================================================================================
 
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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 June 30, 1998


           [ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(D)
                              OF THE EXCHANGE ACT

            For the transition period from ________ to _________


                        Commission file number 33-98178



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.
        -----------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)


           NEW JERSEY                                            22-3382016
-------------------------------                              -------------------
(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)


                                 (732) 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  X    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, 1998

           Transitional Small Business Disclosure Format (check one):

                                Yes  X    No
                                    ---      ---

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



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                                   ----------

                                FORM 10-QSB INDEX

                                                                            Page
                                                                            ----
PART I. FINANCIAL INFORMATION

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

MATZEL & MUMFORD MORTGAGE FUNDING, INC.

   Balance Sheets as of June 30, 1998 (unaudited) and 
     December 31, 1997.....................................................    
   Statements of Operations and Retained Earnings for the Six Months
     ended June 30, 1998 (unaudited) ......................................    
   Statements of Operations and Retained Earnings for the Three Months
     ended June 30, 1998 (unaudited).......................................    
   Statement of Cash Flows for the Six Months Ended June 30, 1998
     (unaudited)...........................................................    
   Notes to Financial Statements (unaudited)...............................    

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

   Balance Sheets as of June 30, 1998 (unaudited) and 
     December 31, 1997.....................................................    
   Statements of Operations and Retained Earnings for the Six Months
     ended  June 30, 1998 (unaudited) .....................................    
   Statements of Operations and Retained Earnings for the Three Months
     ended June 30, 1998 (unaudited).......................................    
   Statement of Cash Flows for the Six Months Ended June 30, 1998 
     (unaudited)...........................................................    
   Notes to Financial Statements (unaudited)...............................    

MATZEL & MUMFORD AT FREEHOLD, L.L.C.

   Balance Sheets as of June 30, 1998 (unaudited) and 
     December 31, 1997.....................................................    
   Statements of Operations and Partners' Capital for the Six Months
     ended June 30, 1998 (unaudited).......................................    
   Statements of Operations and Retained Earnings for the Three Months
     ended June 30, 1998 (unaudited).......................................    
   Statement of Cash Flows for the Six Months Ended June 30, 1998 
     (unaudited)...........................................................    
   Notes to Financial Statements (unaudited)...............................    

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



<PAGE>


PART II. OTHER INFORMATION


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 .................................    



<PAGE>


                          PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS.



<PAGE>






                     MATZEL & MUMFORD MORTGAGE FUNDING, INC

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1998






<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

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

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

Statement of Cash Flows .................................................     3

Notes to the Financial Statements .......................................    4-5



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC

                                 BALANCE SHEETS

                    AS OF JUNE 30, 1998 AND DECEMBER 31, 1997


                                                         6/30/98      12/31/97
                                                       ----------    ----------
                                                      (unaudited)     (audited)
                       ASSETS
Cash ...............................................   $  152,242    $  945,616
Prepaid income taxes ...............................          100
Mortgages receivable ...............................    3,903,264     3,096,545
Deferred costs, net ................................      164,787       186,049
                                                       ----------    ----------
TOTAL ASSETS .......................................   $4,220,393    $4,228,210
                                                       ==========    ==========

         LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts Payable ...................................                 $      125
Notes Payable ......................................   $3,750,000     3,750,000
                                                       ----------    ----------
TOTAL LIABILITIES ..................................    3,750,000     3,750,125
                                                       ----------    ----------
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 ................................      (29,607)      (21,915)
                                                       ----------    ----------
TOTAL STOCKHOLDERS' EQUITY .........................      470,393       478,085
                                                       ----------    ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .........   $4,220,393    $4,226,400
                                                       ==========    ==========


                                       -1-



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS

                    FOR THE THREE MONTHS ENDED JUNE 30, 1998

                                   (UNAUDITED)


Revenue .........................................................      $166,750

Interest expense ................................................       149,326
                                                                       -------- 

Income(loss) before G & A and amortization ......................        17,424

General & administrative expenses ...............................         6,129

Amortization ....................................................        10,631
                                                                       -------- 

Net Income ......................................................           664

Retained Earnings, beginning of period ..........................      $(30,271)

Retained Earnings, end of period ................................      $(29,607)
                                                                       ======== 


                                       -2-



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1998

                                   (UNAUDITED)


Revenue ..........................................................     $314,798

Interest expense .................................................      288,025
                                                                       --------

Income(loss) before G & A and amortization .......................       26,773

General & administrative expenses ................................       13,203

Amortization .....................................................       21,262
                                                                       --------

Net Income .......................................................       (7,692)

Retained Earnings, beginning of period ...........................     $(21,915)

Retained Earnings, end of period .................................     $(29,607)
                                                                       ======== 


                                       -3-


<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                             STATEMENT OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1998

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income .................................................       $  (7,692)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Amortization ...........................................          21,262
       Increase in mortgages receivable .......................        (806,719)
       Increase in prepaid income taxes .......................            (100)
       Increase in accounts payable ...........................            (125)
                                                                      ---------

NET CASH USED IN OPERATING ACTIVITIES .........................        (793,374)

DECREASE IN CASH ..............................................        (793,374)

CASH,  Beginning of period ....................................         945,616
                                                                      ---------

CASH,  End of period ..........................................       $ 152,242
                                                                      =========


                                       -4-


<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


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

                                  JUNE 30, 1998


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 SOUTH BRUNSWICK, L.L.C.

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1998






<PAGE>



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

                          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 .....................................      5-9



<PAGE>


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

                                 BALANCE SHEETS

                    AS OF JUNE 30, 1998 AND DECEMBER 31, 1997


                                                       06/30/98       12/31/97
                                                     (unaudited)      (audited)
                                                     -----------     ----------
                      ASSETS
Cash ...........................................     $    41,776     $   53,028
Performance Bond ...............................         271,736        188,600
Inventories ....................................      10,278,844      8,776,775
                                                     -----------     ----------
TOTAL ASSETS ...................................     $10,592,356     $9,018,403
                                                     ===========     ==========


       LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgage payable -- M&M Mortgage Funding .......     $ 3,303,264     $2,496,545
Mortgage payable ...............................       5,137,519      5,046,744
Note payable ...................................         250,000        300,000
Accounts payable ...............................         878,098        163,174
Customer deposits ..............................         671,114        581,526
Accrued expenses ...............................         177,288
Due to affiliate ...............................          89,332        422,194
                                                     -----------     ----------

TOTAL LIABILITIES ..............................      10,506,615      9,010,183
                                                     -----------     ----------

PARTNERS' CAPITAL ..............................          85,741          8,220
                                                     -----------     ----------

TOTAL LIABILITIES AND PARTNERS' CAPITAL ........     $10,592,356     $9,018,403
                                                     ===========     ==========


                                       -1-



<PAGE>


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

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                    FOR THE THREE MONTHS ENDED JUNE 30, 1998


Sales ..........................................................      $5,133,388

Cost of sales ..................................................       4,673,289
                                                                      ----------

Gross profit ...................................................         460,099

Selling, general and administrative expenses ...................         384,056
                                                                      ----------

Income from operations .........................................          76,043

Interest income ................................................           2,075
                                                                      ----------

Net income (loss) ..............................................          78,118

Member's capital, Beginning of period ..........................           7,623
                                                                      ----------

Member's capital, End of Period ................................      $   85,741
                                                                      ==========


                                       -2-



<PAGE>


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

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                     FOR THE SIX MONTHS ENDED JUNE 30, 1998


Sales ..........................................................      $5,452,102

Cost of sales ..................................................       4,986,985
                                                                      ----------

Gross profit ...................................................         465,117

Selling, general and administrative expenses ...................         394,034
                                                                      ----------

Income from operations .........................................          71,083

Interest income ................................................           6,438
                                                                      ----------

Net income (loss) ..............................................          77,521

Member's capital, Beginning of period ..........................           8,220
                                                                      ----------

Member's capital, End of Period ................................      $   85,741
                                                                      ==========


                                       -3-



<PAGE>


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

                            STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1998

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) ..........................................     $    77,521
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds ..........................         (83,136)
       Increase in inventories ................................      (1,502,069)
       Increase (decrease) in accounts payable ................         714,924
       Increase (decrease) in accrued expenses ................         177,288
       Increase (decrease) in customer deposits ...............          89,588
                                                                    -----------

NET CASH USED IN OPERATING ACTIVITIES .........................        (525,884)
                                                                    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgages payable ........................       7,573,935
       Payments on mortgages payable ..........................      (6,676,441)
       Payments on notes payable ..............................         (50,000)
       Proceeds to affiliate ..................................        (332,862)
                                                                    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES .....................         514,632
                                                                    -----------

DECREASE IN CASH ..............................................         (11,252)

CASH,  Beginning of period ....................................          53,028
                                                                    -----------

CASH,  End of period ..........................................     $    41,776
                                                                    ===========


                                       -4-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


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.

          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 SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


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 June 30, 1998:

                 Land .......................................  $  2,945,224
                 Land improvements and construction costs ...     4,973,092
                 Project overhead ...........................       753,862
                 Financing costs ............................     1,342,247
                 Sales and marketing ........................       264,419
                                                                -----------
                                                                $10,278,844
                                                                ===========

          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 June 30, 1998 are $1,893,399.


                                       -6-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 3 -- NOTE PAYABLE

          On June 16, 1997, the Company entered into a financing arrangement
          with an individual in the amount of $300,000 bearing interest at
          15.00%. Repayment of principal calls for $10,000 per closing, for
          closings 11 through 40, but no later than June 15, 1999. The first
          interest payment commences on six months from the date of the note and
          then every three months thereafter. The note is collateralized by a
          financial guarantee bond, which is guaranteed by the managing member's
          of the Company.

          The fair value of the note payable approximates fair value of
          instruments with similar terms and average maturities.

NOTE 4 -- MORTGAGES PAYABLE

          June 30, 1998
          -------------
          Construction -- related party (a) ...............   $3,303,264
          Land, construction and model (b) ................    1,737,519
          1st mortgage (c) ................................    3,400,000
                                                              ----------
                                                              $8,440,783
                                                              ==========

          (a)  The Company has a mortgage payable to Matzel & Mumford Mortgage
               Funding, Inc., an entity controlled by members of M & M at South
               Brunswick. The note is in the maximum amount of $3,400,000 and is
               to fund the construction of twelve houses in phase one. Interest
               is payable 16.00% and principal is payable with each closing at
               the rate of 105% of the amount funded for each unit. Interest
               payments are payable quarterly until June 18, 1999, when the
               outstanding principal balance is due. The note is collateralized
               by a first mortgage on the twelve building lots.

          (b)  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 $4,000,000 is to fund land
                    acquisition and improvements. The note has been extended for
                    an additional two months through September 28, 1998 and
                    bears interest at a rate of prime plus 1.5%.


                                       -7-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 4 -- MORTGAGES PAYABLE (Continued)

                    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 $120,000. The loan is
                    collateralized by a first mortgage on the land and
                    improvements of phase one (40 lots) of the project and is
                    guaranteed by the managing member's of the Company. At June
                    30, 1998, the Note has a balance of $400,000.

                    Note B, a revolver, in the maximum amount of $2,500,000 is
                    fund the construction of sold homes. The note has a been
                    extended through September 30, 1998 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 loan
                    is collateralized by a first mortgage on the units being
                    constructed. The note balance is $1,087,519 as of June 30,
                    1998.

                    Note C in the amount of $500,000 is fund the construction of
                    two model homes. The note has been extended through
                    September 30, 1998 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. The loan is
                    collateralized by the model homes being constructed. The
                    note balance is $250,000 as of June 30, 1998.

          The fair value of the mortgages approximates fair value of instruments
          with similar terms and average maturities.

          c)   The Company has a commitment from a bank for land acquisition and
               construction not to exceed $7,200,000 for phase two as follows:

                    The maximum amount of $3,400,000 is to fund land acquisition
                    and improvements and was used to payoff Matzel & Mumford
                    Mortgage Funding's first mortgage on the property. The note
                    bears interest at a rate of prime plus 3/8% and has a term
                    for 24 months which matures on June 14, 2000. 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 $80,000. The loan is collateralized by a
                    first mortgage on the land and improvements of phase two (51
                    lots) of the project and is guaranteed by the managing
                    member's of the


                                       -8-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 4 -- MORTGAGES PAYABLE (Continued)

                    Company. At June 30, 1998, the Note has a balance of
                    $3,400,000.

                    The construction revolver is in the maximum amount of
                    $3,800,000 is fund the construction of sold homes. The note
                    has a term of 24 months and bears interest at a rate of
                    prime plus 3/8%. Interest is payable monthly and principal
                    is payable with the closing of each home. The loan is
                    collateralized by a first mortgage on the units being
                    constructed. The note balance is $0 as of June 30, 1998.

NOTE 5 -- RELATED PARTY TRANSACTIONS

          The Company has an agreement with MMO whereby MMO provides
          construction management services at a fee of 3% 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 $710,000
          in management fees of which $551,152 have been capitalized in
          inventories at June 30, 1998.

          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.


                                       -9-



<PAGE>






                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1998




<PAGE>



                      MATZEL & MUMFORD AT FREEHOLD, 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 .......................................    5-9



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                                 BALANCE SHEETS

                    AS OF JUNE 30, 1998 AND DECEMBER 31, 1997


                                                      06/30/98        12/31/97
                                                    (unaudited)       (audited)
                                                    -----------      -----------
                     ASSETS

Cash ..........................................     $   (13,621)     $   361,379
Performance bonds .............................         326,380          229,020
Notes receivable ..............................          44,500           44,500
Utility deposits ..............................          47,823           38,570
Fixed assets, net .............................           4,910            7,856
Due from affiliates ...........................          79,964          809,711
Inventories ...................................      13,057,123       11,756,553
                                                    -----------      -----------
TOTAL ASSETS ..................................     $13,547,079      $13,247,589
                                                    ===========      ===========


     LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable .............................     $10,383,831      $11,587,034
Accounts payable ..............................       1,530,175          709,668
Accrued expenses ..............................         347,792
Customer deposits .............................       1,132,770          891,680
                                                    -----------      -----------

TOTAL LIABILITIES .............................      13,394,568       13,188,382
                                                    -----------      -----------

PARTNERS' CAPITAL .............................         152,511           59,207
                                                    -----------      -----------

TOTAL LIABILITIES AND PARTNERS' CAPITAL .......     $13,547,079      $13,247,589
                                                    ===========      ===========


                                       -1-



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                    FOR THE THREE MONTHS ENDED JUNE 30, 1998


Sales ..........................................................      $5,109,038

Cost of sales ..................................................       4,498,700
                                                                      ----------

Gross profit ...................................................         610,338

Selling, general and administrative expenses ...................         572,205
                                                                      ----------

Income from operations .........................................          38,133

Depreciation ...................................................           1,473

Interest income ................................................           2,740
                                                                      ----------

Net income .....................................................          39,400

Member's capital, Beginning of period ..........................         113,111
                                                                      ----------

Member's capital, End of Period ................................      $  152,511
                                                                      ==========


                                       -2-



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                     FOR THE SIX MONTHS ENDED JUNE 30, 1998


Sales ..........................................................      $7,887,927

Cost of sales ..................................................       7,140,160
                                                                      ----------

Gross profit ...................................................         747,767

Selling, general and administrative expenses ...................         655,540
                                                                      ----------

Income from operations .........................................          92,227

Depreciation ...................................................           2,946

Interest income ................................................           4,023
                                                                      ----------

Net income .....................................................          93,304

Member's capital, Beginning of period ..........................          59,207
                                                                      ----------

Member's capital, End of Period ................................      $  152,511
                                                                      ==========


                                       -3-



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                            STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1998

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) .........................................      $    93,304
   Depreciation ..............................................            2,946
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in inventories ...............................       (1,300,570)
       Increase in performance bonds .........................          (97,360)
       Increase in utility deposits ..........................           (9,253)
       Increase (decrease) in customer deposits ..............          241,090
       Increase (decrease) in accrued expenses ...............          347,792
       Increase (decrease) in accounts payable ...............          820,507
                                                                    ----------- 

NET CASH USED IN OPERATING ACTIVITIES ........................           98,456
                                                                    ----------- 

CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable ........................        2,358,803
       Payments of construction and land mortgages ...........       (3,562,006)
       Proceeds from affiliate ...............................          729,747
                                                                    ----------- 

NET CASH PROVIDED BY FINANCING ACTIVITIES ....................         (473,456)
                                                                    ----------- 

DECREASE IN CASH .............................................         (375,000)

CASH, Beginning of period ....................................          361,379
                                                                    ----------- 

CASH, End of period ..........................................      $   (13,621)
                                                                    =========== 


                                       -4-



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS AND ORGANIZATION

          Matzel & Mumford at Freehold, L.L.C. ("M & M" at "Freehold") is a New
          Jersey limited liability company formed for the purpose of purchasing
          land in the Township of Freehold, New Jersey and developing and
          constructing 126 single-family homes on that land.

          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 FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


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 June 30, 1998:

                Land ........................................   $  5,050,498
                Land improvements and construction costs ....      6,010,349
                Project overhead ............................        408,704
                Financing costs .............................      1,114,387
                Sales and marketing .........................        473,185
                                                                 -----------
                                                                 $13,057,123
                                                                 ===========

          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 June 30, 1998 are $1,395,807.


                                       -6-



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 3 -- MORTGAGES PAYABLE

                                                         06/30/98      12/31/97
                                                       -----------   -----------
          Land and construction mortgages (a) ......   $ 5,995,894   $ 6,843,090
          1st mortgage (b) .........................     1,099,268     1,099,268
          2nd mortgage (c) .........................       600,000       600,000
          2nd mortgage (d) .........................     1,257,919       979,676
          3rd mortgage (e) .........................       680,000     1,000,000
          4th mortgage (f) .........................       750,750     1,065,000
                                                       -----------   -----------
                                                       $10,383,831   $11,587,034
                                                       ===========   ===========

          (a)  The company has a commitment from a bank for land acquisition and
               construction not to exceed $10,330,000 as follows:

                    Note A in the maximum amount of $6,030,000 is to fund land
                    acquisition and improvements. The note is due in May 1999,
                    and bears interest at the prime rate, plus 1.5%. Interest is
                    payable monthly and principal is payable with each closing
                    at the rate of 120% of the amount advanced for land
                    acquisition and site improvements, or $110,210. The Note has
                    a balance of $2,995,894 at June 30, 1998.

                    Note B in the amount of $700,000 matures in May 1998 and
                    bears interest at 18%. Interest is payable monthly and
                    principal is due at maturity. At June 30, 1998, the Note was
                    paid in full.

                    Note C, a revolver, in the maximum amount of $3,000,000, is
                    to be used to fund construction. The note bears interest at
                    the prime rate, plus 1%, and matures in May 1999. Interest
                    is payable monthly and principal is paid at par upon closing
                    of a unit. The Note balance is $3,000,000 as of June 30,
                    1998.

                    The loan is collateralized by a first mortgage on the land
                    and improvements of phases one and two (95 lots) of the
                    project and is guaranteed by the managing members.

          (b)  The Company has a first mortgage to the seller in the original
               amount of $1,699,268, of which $600,000 was payable on November
               15, 1997, and another $600,000 is payable on November 15, 1998
               with the balance due on November 15, 1999. The mortgage bears
               interest at 9.25%, which is payable at the time of the related
               principal payment. The note is collateralized by a first mortgage
               on phase three (31 lots) of the project.


                                       -7-


<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 3 -- MORTGAGES PAYABLE (continued)

          (c)  The Company has a second mortgage to Matzel & Mumford Mortgage
               Funding, an entity controlled by the members of M & M at
               Freehold, which is payable interest only at 16%. Interest
               payments are payable quarterly until November 15, 1999 when the
               outstanding principal balance is due. The is collateralized by a
               second mortgage on phase three (31 lots) of the project.

          (d)  The Company has a second mortgage from a bank for site
               improvements on phase two (49 lots) not to exceed $2,415,000. The
               note matures in May 1999 and bears interest at the prime rate,
               plus 1-1/2%. Interest is payable monthly and principal is payable
               with each closing at the rate of 120% of the cost of the related
               improvements or $59,143 per lot.

          (e)  The Company has a third mortgage payable on phases one and two to
               an investor group in the amount of $1,000,000. The note bears
               interest at the rate of 20%, of which 6% is deferred until the
               twenty first closing when the deferred portion is payable.
               Thereafter, interest is payable in full quarterly. Principal is
               payable $20,000 per house beginning with the 21st through the
               50th closing and $40,000 from the 51st through the 60th closing
               with the balance, if any, due on January 31, 2000.

          (f)  The Company has a fourth mortgage payable to an insurance company
               in the maximum amount of $1,250,000 bearing interest at 20% on
               the first $1,000,000 and 25% on the balance. The Company has made
               principal repayments in the amount of $600,000 against the
               original loan balance of which $250,000 was at an interest rate
               of 25%. Fifty percent of the interest is payable semi-annually
               beginning one year from the initial advance with the balance
               deferred until the related principal payments commence. Principal
               is payable $50,000 per house, plus the related portion of the
               deferred interest, beginning with the 83rd closing through the
               95th closing with the unpaid balance, if any, due December 31,
               2001. The note is collateralized by a fourth mortgage on the land
               and improvements of phases one and two and the guarantee of the
               managing members.

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
          $50,000 per month. Since inception, the Company has incurred


                                       -8-



<PAGE>


                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1998


NOTE 4 -- RELATED PARTY TRANSACTIONS (continued)

          $710,000 in management fees of which $281,420 have been capitalized in
          inventories at June 30, 1998.

          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.


                                       -9-



<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 second quarter of 1998, the Funding Company made a new first
mortgage loan to Matzel & Mumford at South Brunswick, LLC ("South Brunswick") in
the amount of $3.4 million on twelve building lots for the construction of sold
homes. South Brunswick is an entity organized to develop, market and build a 91
lot subdivision known as "Heather Knolls" located on Perrine Road in South
Brunswick, New Jersey. Upon receipt of the financing from the Funding Company,
South Brunswick will use a portion of the proceeds to repay Amboy National Bank
(first mortgage holder) for its existing acquisition and improvement funding.
The remaining funds will be used for the construction of the houses on a
percentage of completion method. Repayment of the loan from South Brunswick to
the Funding Company will come from proceeds of the houses as they are closed
with third party purchasers. As of June 30, 1998, South Brunswick had written 53
contracts with prospective home buyers.

     As of June 30, 1998, the Funding Company had an aggregate of $3,903,264 of
loans outstanding, allocated as follows: to Matzel & Mumford at South Brunswick,
L.L.C. ("South Brunswick"), (an aggregate of $3,303,264 secured by a first
mortgage), and to Matzel & Mumford at Freehold, LLC ("Freehold"), (an aggregate
of $600,000 secured by a second mortgage). The financial statements of each of
these entities are included with this Quarterly Report. The Funding Company also
had $96,736 deposited in a cash collateral account with First Union National
Bank, as trustee for the holders of the Notes.

     During the second quarter of 1998, South Brunswick repaid its previously
outstanding loan of $3,400,000 from the Funding Company for land and site
improvements in full.

     Subsequent to June 30, 1998, the Funding Company made a first mortgage loan
to Freehold in the amount of $2,390,000 on seven building lots for the
construction of sold homes. Freehold is an entity organized to develop, market
and build a 126 lot subdivision known as "Seven Oaks" located on Burlington Road
in Freehold, New Jersey. Upon receipt of the financing from the Funding Company,
Freehold will use a portion of the proceeds to repay Amboy National Bank (first
mortgage holder) for its existing acquisition and improvement funding and Apple
Chase Investors, L.L.C. (second mortgage holder for its acquisition funding).
The remaining funds will be used for the construction of the houses on a
percentage of completion method. Repayment of the loan from Freehold to the
Funding Company will come from proceeds of the houses as they are closed with
third party purchasers. As of June 30, 1998, Freehold had written 74 contracts
with prospective home buyers and has taken 7 deposits which are expected to be
converted to contracts upon meeting certain conditions.

     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 June 30, 1998, the Funding Company made a first mortgage loan
to Freehold in the amount of $2,390,000 on seven building lots for the
construction of sold homes. Freehold is an entity organized to develop, market
and build a 126 lot subdivision known as "Seven Oaks" located on Burlington Road
in Freehold, New Jersey. Upon receipt of the financing from the Funding Company,
Freehold will use a portion of the proceeds to repay Amboy National Bank (first
mortgage holder) for its existing acquisition and improvement funding and Apple
Chase Investors, L.L.C. (second mortgage holder for its acquisition funding).
The remaining funds will be used for the construction of the houses on a
percentage of completion method. Repayment of the loan from Freehold to the
Funding Company will come from proceeds of the houses as they are closed with
third party purchasers. As of June 30, 1998, Freehold had written 74 contracts
with prospective home buyers and has taken 7 deposits which are expected to be
converted to contracts upon meeting certain conditions.

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.



<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:  August 12, 1998                   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:  August 12, 1998                   By: /s/ ROGER MUMFORD
                                             -----------------------------------
                                                 Roger Mumford, Director


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