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

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

                                -----------------

                                   FORM 10-QSB

                                -----------------

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

                For the quarterly period ended September 30, 1997

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

               For the transition period from _______ to _______.

                         Commission file number: 33-98178


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


                NEW JERSEY                                 22-33-82016
      ------------------------------                  -------------------
     (State or Other Jurisdiction of                   (I.R.S. Employer
     Incorporation or Organization)                   Identification No.)


     100 VILLAGE COURT, HAZLET, NEW JERSEY                   07730
     ---------------------------------------              ----------
     (Address of Principal Executive Offices)             (Zip Code)


                                 (908) 888-1055
                -----------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


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 
   ----      ----

                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes        No  
   ----      ----
                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 500 shares common stock, no par value
as of June 30, 1997

         Transitional Small Business Disclosure Format (check one):

Yes        No  X
   ----      ----
================================================================================
<PAGE>


<TABLE>
<CAPTION>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                                FORM 10-QSB INDEX

                                                                                     PAGE
                                                                                     -----
<S>      <C>                                                                         <C> 
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements ....................................................   1

MATZEL & MUMFORD MORTGAGE FUNDING, INC.

         Balance Sheets as of September 30, 1997 (unaudited) and December 31,
           1996 Statements of Operations and Retained Earnings for the Nine and
           Three Months ended September 30, 1997 (unaudited) .....................
         Statement of Cash Flows for the Nine Months Ended
           September 30, 1997 (unaudited).........................................
         Notes to Financial Statements (unaudited)................................

MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

         Balance Sheets as of September 30, 1997 (unaudited) and December 31,
           1996 Statement of Cash Flows for the Nine Months Ended September 30,
           1997 (unaudited)........................................................
         Notes to Financial Statements (unaudited).................................

MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

          Balance Sheets as of September 30, 1997 (unaudited) and December 31,
            1996 Statement of Cash Flows for the Nine Months Ended September 30,
            1997 (unaudited).......................................................
          Notes to Financial Statements (unaudited)................................

MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

          Balance Sheets as of September 30, 1997 (unaudited) and December 31,
            1996 Statements of Operations and Partners' Capital for the Nine and
            Three Months ended September 30, 1997 (unaudited)......................
          Statement of Cash Flows for the Nine Months Ended
            September 30, 1997 (unaudited).........................................
          Notes to Financial Statements (unaudited)................................

Item 2.  Management's Plan of Operation ...........................................

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

PART II. OTHER INFORMATION
<S>                                                                                   <C>  
Item 1.  Legal Proceedings ........................................................

Item 2.  Changes in Securities ....................................................

Item 3.  Defaults Upon Senior Securities ..........................................

Item 4.  Submission of Matters to a Vote of Security Holders.......................

Item 5.  Other Information ....... ................................................

Item 6.  Exhibits and Reports on Form 8-K .........................................


</TABLE>


<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.


<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC

                              FINANCIAL STATEMENTS

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997


<PAGE>



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                          Page
                                                                          ----
Balance Sheets ........................................................     1

Statement of Operations and Retained Earnings .........................   2 - 3

Statement of Cash Flows ...............................................     4

Notes to the Financial Statements .....................................   5 - 6

<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                                 BALANCE SHEETS
                 AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

                                                     9/30/97          12/31/96
                                                    ----------      ----------
                                                   (unaudited)        (audited)

                                     ASSETS

Cash ...........................................    $  273,454       $  210,207
Prepaid income taxes ...........................            75
Mortgages receivable ...........................     3,757,729        3,800,000
Deferred costs, net ............................       196,680          228,573
                                                    ----------       ----------
TOTAL ASSETS ...................................    $4,227,968       $4,238,780
                                                    ==========       ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts Payable ...............................                     $      100
Notes Payable ..................................    $3,750,000        3,750,000
                                                    ----------       ----------
TOTAL LIABILITIES ..............................     3,750,000        3,750,100
                                                    ----------       ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY
   Common stock, no par value, 5,000
     shares authorized
     500 shares issued and outstanding .........        10,000           10,000
   Additional paid-in capital ..................       490,000          490,000
   Retained earnings ...........................       (22,062)         (11,320)
                                                    ----------       ----------
TOTAL STOCKHOLDERS' EQUITY .....................       477,938          488,680
                                                    ----------       ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....    $4,227,938       $4,238,780
                                                    ==========       ==========


                                       -1-


<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                   (UNAUDITED)

Revenue .....................................................         $474,062

Interest expense ............................................          435,971
                                                                      --------
Income (loss) before G & A and amortization .................           38,091

General & administrative expenses ...........................           16,939

Amortization ................................................           31,893
                                                                      --------
Net Income ..................................................          (10,741)

Retained Earnings, beginning of period ......................         $(11,321)

Retained Earnings, end of period ............................         $(22,062)
                                                                      ========


                                      -2-


<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
                                   (UNAUDITED)

Revenue ...........................................     $155,791

Interest expense ..................................      147,421
                                                        --------
Income (loss) before G & A and amortization .......        8,370

General and administrative ........................          929

Amortization ......................................       10,631
                                                        --------
Net Income ........................................     $ (3,190)

Retained Earnings, beginning of period ............     $(18,872)

Retained Earnings, end of period ..................     $(22,062)
                                                        ========




                                       -3-


<PAGE>



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                             STATEMENT OF CASH FLOWS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income .................................................       $(10,741)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Amortization ...........................................         31,893
       Decrease in mortgages receivable .......................         42,270
       Increase in prepaid income taxes .......................            (75)
       Increase in accounts payable ...........................           (100)
                                                                      --------

NET CASH USED IN OPERATING ACTIVITIES .........................         63,247

DECREASE IN CASH ..............................................         63,247

CASH, Beginning of period .....................................        210,207
                                                                      --------
CASH, End of period ...........................................       $273,254
                                                                      ========


                                       -4-

<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS

          Matzel & Mumford Mortgage Funding, Inc. (the "Company") is a New
          Jersey corporation formed for the purpose of financing loans to real
          estate development companies controlled by the principals of The
          Matzel & Mumford Organization, Inc. ("MMO") which are engaged in the
          business of developing single-family residential housing communities.
          The Company closed a public offering of its intermediate term secured
          notes (the "Notes") on May 15, 1996 with issuing $3,750,000 principal
          amount of Notes. The offering proceeds, along with the additional paid
          in capital in excess of organizational expenses, will be used to make
          loans primarily for projects in the early stages of development. The
          Company has committed to maintain at least 90% of the offering
          proceeds in secured loans, subject to certain conditions.

          The Company intends to charge interest on the loans at a rate of 16%
          or more and will also assess each borrower an administrative fee. Debt
          service payments on the project loans, together with the
          administrative fee, are intended to service the 15% interest due on
          the Notes, the .5% loan servicing fee payable to MMO, and other
          expenses.

          The Company filed a registration statement with respect to its Notes
          offering under the Securities and Exchange Act of 1933, as amended.
          The Company's registration statement was declared effective by the
          Securities and Exchange Commission on February 7, 1996.

          DEFERRED COSTS

          Deferred costs include legal, accounting and filing fees incurred in
          connection with the Company's public offering.

          INCOME TAXES

          The stockholders of the Company have elected "S" corporation status
          for federal and state income tax purposes.

                                       -5-

<PAGE>



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (Continued)

          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 at the date of the disclosure of contingent assets and
          liabilities at the date of the financial statements and the reported
          amounts of revenues and expenses during the period. Actual results
          could differ from those estimates.

NOTE 2 -- MORTGAGES RECEIVABLE

          Mortgages receivable represent loans made to affiliated entities
          bearing interest at a rate of 16%. The loans have maturity dates
          ranging from twelve to twenty four months.

                                       -6-


<PAGE>


                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                              FINANCIAL STATEMENTS

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997



<PAGE>

                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           -----

Balance Sheets ..........................................                    1

Statement of Cash Flows..................................                    2

Notes to the Financial Statements .......................                  3 - 6

<PAGE>


                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                                 BALANCE SHEETS
         AS OF SEPTEMBER 30, 1997 AND JULY 15, 1997 (date of inception)

                                                         09/30/97     07/15/97
                                                       (unaudited)   (audited)
                                                       -----------  -----------
                                     ASSETS

Cash ...............................................   $   12,435
Performance Bond ...................................       71,812
Utility deposit receivable .........................        6,496   $    6,496
Inventories ........................................    1,273,745    1,175,892
                                                       ----------   ----------
TOTAL ASSETS .......................................   $1,364,488   $1,182,388
                                                       ==========   ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgage payable - M&M Mortgage Funding ............   $  832,690   $  650,690
Mortgage payable - bank ............................       40,000       40,000
Due to affiliate ...................................      491,798      491,698
                                                       ----------   ----------
TOTAL LIABILITIES ..................................    1,364,488    1,182,388
                                                       ----------   ----------
PARTNERS' CAPITAL ..................................  
                                                       ----------   ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ............   $1,364,488   $1,182,388
                                                       ==========   ==========

                                       -1-

<PAGE>



                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                            STATEMENTS OF CASH FLOWS
     FOR THE PERIOD SEPTEMBER 30, 1997 TO JULY 15, 1997 (date of inception)
                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds ..........................         (71,812)
       Increase in inventories ................................         (97,853)
                                                                       --------
NET CASH USED IN OPERATING ACTIVITIES .........................        (169,665)
                                                                       --------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable .........................         182,000
       Proceeds from affiliate ................................             100
                                                                       --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .....................         182,100
                                                                       --------
INCREASE IN CASH ..............................................          12,435

CASH, Beginning of period......................................
                                                                       --------
CASH, End of period ...........................................        $ 12,435
                                                                       ========



                                       -2-

<PAGE>



                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS AND ORGANIZATION

          Matzel & Mumford at Apple Ridge II, L.L.C. ("M & M at "Apple Ridge
          II") is a New Jersey limited liability company formed for the purpose
          of purchasing land in the Township of Wall, New Jersey and developing
          and constructing 17 single-family homes on that land. One additional
          with a farm house closed October 31, 1996 by an affiliate and was
          transferred to the Company on July 14, 1997. Through September 30,
          1997, there has been no operating activities.

          REVENUE RECOGNITION

          Revenues arising from home sales will be recognized under the full
          accrual method. Under this method, income is recognized when all terms
          relating to the sale of a unit are complete, consideration is
          exchanged, and title is conveyed to the buyer.

          INVENTORIES

          Inventories are stated at the lower of cost or estimated net
          realizable value, which is determined by reducing the anticipated net
          sales proceeds by the estimated costs necessary to complete or improve
          the property to the condition used in arriving at the anticipated
          selling price.

          Inventory costs are comprised of direct unit and allocated costs.
          Development costs are capitalized until the property is complete and
          title has been conveyed to the buyer. Development costs generally
          include land and improvements, house construction, project overhead,
          interest and a portion of construction management fees. Interest
          incurred is capitalized based upon interest on specifically related
          debt.

          A portion of the construction management fees paid to a related party
          is capitalized by the Company.

          MEMBERS CAPITAL

          The two managing members have pledged a total of $1,000 in capital
          contributions.


                                       -3-

<PAGE>



                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)

          INCOME TAXES

          The Company is organized and operates as a limited liability company
          which is not subject to Federal or state income taxes. Accordingly, no
          provision for income taxes has been made. The earnings or losses of
          the Company are included on each member's tax return, according to the
          terms of the operating agreement.

          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 period. Actual results could differ from those
          estimates.

NOTE 2 -- INVENTORIES

          Inventories relating to the development of single-family homes consist
          of the following at September 30, 1997:

              Land .......................................          $  889,707
              Approval costs .............................             198,742
              Land improvements and
                construction costs .......................              48,100
              Financing costs ............................             137,196
                                                                    ----------
                                                                    $1,273,745
                                                                    ==========

     All expenses incurred for development of the project are capitalized.
Selling expenses which do not benefit future periods and general and
administrative expenses are treated as period costs and are expensed as
incurred. Interest and management fees capitalized during the period ended
September 30, 1997 are $137,196.

                                       -4-


<PAGE>

                   MATZEL & MUMFORD AT APPLE RIDGE II, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 3 -- MORTGAGE PAYABLE

          The Company has a mortgage payable of $1,000,000 to Matzel & Mumford
          Mortgage Funding, Inc., an entity controlled by the members of M&M at
          South Brunswick, which bears interest at 16%. Interest payments are
          payable quarterly until July 15, 1998 when the outstanding principal
          balance is due. The note is collateralized by a first mortgage on the
          property.

          The Company also has a loan payable to a bank bearing interest at
          prime, plus 1 1/2%. Interest payments are payable monthly until
          October 30, 1998 when the outstanding principal balance is due. The
          loan is collateralized by a mortgage on the property.

NOTE 4 -- RELATED PARTY TRANSACTIONS

          Included in due to/from affiliates are net cash advances from an
          affiliated company of the managing member of the Company. The advances
          are short term in nature and bear no interest. The amounts are to be
          repaid from available cash flow.

                                       -5-

<PAGE>




                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                              FINANCIAL STATEMENTS

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997

 
<PAGE>



                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          INDEX TO FINANCIAL STATEMENTS

                                                                    Page
                                                                    -----
Balance Sheets ..............................................         1

Statement of Cash Flows......................................         2

Notes to the Financial Statements ...........................       3 - 6

<PAGE>



                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                                 BALANCE SHEETS
                 AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

                                                       09/30/97        12/31/96
                                                      (unaudited)     (audited)
                                                       ----------     ---------

                                     ASSETS

Cash ...........................................      $   23,598      $      457
Performance Bond ...............................         256,093
Inventories ....................................       7,318,811       4,404,951
                                                      ----------      ----------
TOTAL ASSETS ...................................      $7,598,502      $4,405,408
                                                      ==========      ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgage payable - M&M Mortgage Funding ........      $2,750,000      $2,800,000
Mortgage payable - bank ........................       3,291,901
Mortgage payable - second ......................                         945,125
Accounts payable ...............................         293,988          18,063
Note Payable ...................................         300,000
Customer deposits ..............................         166,451
Due to affiliate ...............................         796,162         642,220
                                                      ----------      ----------
TOTAL LIABILITIES ..............................       7,598,502       4,405,408
                                                      ----------      ----------
PARTNERS' CAPITAL...............................
                                                      ----------      ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ........      $7,598,502      $4,405,408
                                                      ==========      ==========



                                       -1-


<PAGE>


                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                            STATEMENTS OF CASH FLOWS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds ........................       $  (256,093)
       Increase in inventories ..............................        (2,913,860)
       Increase (decrease) in accounts payable ..............           275,925
       Increase (decrease) in customer deposits .............           166,451
                                                                    -----------
NET CASH USED IN OPERATING ACTIVITIES .......................        (2,727,577)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable .......................         4,541,901
       Payments on land mortgages ...........................        (1,945,125)
       Proceeds from affiliate ..............................           153,942
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................         2,750,718
                                                                    -----------

INCREASE IN CASH ............................................            23,141

CASH, Beginning of period ...................................               457
                                                                    -----------
CASH, End of period .........................................       $    23,598
                                                                    ===========


                                       -2-

<PAGE>


                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS AND ORGANIZATION

          Matzel & Mumford at South Brunswick, L.L.C. ("M&M at South
          Brunswick") is a New Jersey limited liability company formed for the
          purpose of purchasing land in the Township of South Brunswick, New
          Jersey and developing and constructing 91 single-family homes on that
          land. Through September 30, 1997, there has been no operating
          activities.

          REVENUE RECOGNITION

          Revenues arising from home sales will be recognized under the full
          accrual method. Under this method, income is recognized when all terms
          relating to the sale of a unit are complete, consideration is
          exchanged, and title is conveyed to the buyer.

          INVENTORIES

          Inventories are stated at the lower of cost or estimated net
          realizable value, which is determined by reducing the anticipated net
          sales proceeds by the estimated costs necessary to complete or improve
          the property to the condition used in arriving at the anticipated
          selling price.

          Inventory costs are comprised of direct unit and allocated costs.
          Development costs are capitalized until the property is complete and
          title has been conveyed to the buyer. Development costs generally
          include land and improvements, house construction, project overhead,
          interest and a portion of construction management fees. Interest
          incurred is capitalized based upon interest on specifically related
          debt.

          A portion of the construction management fees paid to a related party
          is capitalized by the Company.

          MEMBERS CAPITAL

          The two managing members have pledged a total of $1,000 in capital
          contributions.



                                       -3-

<PAGE>



                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)

          INCOME TAXES

          The Company is organized and operates as a limited liability company
          which is not subject to Federal or state income taxes. Accordingly, no
          provision for income taxes has been made. The earnings or losses of
          the Company are included on each member's tax return, according to the
          terms of the operating agreement.

          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 period. Actual results could differ from those
          estimates.

NOTE 2 -- INVENTORIES

          Inventories relating to the development of single-family homes consist
          of the following at September 30, 1997:

           Land ............................................   $3,523,461
           Approval costs ..................................      615,726
           Land improvements and
             construction costs ............................    1,561,785
           Project overhead ................................      595,128
           Financing costs .................................      934,232
           Sales and marketing .............................       88,479
                                                               ----------
                                                               $7,318,811
                                                               ==========

          All expenses incurred for development of the project are capitalized.
          Selling expenses which do not benefit future periods and general and
          administrative expenses are treated as period costs and are expensed
          as incurred. Interest and management fees capitalized during the
          period ended September 30, 1997 are $1,364,232.

                                       -4-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 3 -- MORTGAGE PAYABLE

          The Company has a first mortgage payable of $2,050,000 and a second
          mortgage payable of $1,000,000 to Matzel & Mumford Mortgage Funding,
          Inc., an entity controlled by the members of M&M at South Brunswick,
          which bears interest at 16%. Interest payments are payable quarterly
          for both loans until July 31, 1998 when the outstanding principal
          balance is due. The note is collateralized by a first mortgage and
          second mortgage on the property.

          The Company has a commitment from a bank for land acquisition and
          construction not to exceed $6,400,000 as follows:

          Note A in the maximum amount of $3,400,000 is to fund land acquisition
          and improvements. The note has a term of 18 months and bears interest
          at a rate of prime plus 1.5%. Interest is payable monthly and
          principal is payable with each closing at the rate of 120% of the cost
          of the related land and site improvements or $102,000.

          Note B in the amount of $500,000 is fund the construction of two model
          homes. The note has a term of 18 months and bears interest at a rate
          of prime plus 1.5%. Interest is payable monthly and principal is
          payable with the closing of each model home.

          Note C in the amount of $2,500,000 is fund the construction of sold
          homes. The note has a term of 18 months and bears interest at a rate
          of prime plus 1.5%. Interest is payable monthly and principal is
          payable with the closing of each home.

          The Company has a note payable to an investor in the amount of
          $300,000, bearing interest at 15%. Interest is payable beginning
          December 16, 1997 and every three months thereafter. Principal is
          payable in the amount of $10,000 per closing starting with the
          eleventh house closing but no later than June 15, 1999.

                                       -5-

<PAGE>
 

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 4 -- RELATED PARTY TRANSACTIONS

          The Company has an agreement with MMO whereby MMO provides
          construction management services at a fee of 4% of the gross selling
          price of each house. MMO is entitled to receive monthly draws of
          $35,000 per month. Since inception, the Company has incurred $430,000
          in management fees which have been capitalized in inventories at
          September 30, 1997.

          Also included in due to/from affiliates are net cash advances from an
          affiliated company of the managing member of the Company. The advances
          are short term in nature and bear no interest. The amounts are to be
          repaid from available cash flow.

                                       -6-

<PAGE>


                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                              FINANCIAL STATEMENTS

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997


<PAGE>





                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                          INDEX TO FINANCIAL STATEMENTS

                                                                    Page
                                                                    ----

Balance Sheets ...........................................            1

Statement of Operations and Partner's Capital ............          2 - 3

Statement of Cash Flows ..................................            4

Notes to the Financial Statements ........................          5 - 8



<PAGE>


                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                                 BALANCE SHEETS
                 AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

                                                        09/30/97       12/31/96
                                                       (unaudited)    (audited)
                                                       -----------    ----------

                                     ASSETS

Cash .............................................     $   74,778     $   35,171
Cash - restricted ................................         10,000         10,000
Notes receivable .................................         56,700
Vehicle (net of accumulated depreciation) ........          2,500
Inventories ......................................      4,714,334      2,603,466
                                                       ----------     ----------
TOTAL ASSETS .....................................     $4,858,312     $2,648,637
                                                       ==========     ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable ................................     $3,846,971     $1,620,848
Accounts payable .................................        494,170        484,680
Customer deposits ................................        571,646        103,522
Due to affiliate .................................         50,000        439,587
                                                       ----------     ----------
TOTAL LIABILITIES ................................      4,962,787      2,648,637
                                                       ----------     ----------

PARTNERS' CAPITAL ................................       (104,475)
                                                       ----------     ----------

TOTAL LIABILITIES AND PARTNERS' CAPITAL ..........     $4,858,312     $2,648,637
                                                       ==========     ==========

                                                        


                                       -1-


<PAGE>


                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997


Sales ...........................................     $3,155,813

Cost of sales ...................................      3,145,364
                                                      ----------
Gross profit ....................................         10,449

Selling, general and administrative expenses ....        102,252
                                                      ----------
Income from operations ..........................        (91,803)

Depreciation ....................................            500

Interest income .................................          3,828
                                                      ----------
Net income ......................................        (88,475)

Member's capital, Beginning of period ...........           --

Capital distributions ...........................        (16,000)
                                                      ----------
Member's capital, End of Period .................     $ (104,475)
                                                      ==========




                                       -2-

<PAGE>


                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997


Sales ...........................................          $1,928,164
                                                           
Cost of sales ...................................           1,920,629
                                                           ----------
Gross profit ....................................              (7,535)
                                                           
Selling, general and administrative expenses ....              68,168
                                                           ----------
Income from operations ..........................             (75,703)
                                                           
Depreciation ....................................                 250
                                                           
Interest income .................................               2,590
                                                           ----------
Net income ......................................             (73,363)
                                                           
Member's capital, Beginning of period ...........             (31,112)
                                                           ----------
Member's capital, End of Period .................          $ (104,475)
                                                           ==========
                                                      

                                       -3-

<PAGE>

                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                            STATEMENTS OF CASH FLOWS
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) .........................................      $   (88,475)
   Depreciation ..............................................              500
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in inventories ...............................       (2,110,868)
       Increase in note receivable ...........................          (56,700)
       Increase (decrease) in customer deposits ..............          468,124
       Increase (decrease) in accounts payable ...............            9,490
                                                                    -----------
NET CASH USED IN OPERATING ACTIVITIES ........................       (1,777,929)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable ........................        4,586,110
       Payments of construction and land mortgages ...........       (2,359,987)
       Proceeds to affiliate .................................         (389,587)
       Distributions to members ..............................          (16,000)
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................        1,820,536
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Purchase of vehicle ...................................            3,000

NET CASH USED BY INVESTING ACTIVITIES ........................           (3,000)
                                                                    -----------
DECREASE IN CASH .............................................           39,607

CASH, Beginning of period ....................................           35,171
                                                                    -----------
CASH, End of period ..........................................      $    74,778
                                                                    ===========


                                       -4-


<PAGE>


                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS AND ORGANIZATION

          Matzel & Mumford at West Windsor, L.L.C. ("M&M at West Windsor") is a
          New Jersey limited liability company formed for the purpose of
          purchasing land in the Township of West Windsor, New Jersey and
          developing and constructing 38 single-family homes on that land. M&M
          at West Windsor has closed title to 23 lots and has an option to
          purchase the remaining 15 lots till November 12, 1997.

          REVENUE RECOGNITION

          Revenues arising from home sales will be recognized under the full
          accrual method. Under this method, income is recognized when all terms
          relating to the sale of a unit are complete, consideration is
          exchanged, and title is conveyed to the buyer.

          INVENTORIES

          Inventories are stated at the lower of cost or estimated net
          realizable value, which is determined by reducing the anticipated net
          sales proceeds by the estimated costs necessary to complete or improve
          the property to the condition used in arriving at the anticipated
          selling price.

          Inventory costs are comprised of direct unit and allocated costs.
          Development costs are capitalized until the property is complete and
          title has been conveyed to the buyer. Development costs generally
          include land and improvements, house construction, project overhead,
          interest and a portion of construction management fees. Interest
          incurred is capitalized based upon interest on specifically related
          debt.

          A portion of the construction management fees paid to a related party
          is capitalized by the Company.

          MEMBERS CAPITAL

          The two managing members have pledged a total of $1,000 in capital
          contributions.



                                       -5-

<PAGE>


                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)

          INCOME TAXES

          The Company is organized and operates as a limited liability company
          which is not subject to Federal or state income taxes. Accordingly, no
          provision for income taxes has been made. The earnings or losses of
          the Company are included on each member's tax return, according to the
          terms of the operating agreement.

          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 period. Actual results could differ from those
          estimates.

NOTE 2 -- INVENTORIES

          Inventories relating to the development of single-family homes consist
          of the following at September 30, 1997:

              Land .....................................      $2,090,715
              Approval costs ...........................         152,130
              Land improvements and
                construction costs .....................       1,043,711
              Project overhead .........................         729,212
              Financing costs ..........................         400,489
              Sales and marketing ......................         298,077
                                                              ----------
                                                              $4,714,334
                                                              ==========

          All expenses incurred for development of the project are capitalized.
          Selling expenses which do not benefit future periods and general and
          administrative expenses are treated as period costs and are expensed
          as incurred. Interest and management fees capitalized during the
          period ended September 30, 1997 are $898,237.

                                       -6-

<PAGE>



                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 3 -- MORTGAGES PAYABLE

                                                     09/30/97     12/31/96
                                                    ----------   ----------
          Land and construction mortgages (a) ....  $3,356,971   $1,235,848
          3rd mortgage (b) ......................      490,000      385,000
                                                    ----------   ----------
                                                    $3,846,971   $1,620,848
                                                    ==========   ==========

     (a)  The company has a loan from a bank for land acquisition and
          construction not to exceed $3,800,000. Interest is payable monthly at
          1 1/2 % over prime. Principal is payable with each closing at the rate
          of 120% of the amount advanced for land acquisition and 100% of
          construction advances. The loan matures on April 25, 1998 after which
          the principal is due on demand. The loan is collateralized by a first
          mortgage on the land and improvements on the project and is guaranteed
          by the managing members and The Matzel & Mumford.

          The Company has a loan from Matzel & Mumford Mortgage Funding, Inc.
          for the construction of a total of three spec homes. The loan is not
          to exceed $1,100,000 which matures May 1, 1998. Interest is payable
          quarterly at 16%. The loan is collateralized by a first mortgage on
          the land and improvements of the project.

     (b)  The Company has a mortgage in the amount of $805,000. Interest is
          payable monthly at 14%, plus an additional 1% of the sales price of
          each unit. Principal is payable $35,000 per unit with any unpaid
          balance due on May 1, 1998. The note is collateralized by a third
          mortgage and the guarantee of M&M at West Windsor and MMO.

NOTE 4 -- RELATED PARTY TRANSACTIONS

          The Company has an agreement with MMO whereby MMO provides
          construction management services at a fee of 4% of the gross selling
          price of each house. MMO is entitled to receive monthly draws of
          $30,000 per month. Since inception, the Company has incurred $600,000
          in management fees of which $497,748 have been capitalized in
          inventories at September 30, 1997.

                                      -7-


<PAGE>




                    MATZEL & MUMFORD AT WEST WINDSOR, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997

NOTE 4 -- RELATED PARTY TRANSACTIONS (continued)

          Also included in due to/from affiliates are net cash advances from an
          affiliated company of the managing member of the Company. The advances
          are short term in nature and bear no interest. The amounts are to be
          repaid from available cash flow.

                                       -8-
<PAGE>



ITEM 2. MANAGEMENT'S PLAN OF OPERATION

     Matzel & Mumford Mortgage Funding, Inc. (the "Funding Company") is a
finance company that was formed in July 1995 for the purpose of funding land
acquisition, infrastructure improvements, and the construction of homes in
single-family residential housing communities by making loans. In furtherance of
this purpose, the Funding Company made a public offering of up to $6,000,000 of
its Intermediate Term Secured Notes (the "Notes"). On May 16, 1996, the Funding
Company issued and sold $3,750,000 principal amount of Notes.

     During the third quarter of 1997, the Funding Company made one new mortgage
loan to a project entity and modified an existing first mortgage loan to Matzel
& Mumford at South Brunswick, LLC ("South Brunswick") . The first mortgage loan
was made to Matzel & Mumford at Apple Ridge II, L.L.C. ("Apple Ridge II"). This
loan and the borrowers were discussed in the Funding Company's Form 8-K dated
July 15, 1997 and the South Brunswick loan was discussed in the Funding
Company's Form 10-QSB dated June 30, 1997.

     As of September 30, 1997, the Funding Company had an aggregate of
$3,757,729 of loans outstanding, allocated as follows: to Apple Ridge II ( an
aggregate of $832,690 secured by a first mortgage), to Matzel & Mumford at South
Brunswick, L.L.C. ("South Brunswick"), (an aggregate of $2,750,000 of which
$2,050,000 is secured by a first mortgage and $700,000 secured by a second
mortgage), and to West Windsor (an aggregate of $175,039 secured by a first
mortgage). The financial statements of each of these entities are included with
this Quarterly Report. The Funding Company also had $253,556 deposited in a cash
collateral account with First Union National Bank, as trustee for the holders of
the Notes.

     During the third quarter of 1997, Matzel & Mumford at White Oak, L.L.C.
("White Oak"), Matzel & Mumford at Freehold L.L.C., ("Freehold"), and Section 13
of the Hills L.L.C., ("Section 13") all repaid there previously outstanding
loans from the Funding Company in full.

     Subsequent to September 30, 1997, the Funding Company made two additional
loans to two different project entities. Further, the Funding Company was repaid
on its second mortgage loan from South Brunswick in full. See Item 5, "Other
Information" for a description of these loans and repayments.

     Because the Funding Company is not an operating company, it has minimal
cash needs. The Funding Company expects that its cash requirements will be
satisfied by the administrative fee that various borrowers will pay to the
Funding Company and by the amount of interest on the various loans (which will
be at least 16%) that remains after paying the interest on the Notes and a loan
servicing fee to its affiliate, Matzel & Mumford Organization. Inc.


<PAGE>



                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        Not applicable

ITEM 2. CHANGES IN SECURITIES.

        Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        Not applicable

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

        Not applicable

ITEM 5. OTHER INFORMATION.

Subsequent to September 30, 1997, the Funding Company has made a second mortgage
loan to Matzel & Mumford at Freehold, LLC ("Freehold") in the amount of $600,000
for land acquisition. Further, the Funding Company also modified its first
mortgage loan to South Brunswick from $2,050,000 to $3,400,000 for the
installation of site improvements. Upon the execution of the modification the
Funding Company advanced South Brunswick $100,000 which now has an outstanding
loan balance of $2,150,000. Finally, the Funding Company was repaid in full on
its second mortgage to South Brunswick.

ITEM 6.

     (A) EXHIBITS.

3(a) Certificate of Incorporation of Matzel & Mumford Mortgage Funding, Inc.
     (the "Funding Company") (incorporated by reference to Exhibit 3(a) to
     Registration Statement on Form SB-2 of Matzel & Mumford Mortgage Funding,
     Inc. (Registration Number 33-98178) (the "Notes Registration Statement")).

3(b) By-Laws of the Funding Company (incorporated by reference to Exhibit 3(b)
     to the Notes Registration Statement).

4(a) Indenture (including form of Notes) dated as of January 25, 1996, between
     the Funding Company and First Union National Bank, as Trustee (incorporated
     by reference to Exhibit 4(a) to the Notes Registration Statement).


<PAGE>



4(b)  Resolutions of the Board of Directors of the Funding Company establishing
      specific terms of the Notes (incorporated by reference to Exhibit 4(b) of
      Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996).

10(a) Form of Loan Agreement (incorporated by reference to Exhibit 10(a) to the
      Notes Registration Statement).

10(b) Form of Mortgage and Security Agreement (incorporated by reference to
      Exhibit 10(b) to the Notes Registration Statement).

10(c) Loan Servicing Agreement dated January 22, 1996 between the Funding
      Company and The Matzel & Mumford Organization, Inc. (incorporated by
      reference to Exhibit 10(c) to the Notes Registration Statement).

27    Financial Data Schedules.

     (B) REPORTS ON FORM 8-K

      During the third quarter of 1997, the Funding Company filed a Current
Report on Form 8-K on July 15, 1997 concerning a loan from the Funding Company
to an M&M Project Entity and amended the Form 8-K on September 23, 1997 to file
the financial statements and the related financial data schedule.


<PAGE>


                                   SIGNATURES

     Pursuant to the requirement of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the under-signed, thereunto duly authorized.

                                    MATZEL & MUMFORD MORTGAGE FUNDING, INC.


Date:  November 14, 1997            By:  /s/ ROGER MUMFORD
                                       ---------------------------------------
                                         Roger Mumford, President
                                         (Principal Executive Officer)


                                    By: /s/ JONATHAN FISHER
                                       ---------------------------------------
                                        Jonathan Fisher, Chief Financial Officer
                                        (Principal Accounting Officer)

     Pursuant to the requirements of the Securities and 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.


Date:    November 14, 1997          By:  /s/ ROGER MUMFORD
                                       ---------------------------------------
                                         Roger Mumford, Director


                                    By: /s/ BRUCE MATZEL
                                       ---------------------------------------
                                        Bruce Matzel, Director