loans are recorded at lower of cost  or  fair  market
value.   Purchase discounts are not amortized since the mortgage loans  are
owned  for several months and then sold to investors.  The amortization  of
the  discount would not be materially significant to the operating  results
of the Corporation.

Deferred Financing and Marketing Costs

Deferred financing and marketing costs are amortized on a straight line
basis over five years representing the period of the maturities of the
notes payable.

Statements of Cash Flow

For  purposes of reporting cash flows, the Corporation considers  cash  and
cash equivalents as those amounts which are not subject to restrictions  or
penalties and have an original maturity of three months or less.

Use of Estimates

The  preparation  of  financial  statements in  conformity  with  generally
accepted  accounting principles requires management to make  estimates  and
assumptions that affect the reported amounts of assets and liabilities  and
disclosure  of  contingent  assets and  liabilities  at  the  date  of  the
financial  statements  and the reported amounts of  revenues  and  expenses
during  the  reporting  period.  Actual results  could  differ  from  those
estimates.

Reclassifications

Certain  reclassifications have been made to the 1996 financial  statements
to   conform   with  the  1997  financial  statement  presentation.    Such
reclassifications had no effect on net income as previously reported.

Earnings per Share

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share .  Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike  primary earnings per share, basic earnings per share  excludes  any
dilutive effects of options, warrants and convertible securities.   Diluted
earnings per share is very similar to the previously reported fully diluted
earnings  per  share.  All earnings per share amounts for all periods  have
been presented, and where appropriate, restated to conform to the Statement
128  requirements.   For the years ending December 31, 1997  and  1996  the
Corporation had no dilutive securities.

NOTE C - NOTES RECEIVABLE - AFFILIATE, NET

Notes receivable-affiliate consist of short-term promissory notes.  (See
Note L)

The carrying amount of notes receivable-affiliate at December 31, is as
follows:

<TABLE>
<CAPTION>
                                               1997        1996
                                             ---------   ---------
<S>                                          <C>         <C>
Notes receivable-affiliate                   $200,000    $100,000
Allowance for uncollectible notes             200,000
                                             ---------   ---------
Notes receivable-affiliate, net              $     -     $100,000
                                             =========   =========
</TABLE>

NOTE D - INVESTMENTS

Investments consist of a zero coupon certificate of deposit.  In 1996, this
investment  was classified as available for sale and was reported  at  fair
value.  The Corporation had no investments at December 31, 1997.

The carrying amount of investment securities is as follows:

<TABLE>
<CAPTION>
                                       Gross        Gross
                         Amortized   Unrealized   Unrealized   Fair
                           Cost        Gains        Losses    Value
                         ---------   ----------   ----------  --------
<S>                      <C>         <C>          <C>         <C>
December 31, 1996:
Certificates of deposit  $  89,237   $   15,364   $           $104,601
                         =========   ==========   ==========  ========
</TABLE>


NOTE E - PORTFOLIO OF RESIDENTIAL MORTGAGE LOANS - NET

The Corporation purchases residential mortgage loans at a discount from the
face  amount of the loans with the intention of selling the loans at a gain
after  servicing them for a relatively short period of time.  The  mortgage
loans  are purchased by investors based on various factors inherent in  the
group  of  mortgages  presented  for  sale  which  are  considered  in  the
negotiation process.

The portfolio of residential mortgage loans consists of the following:

<TABLE>
<CAPTION>
                                              December 31,
                                        ------------------------
                                           1997        1996
<S>                                     <C>         <C>
Face value                              $ 271,670   $2,025,780
Discount                                   (6,759)    (250,686)
Less:  allowance for losses                (7,000)     (30,000)
                                        ----------- -----------
                                        $ 257,911   $1,745,094
                                        =========== ===========
</TABLE>


The  mortgages have various maturities ranging from 6 months to  30  years,
and  varying  interest  rates  ranging from 7%  to  18%.   The  residential
mortgage  loans  are secured by first liens on residential  real  property.
The  Corporation  s  policy is to acquire residential mortgage  loans  with
balances that do not exceed 90% of the fair market value of the real estate
or  the loan acquisition price does not exceed 80% of the fair market value
of  the  collateral real estate at the time of the loan  acquisition.   The
Corporation purchases mortgage loans collateralized by real estate  located
in  the  United States.  In 1997, the Corporation liquidated the  long-term
portion  of  its  mortgage  portfolio.  Management  intends  to  focus  its
mortgage  lending  on  interim loans with maturities of  approximately  six
months.


NOTE F - OTHER REAL ESTATE OWNED

Other real estate owned represents real property acquired by foreclosure or
in  settlement of debt.  Other real estate owned is valued at the lower  of
the  property s fair value or the recorded investment in the mortgage.   At
the  time of foreclosure, if the fair value of the real estate acquired  is
less  than the Partnership s recorded investment in the mortgage,  a  write
down  is  recognized through a charge to the allowance for mortgage losses.
Gains  or  losses on the sale of and losses on the periodic revaluation  of
real estate acquired are charged or credited to noninterest expense.

At  December 31, 1996, the Corporation was holding properties for sale with
a  cost  basis  of $217,441.  During 1997, the Corporation  liquidated  its
other real estate owned at a loss of approximately $112,000.  No other real
estate owned was held at December 31, 1997.

NOTE G - NOTES PAYABLE

During  the  year  ended  December 31, 1994, the Corporation  issued  notes
through  a public offering to finance the purchase of residential  mortgage
loans.   The notes carry an interest rates of 9.00% and 9.25%.   The  notes
totaling  $2,688,400, mature December 21, 1998.  Interest is  paid  monthly
with principal due at maturity.

The notes are collateralized by all the assets of the Corporation.  For the
years  ended December 31, 1997 and 1996, the Corporation incurred  interest
expense  of  $324,258  and $347,237, respectively,  related  to  the  notes
payable.

NOTE H - STOCKHOLDER S EQUITY

Preferred Stock

The  Board of Directors will establish the dividend rate, redemption  price
and  rights of the holders of preferred stock prior to the date of issuance
of  these  shares.  No preferred stock has been issued as of  December  31,
1997  and  1996.  The Board of Directors has not established the  preferred
stockholder s preferences and rights as of the date of this report.

NOTE I - DEFERRED FINANCING AND MARKETING COSTS

Deferred  financing costs consist of legal and accounting  fees  associated
with  the  filing  of  the registration statement with the  Securities  and
Exchange  Commission  as well as costs incurred for the  promotion  of  the
issuance  of  the notes payable.  These costs are amortized on  a  straight
line basis over five years.

NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In  addition  to  the  portfolio of residential mortgage  loans,  financial
instruments that also subject the Corporation to concentrations  of  credit
risk  consist  principally of cash deposits.  The Corporation places  these
investments with a single financial institution.  Deposits are  insured  up
to  $100,000.   At any given time, the Corporation may have  cash  deposits
exceeding the insured amount.

NOTE K - INCOME TAXES

The  Corporation  is  recognized  as a Sub-Chapter  S  corporation  by  the
Internal  Revenue Service.  Therefore, the financial statements include  no
provision  for federal income taxes since the income or loss is  reportable
on the tax return of the stockholder.

NOTE L - RELATED PARTY TRANSACTIONS

The sole stockholder and affiliated entities entered into transactions with
the Corporation as follows:

As  of December 31, 1996, the Corporation had accounts receivable from  the
stockholder  in  the amount of $11,400.  This was paid  during  1997.   The
stockholder received compensation of approximately $20,520 and  $81,000  in
1997 and 1996, respectively.

During  1997  and 1996, the Corporation purchased a portfolio  of  mortgage
loans   from   an  affiliate  for  approximately  $390,000  and   $138,000,
respectively.  Additionally, during 1996, the affiliate collected  $131,752
from the sale of mortgages owned by the  Corporation.  This was paid during
the  year  ended  December 31, 1997.  In December of 1997, the  Corporation
sold   mortgages  to  an  affiliated  company.   The  sales  price  totaled
approximately $1,028,000, at the Corporation s cost basis.

During 1996, the Corporation advanced an affiliate start-up costs while  in
its  development  stage.  Advances as of December 31,  1996  were  $60,421.
These advances were repaid during the year ended December 31, 1997.

The  stockholder  is  the  controlling  stockholder  of  a  related  entity
organized in 1995 to develop and implement a franchise business pursuant to
which  the  franchisee will purchase residential single family  houses  for
resale.   The  corporation purchased short-term promissory notes  from  the
entity  in  the  amount of $100,000 which pay interest of  12%  per  annum.
During  1997,  the Corporation purchased additional short-term  promisssory
notes  in  the amount of $100,000, for a total of $200,000 at December  31,
1997.  (See Note C)

For  the  years ended December 31, 1997 and 1996, the Corporation  utilized
office  space from an affiliate for which it paid $11,459 and $11,529  rent
expense, respectively.

The Corporation prepaid management fees to an affiliated company.  Based on
the  current financial position of the company it was determined  that  the
Corporation had overpaid.  Included in accounts receivable - related  party
is the $209,505 overpayment.

An  affiliated company services the mortgages of the Corporation.  For  the
years ended December 31, 1997 and 1996, the Corporation paid servicing fees
to the affiliate in the amount of $5,189 and  $10,343, respectively.

NOTE M -FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE
        WITH THE REQUIREMENTS OF SFAS NO. 107

The  Corporation s financial instruments consist of all of its  assets  and
liabilities with the exception of other real estate and deferred  financing
costs.  The Corporation s management has determined that the fair value  of
all  of its financial instruments is equivalent to the carrying cost.   The
mortgage  portfolio  is  purchased with the intent of  a  relatively  short
holding period of several months.  Therefore, any differences in the  value
of  the  mortgage  portfolio due to changes in market  interest  rates  are
minimal.   Furthermore,  each  purchase  and  sale  of  mortgages  by   the
Corporation  is  a private, negotiated transaction.  There  is  no  readily
established market for the Corporation s mortgage portfolio.

The  Corporation s note obligations are not traded on an established market
and the only activity with respect to the obligations are normal, scheduled
redemptions.   The  Corporation s management  estimates  that  the  current
interest  rate  which the Corporation would need to pay in  order  to  sell
similar  note obligations is approximately equivalent to the rates  of  the
outstanding note obligations.

NOTE N -CLASSIFICATION OF MORTGAGE PORTFOLIO IN ACCORDANCE
         WITH THE REQUIREMENTS OF SFAS NO. 115

The Corporation s mortgage portfolio is a trading security.  As such, it is
required to be carried at fair value, with any unrealized holding gains  or
losses  included in earnings.  For the reasons discussed  in  Note  M,  the
carrying  value  of  the  mortgage portfolio has  been  determined  by  the
Corporation s management to be equivalent to its carrying cost.

NOTE O - CONCENTRATION OF CREDIT RISK

The  Corporation invests in various financial institutions  whose  deposits
are  insured by the Federal Deposit Insurance Corporation (FDIC)  up  to  a
maximum of $100,000.  At December 31, 1997 and 1996, the Corporation had no
deposits in excess of FDIC insured limits.

NOTE P - GOING CONCERN

As shown in the accompanying financial statements, the Corporation incurred
a  net loss of $898,505 during the year ended December 31, 1997, and as  of
that date, the Company s current liabilities exceeded its current assets by
approximately $2,200,000.  The ability of the Corporation to continue as  a
going  concern  is dependent on obtaining additional capital and  financing
and  operating  at  a profitable level.  The financial  statements  do  not
include  any  adjustments that might be necessary  if  the  Corporation  is
unable to continue as a going concern.  As disclosed in the Form 10K-SB for
the  fiscal  year  ending  December  31,  1996,  Management  anticipates  a
significant decline in overhead expenses due to stringent cost cutting  and
expense controls.  In discussions with its independent auditors, a proposed
plan of note maturity extension for the Series 1994A-IV has been suggested.
Management,  in  consultation with the Trustee and legal  counsel  will  be
addressing the feasibility, logistics and necessary steps to proffer such a
definitive plan to the noteholders of the aforementioned Series during  the
first  half  of fiscal 1998.  Such plan may include, but not be limited  to
the  extension of the respective maturity from 24 to 36 months  from  their
scheduled maturation.

NOTE Q - SUBSEQUENT EVENTS

In  January of 1998, the Corporation sold mortgages totaling $55,000 to  an
affiliated company.  (See Note L)