================================================================================
 
                     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 March 31, 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                                     22-33-82016
    -------------------------------                      -------------------
    (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)


                                 (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        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 March 31, 1998

           Transitional Small Business Disclosure Format (check one):

                            Yes        No  X
                                ---       ---

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



<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 March 31, 1998 (unaudited) and December 31, 1997
      Statements of Operations and Retained Earnings for the Three Months
      ended March 31, 1998 (unaudited) ...................................     
    Statement of Cash Flows for the Three Months Ended March 31, 1998
      (unaudited) ........................................................     
    Notes to Financial Statements (unaudited) ............................     
 

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

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


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

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

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



<PAGE>

                                                                            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 MARCH 31, 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 MARCH 31,1998 AND DECEMBER 31, 1997


                                                        3/31/98       12/31/97
                                                       ----------    ----------
                                                      (unaudited)    (audited)
                                     ASSETS

Cash ..............................................    $  197,402    $  945,616
Prepaid income taxes ..............................           100
Mortgages receivable ..............................     3,853,480     3,096,545
Deferred costs, net ...............................       175,418       186,049
                                                       ----------    ----------
TOTAL ASSETS ......................................    $4,226,400    $4,228,210
                                                       ==========    ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts Payable ..................................         6,671    $      125
Notes Payable .....................................    $3,750,000     3,750,000
                                                       ----------    ----------
TOTAL LIABILITIES .................................     3,756,671     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 ..............................       (30,271)      (21,915)
                                                       ----------    ----------
TOTAL STOCKHOLDERS' EQUITY ........................       469,729       478,085
                                                       ----------    ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........    $4,226,400    $4,228,210
                                                       ==========    ==========


                                       -1-



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)


Revenue ..........................................................     $148,048
                                                            
Interest expense .................................................      138,699
                                                                       --------
Income (loss) before G & A and amortization ......................        9,349
                                                            
General & administrative expenses ................................        7,074
                                                            
Amortization .....................................................       10,631
                                                                       --------
Net Income .......................................................       (8,356)
                                                            
Retained Earnings, beginning of period ...........................     $(21,915)
                                                            
Retained Earnings, end of period .................................     $(30,271)
                                                                       ========


                                       -2-



<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                             STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income ...................................................     $  (8,356)
   Adjustments to reconcile net loss to net cash            
     used in operating activities                           
       Amortization .............................................        10,631
       Increase in mortgages receivable .........................      (756,935)
       Increase in prepaid income taxes .........................          (100)
       Increase in accounts payable .............................         6,546
                                                                      ---------
                                                            
NET CASH USED IN OPERATING ACTIVITIES ...........................      (748,214)
                                                            
DECREASE IN CASH ................................................      (748,214)
                                                            
CASH, Beginning of period .......................................       945,616
                                                                      ---------
CASH, End of period .............................................     $ 197,402
                                                                      =========


                                       -3-



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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.


                                       -4-



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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.



<PAGE>




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

                              FINANCIAL STATEMENTS

                      FOR THE QUARTER ENDED MARCH 31, 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

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

Notes to the Financial Statements ........................................ 4 - 8



<PAGE>


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

                                 BALANCE SHEETS
                   AS OF MARCH 31, 1998 AND DECEMBER 31, 1997

                                                       03/31/98       12/31/97
                                                     (unaudited)      (audited)
                                                     -----------     ----------
                                     ASSETS

Cash ...........................................     $    62,112     $   53,028
Performance Bond ...............................         312,973        188,600
Inventories ....................................      11,573,430      8,776,775
                                                     -----------     ----------
TOTAL ASSETS ...................................     $11,948,515     $9,018,403
                                                     ===========     ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgage payable--M&M Mortgage Funding .........     $ 3,253,480     $2,496,545
Mortgage payable ...............................       6,767,207      5,046,744
Note payable ...................................         300,000        300,000
Accounts payable ...............................         832,110        163,174
Customer deposits ..............................         774,013        581,526
Due to affiliate ...............................          14,082        422,194
                                                     -----------     ----------
TOTAL LIABILITIES ..............................      11,940,892      9,010,183
                                                     -----------     ----------
PARTNERS' CAPITAL ..............................           7,623          8,220
                                                     -----------     ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ........     $11,948,515     $9,018,403
                                                     ===========     ==========


                                       -1-



<PAGE>


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

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998

Sales ............................................................     $318,714
                                                         
Cost of sales ....................................................      313,696
                                                                       --------
Gross profit .....................................................        5,018
                                                         
Selling, general and administrative expenses .....................        9,978
                                                                       --------
Income from operations ...........................................       (4,960)
                                                         
Interest income ..................................................        4,363
                                                                       --------
Net income (loss) ................................................         (597)
                                                         
Member's capital, Beginning of period ............................        8,220
                                                                       --------
Member's capital, End of Period ..................................     $  7,623
                                                                       ========


                                       -2-



<PAGE>


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

                            STATEMENTS OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) ........................................              (597)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds ........................          (124,373)
       Increase in inventories ..............................        (2,796,655)
       Increase (decrease) in accounts payable ..............           668,936
       Increase (decrease) in customer deposits .............           192,487
                                                                    -----------

NET CASH USED IN OPERATING ACTIVITIES .......................        (2,060,202)
                                                                    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgages payable ......................         2,723,613
       Payments on mortgages payable ........................          (246,215)
       Proceeds to affiliate ................................          (408,112)
                                                                    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES ...................         2,069,286
                                                                    -----------

INCREASE IN CASH ............................................             9,084

CASH, Beginning of period ...................................            53,028
                                                                    -----------
CASH, End of period .........................................       $    62,112
                                                                    ===========


                                       -3-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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.


                                       -4-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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 March 31, 1998:

          Land ..................................................   $ 3,562,251
          Approval costs ........................................       810,996
          Land improvements and
            construction costs ..................................     4,565,506
          Project overhead ......................................       868,807
          Financing costs .......................................     1,417,394
          Sales and marketing ...................................       348,476
                                                                    -----------
                                                                    $11,573,430
                                                                    ===========

          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 March 31, 1998 are $2,027,466.


                                       -5-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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

          March 31, 1998
          --------------
            Land and improvement -- related party (a) ...........    $ 3,253,480
            Land and construction (b) ...........................      6,371,054
            1st mortgage (c) ....................................        396,153
                                                                     -----------
                                                                     $10,020,687
                                                                     ===========
          ----------
          (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 land acquisition and site improvements for phase two (51
               lots) and is payable interest only at 16.00%. Interest payments
               are payable quarterly until November 15, 1999, when the
               outstanding principal balance is due. The note is collateralized
               by a first mortgage on the property.

          (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 a term of 18
                    months and bears interest at a rate of prime plus 1.5%, and
                    matures in June 1998.


                                       -6-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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 March
                    31, 1998, the Note has a balance of $3,880,000.

                    Note B, a revolver, in the maximum 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 loan is collateralized by a
                    first mortgage on the units being constructed. The note
                    balance is $2,491,054 as of March 31, 1998.

                    Note C in the amount of $500,000 is fund the construction of
                    two model homes. The note has a term of 18 months expiring
                    July 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
                    $396,153 as of March 31, 1998.

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

NOTE 5 -- 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 $620,000
          in management fees which have been capitalized in inventories at March
          31, 1998.


                                       -7-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1998


NOTE 5 -- 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>




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

                              FINANCIAL STATEMENTS

                      FOR THE QUARTER ENDED MARCH 31, 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

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

Notes to the Financial Statements ....................................... 4 - 8



<PAGE>


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

                                 BALANCE SHEETS
                   AS OF MARCH 31, 1998 AND DECEMBER 31, 1997

                                                       03/31/98        12/31/97
                                                     (unaudited)      (audited)
                                                     -----------     -----------
                                     ASSETS

Cash ...........................................     $    78,417     $   361,379
Cash - restricted ..............................         229,020         229,020
Notes receivable ...............................          44,500          44,500
Utility deposits ...............................          38,570          38,570
Fixed assets, net ..............................           6,383           7,856
Due from affiliates ............................         851,076         809,711
Inventories ....................................      12,426,643      11,756,553
                                                     -----------     -----------

TOTAL ASSETS ...................................     $13,674,609     $13,247,589
                                                     ===========     ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY


Mortgages payable ..............................     $11,643,956     $11,587,034
Accounts payable ...............................         966,267         709,668
Customer deposits ..............................         951,275         891,680
                                                     -----------     -----------

TOTAL LIABILITIES ..............................      13,561,498      13,188,382
                                                     -----------     -----------

PARTNERS' CAPITAL ..............................         113,111          59,207
                                                     -----------     -----------

TOTAL LIABILITIES AND PARTNERS' CAPITAL ........     $13,674,609     $13,247,589
                                                     ===========     ===========


                                       -1-



<PAGE>


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

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998


Sales ...........................................................     $2,778,889

Cost of sales ...................................................      2,641,460
                                                                      ----------
Gross profit ....................................................        137,429

Selling, general and administrative expenses ....................         83,335
                                                                      ----------
Income from operations ..........................................         54,094

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

Interest income .................................................          1,283
                                                                      ----------
Net income ......................................................         53,904

Member's capital, Beginning of period ...........................         59,207
                                                                      ----------
Member's capital, End of Period .................................     $  113,111
                                                                      ==========


                                       -2-



<PAGE>


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

                            STATEMENTS OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) ...........................................    $    53,904
   Depreciation ................................................          1,473
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in inventories .................................       (670,090)
       Increase (decrease) in customer deposits ................         59,545
       Increase (decrease) in accounts payable .................        256,649
                                                                    -----------

NET CASH USED IN OPERATING ACTIVITIES ..........................       (298,519)
                                                                    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable ..........................      2,289,952
       Payments of construction and land mortgages .............     (2,233,030)
       Proceeds to affiliate ...................................        (41,365)
                                                                    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES ......................         15,557
                                                                    -----------

DECREASE IN CASH ...............................................       (282,962)

CASH, Beginning of period ......................................        361,379
                                                                    -----------
CASH, End of period ............................................    $    78,417
                                                                    ===========


                                       -3-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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.


                                       -4-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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 March 31, 1998:

               Land .......................................    $ 5,833,074
               Approval costs .............................        880,943
               Land improvements and
                 construction costs .......................      3,551,422
               Project overhead ...........................        447,895
               Financing costs ............................      1,157,943
               Sales and marketing ........................        555,366
                                                               -----------
                                                               $12,426,643
                                                               ===========

          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 March 31, 1998 are $1,394,128.


                                       -5-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1998


NOTE 3 -- MORTGAGES PAYABLE

                                                        03/31/98      12/31/97
                                                      -----------   -----------
          Land and construction mortgages(a) ......   $ 6,771,484   $ 6,843,090
          1st mortgage(b) .........................     1,099,268     1,099,268
          2nd mortgage(c) .........................       600,000       600,000
          2nd mortgage(d) .........................     1,133,204       979,676
          3rd mortgage(e) .........................       940,000     1,000,000
          3rd mortgage(b) .........................     1,100,000     1,065,000
                                                      -----------   -----------
                                                      $11,643,956   $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 has a term of 18
                    months, is due in May 1998, 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 $3,825,600 at March
                    31, 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 March 31, 1998, this Note
                    had a balance of $150,000.

                    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 1998. Interest
                    is payable monthly and principal is paid at par upon closing
                    of a unit. The Note balance is $2,795,884 as of March 31,
                    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.


                                       -6-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 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 1998 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 made a
               principal repayment in the amount of $250,000 during the year,
               which 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 76th 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


                                       -7-



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1998


NOTE 4 -- RELATED PARTY TRANSACTIONS (continued)

          $510,000 in management fees of which $236,185 have been capitalized in
          inventories at March 31, 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.


                                       -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 first quarter of 1998, the Funding Company made loan advances to
Matzel & Mumford at South Brunswick, LLC ("South Brunswick") for site
improvements under the $3.4 million first mortgage.

     As of March 31, 1998, the Funding Company had an aggregate of $3,853,480 of
loans outstanding, allocated as follows: to Matzel & Mumford at South Brunswick,
L.L.C. ("South Brunswick"), (an aggregate of $3,253,480 secured by a first
mortgage), and to Matzel & Mumford at Freehold, LLC (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
$146,520 deposited in a cash collateral account with First Union National Bank,
as trustee for the holders of the Notes.

     During the first quarter of 1998, none of the loans outstanding were repaid
and no new loans have been identified.

     Subsequent to March 31, 1998, the Funding Company has not identified any
new loans.

     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.

     None

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).

     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).



<PAGE>


    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: 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: April 21, 1998                By: /s/ ROGER MUMFORD
                                        ----------------------------------------
                                        Roger Mumford, Director


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