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

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

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

                                   FORM 10-QSB

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

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

                 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

                                       OR

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

               FOR THE TRANSITION PERIOD FROM _______ TO _______.

                         Commission file number: 33-98178


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


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


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


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


Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes  X     No 
   ----      ----

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

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

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

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

         Transitional Small Business Disclosure Format (check one):

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

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

 SECTION 13 OF THE HILLS, L.L.C.

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

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

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

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

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

MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

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

<PAGE>

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

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

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

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 STATEMENT

                      FOR THE QUARTER ENDED JUNE 30, 1997


<PAGE>



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC

                          INDEX TO FINANCIAL STATEMENTS

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

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

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

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


<PAGE>

<TABLE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC

                                 BALANCE SHEETS

                   AS OF JUNE 30,1997 AND DECEMBER 31, 1996

<CAPTION>

                                                            6/30/97       12/31/96
                                                          ----------     ---------
                                                          (unaudited)    (audited)

                                     ASSETS
<S>                                                       <C>            <C>  
Cash                                                      $   98,317     $  210,207
Prepaid income taxes                                              75
Mortgages receivable                                       3,925,570      3,800,000
Deferred costs, net                                          207,311        228,573
                                                          ----------     ----------
TOTAL ASSETS                                              $4,231,273     $4,238,780
                                                          ==========     ==========



                      LIABILITIES AND STOCKHOLDERS' EQUITY


Accounts Payable                                          $      145     $      100
Notes Payable                                              3,750,000      3,750,000
                                                          ----------     ----------
TOTAL LIABILITIES                                          3,750,145      3,750,100
                                                          ----------     ----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY
  Common stock, no par value, 5,000 shares authorized
    500 shares issued and outstanding                         10,000         10,000
  Additional paid-in capital                                 490,000        490,000
  Retained earnings                                          (18,872)       (11,320)
                                                          ----------     ----------
TOTAL STOCKHOLDERS' EQUITY                                   481,128        488,680
                                                          ----------     ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $4,231,273     $4,238,780
                                                          ==========     ========== 

</TABLE>

                                       -1-
 

<PAGE>



                  MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                STATEMENT OF OPERATIONS AND RETAINED EARNINGS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)

Revenue                                                               $318,271

Interest expense                                                       288,550
                                                                      --------
Income (loss) before G & A and amortization                             29,721

General & administrative expenses                                       16,010

Amortization                                                            21,262
                                                                      --------
Net Income                                                              (7,551)

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

Retained Earnings, end of period                                      $(18,872)
                                                                      ========
                                       -2-


<PAGE>

                   MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS

                       FOR THE QUARTER ENDED JUNE 30, 1997

                                   (UNAUDITED)

Revenue                                                                $161,464

Interest expense                                                        150,935
                                                                       --------
Income (loss) before G & A and amortization                              10,529

General and administrative                                               16,010

Amortization                                                             10,631
                                                                       --------
Net Income                                                             $(16,112)

Retained Earnings, beginning of period                                 $ (2,760)

Retained Earnings, end of period                                       $(18,872)
                                                                       ========
                                     -3-


<PAGE>


                   MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                             STATEMENT OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                         $  (7,551)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Amortization                                                      21,262
       Increase in mortgages receivable                                (125,571)
       Increase in prepaid income taxes                                     (75)
       Increase in accounts payable                                          45
                                                                      ---------
NET CASH USED IN OPERATING ACTIVITIES                                  (111,890)

DECREASE IN CASH                                                       (111,890)

CASH, Beginning of period                                               210,207
                                                                      ---------
CASH, End of period                                                   $  98,317
                                                                      =========

                                      -4-


<PAGE>



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS

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


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

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

          DEFERRED COSTS

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

          INCOME TAXES

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

                                       -5-

<PAGE>



                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (Continued)

          ESTIMATES

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

NOTE 2 -- MORTGAGES RECEIVABLE

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

                                       -6-


<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1997


<PAGE>


                         SECTION 13 OF THE HILLS, 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>


<TABLE>


                         SECTION 13 OF THE HILLS, L.L.C.

                                 BALANCE SHEETS

                    AS OF JUNE 30, 1997 AND DECEMBER 31, 1996

<CAPTION>

                                                                06/30/97      12/31/96
                                                               ----------    ---------
                                                               (unaudited)   (audited)

                                     ASSETS
<S>                                                           <C>           <C>
Cash                                                          $  354,136    $   27,124
Performance bonds                                                 77,494        63,029
Due from affiliates                                              106,756
Inventories                                                    4,460,659     6,560,237
                                                              ----------    ----------
TOTAL ASSETS                                                  $4,999,045    $6,650,390
                                                              ==========    ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Notes and mortgages payable                                   $3,589,917    $4,202,697
Accounts payable                                                 847,880     1,850,996
Customer deposits                                                357,084       334,085
Due to affiliate                                                 150,200       400,000
                                                              ----------    ----------
TOTAL LIABILITIES                                              4,945,081     6,787,778
                                                              ----------    ----------
PARTNERS' CAPITAL                                                 53,964      (137,388)
                                                              ----------    ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                       $4,999,045    $6,650,390
                                                              ==========    ==========
</TABLE>

                                       -1-


<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997


                                                  6/30/97        6/30/96
                                                  -------        -------
Sales                                           $6,297,572     $4,737,327

Cost of sales                                    6,255,971      4,357,059
                                                ----------     ----------
Gross profit                                        41,601        380,268

Selling, general and administrative expenses       219,434        171,557
                                                ----------     ----------
Income from operations                            (177,833)       208,711

Interest income                                      1,185            917
                                                ----------     ----------
Net income                                        (176,648)       209,628

Member's capital, Beginning of period             (137,388)       247,363

Capital contributions                              376,000
Capital distributions                               (8,000)       (62,000)
                                                ----------     ----------
Member's capital, End of Period                 $   53,964     $  394,991
                                                ==========     ==========


                                     -2-

<PAGE>


                         SECTION 13 OF THE HILLS, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                    FOR THE THREE MONTHS ENDED JUNE 30, 1997


                                                       6/30/97         6/30/96
                                                       -------         -------
Sales                                                $3,253,652      $4,737,327

Cost of sales                                         3,310,935       4,357,059
                                                     ----------      ----------
Gross profit                                            (57,283)        380,268

Selling, general and administrative expenses            119,434         171,557
                                                     ----------      ----------
Income from operations                                 (176,717)        208,711

Interest income                                                             917
                                                     ----------      ----------
Net income                                             (176,717)        209,628

Member's capital, Beginning of period                  (169,319)        247,363

Capital contributions                                   376,000
Capital distributions                                    24,000         (62,000)
                                                     ----------      ----------
Member's capital, End of Period                      $   53,964      $  394,991
                                                     ==========      ==========

                                       -3-

<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                            STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                   (176,648)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Decrease in inventories                                        2,099,578
       Increase in restricted cash                                      (14,465)
       Increase (decrease) in customer deposits                          22,999
       Increase (decrease) in accounts payable                       (1,003,116)
                                                                    -----------
NET CASH USED IN OPERATING ACTIVITIES                                   928,348
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable                                 4,766,254
       Payments on construction and land mortgages                   (5,379,034)
       Proceeds from affiliate                                         (106,756)
       Proceed to affiliate                                            (249,800)
       Contributions from members                                       376,000
       Distributions to members                                          (8,000)
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                              (601,336)
                                                                    -----------
INCREASE IN CASH                                                        327,012

CASH,  Beginning of period                                               27,124
                                                                    -----------
CASH,  End of period                                                $   354,136
                                                                    ===========


                                     -4-


<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS AND ORGANIZATION

          Section 13 of the Hills, L.L.C. ("Section 13") is a New Jersey limited
          liability company formed for the purpose of purchasing land in
          Bernards Township, New Jersey and developing and constructing 60
          single-family homes on that land.

          The members of the L.L.C. are Matzel & Mumford at Basking Ridge,
          L.L.C. ("M&M at Basking Ridge") and KMG Associates, L.L.C. ("KMG").
          Profits are allocated first to M&M at Basking Ridge $20,000 per house
          closing as a preference distribution with remaining amounts allocated
          equally to each member.

          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.

          RESTRICTED CASH

          Restricted cash represents amounts on deposit as collateral for
          project improvements.

          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.


                                       -5-


<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)

          INCOME TAXES

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

          ESTIMATES

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

NOTE 2 -- INVENTORIES

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

                  Land                                $2,026,391
                  Land improvements and
                    construction costs                 1,238,616
                  Project overhead                       634,235
                  Financing costs                        229,476
                  Sales and marketing                    331,941
                                                      ----------
                                                      $4,460,659
                                                      ==========

          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, 1997 are $725,177.

                                     -6-




<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 3 -- MORTGAGES PAYABLE

                                                          6/30/97     12/31/96
                                                          -------     --------
            Land and construction loan Phase I (a)     $  514,967    $  259,152
            Land and construction loan Phase II (b)     2,583,950     2,527,545
            2nd mortgage (c)                                             75,000
            3rd mortgage  (d)                             287,000     1,037,000
            Note payable (e(i))                           204,000       204,000
            Note payable (e(ii))                                        100,000
                                                       ----------    ----------
                                                       $3,589,917    $4,202,697
                                                       ==========    ==========

          (a)  The Company has a commitment from a bank for land acquisition and
               construction not to exceed $6,100,000 as follows:

          o    Note 1 in the maximum amount of $2,600,000 is to fund land
               acquisition, improvements and construction of one model. The note
               is payable interest only at the prime rate plus 1 1/2%. Interest
               is payable monthly and principal is payable with each closing at
               120% of the amounts advanced. The note matures on August 21,
               1997.

          o    Note 2 in the maximum amount of $3,500,000 is for construction of
               dwelling units. The note is payable interest only at the prime
               rate plus 1 1/2%. Interest is payable monthly and principal is
               payable with each closing in an amount equal to all related funds
               advanced for construction.

          The loan is collateralized by a first mortgage on the land and
          improvements of Phase I (24 lots) of the project and is guaranteed by
          the managing members of Matzel & Mumford at Basking Ridge and KMG.

     The Company has a $2,100,000 and $400,000 mortgage payable to Matzel &
     Mumford Mortgage Funding, Inc., which bears interest at 16%. Interest
     payments are payable quarterly until February 7, 1998 and April 16, 1998
     respectively, when the outstanding principal is due. During the second
     quarter, the $2,100,000 note was repaid in full. 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 $6,880,000 as follows:

          o    Note 1 in the maximum amount of $3,380,000 is to fund land
               acquisition, improvements and construction of one model. The note
               is

                                     -7-


<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

               payable interest only at the prime rate plus 1 1/2%. Interest is
               payable monthly and principal is payable with each closing at
               120% of the amounts advanced. The note matures on September 26,
               1997.

          o    Note 2 in the maximum amount of $3,500,000 is for construction of
               dwelling units. The note is payable interest only at the prime
               rate plus 1 1/2%. Interest is payable monthly and principal is
               payable with each closing in an amount equal to all related funds
               advanced for construction.

          The loan is collateralized by a first mortgage on the land and
          improvements of Phase II (36 lots) of the project and is guaranteed by
          the managing members of Matzel & Mumford at Basking Ridge and KMG.

     (c)  The Company has a loan from a bank in the maximum amount of $300,000.
          The loan is payable interest only at the prime rate plus 1 1/2%,
          monthly through September 26, 1997. During the first quarter of 1997
          the loan was repaid in full.

     (d)  The Company has a subordinated third mortgage to the seller in the
          original amount of $1,836,000. The loan is non-interest bearing and
          principal is payable $51,000 per closing in Phase II. The loan is
          collateralized by a third mortgage on Phase II.

     (e)  The Company has notes payable to the seller as follows:

          (i)  Note 1 in the original amount of $1,224,000 is non-interest
               bearing and is payable $51,000 per closing in Phase I.

          (ii) Note 2 in the original amount of $750,000 bears interest at 15%
               annually. Principal is payable at a minimum of $30,000 per month,
               however, after the sale of the first unit, this amount maybe
               satisfied by payments in connection with Note 1 as provided in
               the loan amount. The note is currently due on demand.

               Notes 1 and 2 are guaranteed by the members of Matzel & Mumford
               at Basking Ridge.

NOTE 4 -- RELATED PARTY TRANSACTIONS

          The Company has an agreement with MMO whereby MMO provides


                                     -8-

<PAGE>

                         SECTION 13 OF THE HILLS, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

          construction management services at a fee of 4% of the gross selling
          price of each house up to $20,000 per house. MMO is entitled to
          receive monthly draws of $25,000 per month.

          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.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

          The Company is contingently liable for performance bonds totaling
          $315,000 at June 30, 1997.

                                       -9-


<PAGE>

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

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1997



<PAGE>


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

                          INDEX TO FINANCIAL STATEMENTS

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

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

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


<PAGE>




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

                                 BALANCE SHEETS

                  AS OF JUNE 30, 1997 AND DECEMBER 31, 1996


                                                          06/30/97     12/31/96
                                                        ----------    ---------
                                                        (unaudited)   (audited)
                                     ASSETS
Cash                                                   $  115,402   $      457
Performance Bond                                          256,093
Inventories                                             5,992,920    4,404,951
                                                       ----------   ----------

TOTAL ASSETS                                           $6,364,415   $4,405,408
                                                       ==========   ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgage payable- M&M Mortgage Funding                 $1,800,000   $2,800,000
Mortgage payable - bank                                 2,476,358
Mortgage payable - second                                 945,125      945,125
Accounts payable                                          109,271       18,063
Note Payable                                              300,000
Due to affiliate                                          733,661      642,220
                                                       ----------   ----------

TOTAL LIABILITIES                                       6,364,415    4,405,408
                                                       ----------   ----------
PARTNERS' CAPITAL
                                                       ----------   ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                $6,364,415   $4,405,408
                                                       ==========   ==========

                                     -1-


<PAGE>

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

                            STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds                                (256,093)
       Increase in inventories                                    (1,587,969)
       Increase (decrease) in accounts payable                        91,208
                                                                ------------
NET CASH USED IN OPERATING ACTIVITIES                             (1,752,854)
                                                                ------------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable                              2,776,358
       Payments on land mortgages                                 (1,000,000)
       Proceeds from affiliate                                        91,441
                                                                ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                          1,867,799
                                                                 -----------
INCREASE IN CASH                                                     114,945

CASH, Beginning of period                                                457
                                                                 -----------
CASH, End of period                                              $   115,402
                                                                 ===========


                                       -2-

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

          NATURE OF BUSINESS AND ORGANIZATION

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

          REVENUE RECOGNITION

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

          INVENTORIES

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

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

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

          MEMBERS CAPITAL

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

                                       -3-


<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)

          INCOME TAXES

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

          ESTIMATES

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

NOTE 2 -- INVENTORIES

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

                  Land                            $3,475,944
                  Approval costs                     533,623
                  Land improvements and
                    construction costs               722,889
                  Project overhead                   478,971
                  Financing costs                    748,629
                  Sales and marketing                 32,864
                                                  ----------
                                                  $5,992,920
                                                  ==========

          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, 1997 are $850,000.

                                       -4-


<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 3 -- MORTGAGE PAYABLE

          The Company has a mortgage payable to Matzel & Mumford Mortgage
          Funding, Inc., an entity controlled by the members of M&M at South
          Brunswick, which bears interest at 16%. Interest payments are payable
          quarterly until July 31, 1997 when the outstanding principal balance
          is due. The note is collateralized by a first mortgage on the
          property.

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

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

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

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

          The Company has a mortgage payable to the seller in the amount of
          $945,125, bearing interest at 9%. Interest is payable monthly
          beginning December 1, 1996, with principal due August 1, 1997.

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

                                       -5-




<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

                                 JUNE 30, 1997



NOTE 4 -- RELATED PARTY TRANSACTIONS

          The Company has an agreement with MMO whereby MMO provides
          construction management services at a fee of 4% of the gross selling
          price of each house. MMO is entitled to receive monthly draws of
          $35,000 per month. Since inception, the Company has incurred $360,000
          in management fees which have been capitalized in inventories at June
          30, 1997.

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

                                       -6-


<PAGE>

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

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1997



<PAGE>


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

                          INDEX TO FINANCIAL STATEMENTS

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

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

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

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


<PAGE>

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

                                 BALANCE SHEETS

                  AS OF JUNE 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>

                                                              06/30/97     12/31/96
                                                             (unaudited)   (audited)
                                                             ----------   ----------
                                     ASSETS

<S>                                                          <C>          <C>       
Cash                                                         $    2,849   $   35,171
Cash - restricted                                                10,000       10,000
Notes receivable                                                 56,700
Vehicle (net of accumulated depreciation)                         2,750
Inventories                                                   4,703,154    2,603,466
                                                             ----------   ----------
TOTAL ASSETS                                                 $4,775,453   $2,648,637
                                                             ==========   ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable                                            $3,708,804   $1,620,848
Accounts payable                                                554,806      484,680
Customer deposits                                               354,813      103,522
Due to affiliate                                                223,212      439,587
                                                             ----------   ----------
TOTAL LIABILITIES                                             4,821,635    2,648,637
                                                             ----------   ----------
PARTNERS' CAPITAL                                               (46,182)
                                                             ----------   ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                      $4,775,453   $2,648,637
                                                             ==========   ==========
</TABLE>


                                     -1-
<PAGE>



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

                STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997


Sales                                                               $ 1,227,649

Cost of sales                                                         1,224,735
                                                                    -----------
Gross profit                                                              2,914

Selling, general and administrative expenses                             34,084
                                                                    -----------
Income from operations                                                  (31,170)

Depreciation                                                                250

Interest income                                                           1,238
                                                                    -----------
Net income                                                              (30,182)
Member's capital, Beginning of period                                      --
Capital distributions                                                   (16,000)
                                                                    -----------
Member's capital, End of Period                                     $   (46,182)
                                                                    ===========


                                      -2-

<PAGE>



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

                STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                       FOR THE QUARTER ENDED JUNE 30, 1997




Sales                                                                 $ 635,447

Cost of sales                                                           646,325
                                                                      ---------
Gross profit                                                            (10,878)

Selling, general and administrative expenses                             10,396
                                                                      ---------
Income from operations                                                  (21,274)

Depreciation                                                                250

Interest income                                                             654
                                                                      ---------
Net income                                                              (20,870)

Member's capital, Beginning of period                                   (17,312)

Capital distributions                                                    (8,000)
                                                                      ---------
Member's capital, End of Period                                       $ (46,182)
                                                                      =========

                                      -3-

<PAGE>


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

                            STATEMENTS OF CASH FLOWS

                       FOR THE QUARTER ENDED JUNE 30, 1997

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                    (30,182)
   Depreciation                                                             250
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in inventories                                       (2,099,688)
       Increase in note receivable                                      (56,700)
       Increase (decrease) in customer deposits                         231,291
       Increase (decrease) in accounts payable                           70,126
                                                                    -----------
NET CASH USED IN OPERATING ACTIVITIES                                (1,884,903)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable                                 2,981,618
       Payments of construction and land mortgages                     (893,662)
       Proceeds to affiliate                                           (216,375)
       Distributions to members                                         (16,000)
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             1,855,581
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Purchase of vehicle                                                3,000
                                                                    -----------
NET CASH USED BY INVESTING ACTIVITIES                                    (3,000)
                                                                    -----------
DECREASE IN CASH                                                        (32,322)
CASH, Beginning of period                                                35,171
                                                                    -----------
CASH, End of period                                                 $     2,849
                                                                    ===========


                                     -4-
<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997



NOTE 1  -   SUMMARY OF ACCOUNTING POLICIES

            NATURE OF BUSINESS AND ORGANIZATION

            Matzel & Mumford at West Windsor, L.L.C. ("M & M at West Windsor")
            is a New Jersey limited liability company formed for the purpose of
            purchasing land in the Township of West Windsor, New Jersey and
            developing and constructing 38 single-family homes on that land. M&M
            has closed title to 23 lots and has an option to purchase the
            remaining 15 lots till September 25, 1997.

            REVENUE RECOGNITION

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

            INVENTORIES

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

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

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

            MEMBERS CAPITAL

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

                                     -5-

<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


NOTE 1  -   SUMMARY OF ACCOUNTING POLICIES (continued)

            INCOME TAXES

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

            ESTIMATES

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

NOTE 2  -   INVENTORIES

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

                  Land                                  $2,148,454
                  Approval costs                           134,307
                  Land improvements and
                    construction costs                     917,377
                  Project overhead                         725,520
                  Financing costs                          399,706
                  Sales and marketing                      377,790
                                                        ----------
                                                        $4,703,154
                                                        ==========

            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, 1997 are $905,622.


                                     -6-

<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 3  -   MORTGAGES PAYABLE

                                                        06/30/97      12/31/96
                                                       ----------    ----------
            Land and construction mortgages (a)        $3,148,804    $1,235,848
            3rd  mortgage (b)                             560,000       385,000
                                                       ----------    ----------
                                                       $3,708,804    $1,235,848
                                                       ==========    ==========

        (a) The company has a loan from a bank for land acquisition and
            construction not to exceed $3,800,000. Interest is payable monthly
            at 1 1/2 % over prime. Principal is payable with each closing at the
            rate of 120% of the amount advanced for land acquisition and 100% of
            construction advances. The loan matures on October 25, 1997 after
            which the principal is due on demand. The loan is collateralized by
            a first mortgage on the land and improvements on the project and is
            guaranteed by the managing members and The Matzel & Mumford.

            The Company has two loans from Matzel & Mumford Mortgage Funding,
            Inc. for the construction of a total of five spec homes. The first
            loan is not to exceed $850,000 which matures February 4, 1998 and
            the second loan is not to exceed $1,100,000 which matures May 1,
            1998. Interest is payable quarterly at 16%. The loan matures on
            February 4, 1998 after which time the principal is due on demand.
            The loan is collateralized by a first mortgage on the land and
            improvements of the project.

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

NOTE 4  -   RELATED PARTY TRANSACTIONS

            The Company has an agreement with MMO whereby MMO provides
            construction management services at a fee of 4% of the gross selling
            price of each house. MMO is entitled to receive monthly draws of
            $30,000 per month. Since inception, the Company has incurred
            $540,000 in management fees of which $505,916 have been capitalized
            in inventories at June 30, 1997.

                                        -7-
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997



NOTE 3  -   MORTGAGES PAYABLE (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 WHITE OAK ESTATES, L.L.C.

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1997


<PAGE>


                  MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                          INDEX TO FINANCIAL STATEMENTS

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

Statement of Operations................................................    2-3

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

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


<PAGE>


                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                                 BALANCE SHEETS

                  AS OF JUNE 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>

                                                               06/30/97       12/31/96
                                                             (unaudited)      (audited)
                                                             -----------    -----------
                                     ASSETS

<S>                                                          <C>            <C>        
Cash                                                         $    25,791    $    19,911
Cash - restricted                                                 95,587        161,474
Notes receivable                                                  79,200         79,200
Due from affiliate                                                50,000
Vehicle (net of accumulated depreciation)                          4,125
Inventories                                                    6,780,167      5,692,181
                                                             -----------    -----------
TOTAL ASSETS                                                 $ 7,034,870    $ 5,952,766
                                                             ===========    ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable                                            $ 4,944,206    $ 4,456,498
Accounts payable                                               1,190,663        633,673
Customer deposits                                                237,874
Due to affiliate                                                 725,000        829,451
                                                             -----------    -----------
TOTAL LIABILITIES                                              7,097,743      5,919,622
                                                             -----------    -----------
PARTNERS' CAPITAL                                                (62,873)        33,144
                                                             -----------    -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                      $ 7,034,870    $ 5,952,766
                                                             ===========    ===========
</TABLE>


                                     -1-

<PAGE>


                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                            STATEMENTS OF OPERATIONS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)


Revenue                                                              $2,505,697

Cost of Sales                                                         2,515,187
                                                                     ---------- 
Gross Profit                                                             (9,490)

Selling, General and administrative expenses                             87,696
                                                                     ---------- 
Loss from operations                                                    (97,186)

Interest Income                                                           1,544

Depreciation                                                                375
                                                                     ---------- 
Net Loss                                                                (96,017)

Members capital, beginning of period                                     33,144
                                                                     ---------- 
Members capital, end of period                                       ($  62,873)
                                                                     ==========


                                      -2-


<PAGE>


                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                            STATEMENTS OF OPERATIONS

                   FOR THE THREE MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)


Revenue                                                             $ 2,505,697

Cost of Sales                                                         2,515,187
                                                                    -----------
Gross Profit                                                             (9,490)

Selling, General and administrative expenses                             87,696
                                                                    -----------
Loss from operations                                                    (97,186)

Interest Income                                                           1,544

Depreciation                                                                375
                                                                    -----------
Net Loss                                                                (96,017)

Members capital, beginning of period                                     33,144
                                                                    -----------
Members capital, end of period                                      ($   62,873)
                                                                    ===========


                                      -3-

<PAGE>


                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                            STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)



CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                    (96,017)
   Depreciation                                                             375
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in inventories                                       (1,087,986)
       Decrease in performance bonds                                     65,887
       Increase in customer deposits                                    237,874
       Increase (decrease) in accounts payable                          556,990
                                                                    -----------
NET CASH USED IN OPERATING ACTIVITIES                                  (322,877)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable                                 3,282,422
       Payments of construction and land mortgages                   (2,794,714)
       Proceeds to affiliate                                           (104,451)
       Proceeds from affiliate                                          (50,000)
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                               333,257
                                                                    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
       Purchase of vehicle                                                4,500
                                                                    -----------
NET CASH USED BY INVESTING ACTIVITIES                                    (4,500)
                                                                    -----------
INCREASE IN CASH                                                          5,880
CASH,  Beginning of period                                               19,911
                                                                    -----------
CASH,  End of period                                                $    25,791
                                                                    ===========


                                     -4-

<PAGE>


                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1  -   SUMMARY OF ACCOUNTING POLICIES

            NATURE OF BUSINESS AND ORGANIZATION

            Matzel & Mumford at White Oak Estates, L.L.C. ("M & M at White
            Oak") is a New Jersey limited liability company formed for the
            purpose of purchasing land in the Township of Branchburg, New Jersey
            and developing and constructing 58 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 WHITE OAK ESTATES, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1  -   SUMMARY OF ACCOUNTING POLICIES (continued)

            INCOME TAXES

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

            ESTIMATES

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

NOTE 2  -   INVENTORIES

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

                  Land                                  $2,550,367
                  Approval costs                           581,079
                  Land improvements and
                    construction costs                   1,983,669
                  Project overhead                         561,559
                  Financing costs                          899,246
                  Sales and marketing                      204,247
                                                        ----------
                                                        $6,780,167
                                                        ==========

            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, 1997 are $1,307,598.

                                     -6-

<PAGE>


                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


NOTE 3  -   MORTGAGES PAYABLE

                                                      06/30/97     12/31/96
                                                     ----------   ----------
            Land and construction mortgages (a)      $1,639,566   $1,500,000
            2nd mortgage (b)                          2,038,640    1,443,498
            3rd mortgage   c)                         1,066,000    1,313,000
            Note payable (d)                            200,000      200,000
                                                     ----------   ----------
                                                     $4,944,206   $4,456,498
                                                     ==========   ==========
                                               
        (a) The company has a loan from a bank for land acquisition not to
            exceed $1,500,000. Interest is payable monthly at 1 1/2% over
            prime. The loan matures on September 27, 1997 after which the
            principal is due on demand. The loan is collateralized by a first
            mortgage on the land and improvements on the project and is
            guaranteed by the managing members.

            The Company has two loans from Matzel & Mumford Mortgage Funding,
            Inc. for the construction of a total of five spec homes. The first
            loan is in the amount of $550,000 for 2 two spec homes and matures
            March 27, 1998 and the second loan is in the amount of $800,000 for
            three spec homes and matures on April 16, 1998. Interest is payable
            quarterly at 16%. The loan is collateralized by a first mortgage on
            the land and improvements of the project.

        (b) The Company has a commitment from a bank for land acquisition and
            construction not to exceed $4,520,000. Interest is payable monthly
            at 1 1/2% over prime. Principal is payable with each closing at the
            rate of 120% of the amount advanced for land acquisition and 100% of
            construction advances. The loan matures on March 31, 1998, with the
            availability of a six month extension at the option of the lender
            after which time the balance will be due upon demand. The loan is
            collateralized by a second mortgage on the land and improvements of
            the project and is guaranteed by the managing members of M&M at
            White Oak and MMO.

        (c) The Company has a mortgage in the amount of $1,313,000. Interest is
            payable monthly at 15%, plus an additional 1% of the sales price of
            each unit closed before September 20, 1997 and 1 1/2% thereafter.
            Principal is payable $10,000 per unit for the 5th through 7th lots
            closed, $31,000 for the 8th through 23rd lots, $35,000 for the 24th
            through 50th lots and $31,000 for the 51st lot closed. The note is
            collateralized by a third mortgage and the guarantee of M&M at White
            Oak.

                                     -7-

<PAGE>

                MATZEL & MUMFORD AT WHITE OAK ESTATES, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


        (d) The Company has a note payable in the amount of $200,000 bearing
            interest at 25%. Interest is payable semi-annually and principal is
            payable upon demand with 90 days notice. The note is guaranteed by
            the managing members of M&M at White Oak.

NOTE 4  -   RELATED PARTY TRANSACTIONS

            The Company has an agreement with MMO whereby MMO provides
            construction management services at a fee of 3.5% of the gross
            selling price of each house. MMO is entitled to receive monthly
            draws of $25,000 per month. Since inception, the Company has
            incurred $525,000 in management fees of which $408,352 have been
            capitalized in inventories at June 30, 1997.

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

                                     -8-


<PAGE>

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

                              FINANCIAL STATEMENTS

                       FOR THE QUARTER ENDED JUNE 30, 1997

<PAGE>



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

                          INDEX TO FINANCIAL STATEMENTS


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

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

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

<PAGE>


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

                                 BALANCE SHEETS

                  AS OF JUNE 30, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>

                                                                06/30/97       12/31/96
                                                              (unaudited)     (audited)
                                                              -----------   -----------

                                     ASSETS

<S>                                                           <C>           <C>        
Cash                                                          $    45,031   $    67,949
Performance Bond                                                  346,700       197,470
Due from affiliates                                               735,822       126,322
Sales Trailer                                                      11,785
Inventories                                                    11,561,557     7,718,927
                                                              -----------   -----------
TOTAL ASSETS                                                  $12,700,895   $ 8,110,668
                                                              ===========   ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Mortgages payable                                             $11,466,182   $ 7,976,242
Customer deposits                                                 158,682
Accounts payable                                                1,076,031       134,426
                                                              -----------   -----------
TOTAL LIABILITIES                                              12,700,895     8,110,668
                                                              -----------   -----------
PARTNERS' CAPITAL
                                                              -----------   -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                       $12,700,895   $ 8,110,668
                                                              ===========   ===========
</TABLE>

                                     -1-


<PAGE>

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

                            STATEMENTS OF CASH FLOWS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1997

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds                                   (149,230)
       Increase in inventories                                       (3,842,630)
       Increase in customer deposits                                    158,682
       Increase (decrease) in accounts payable                          941,605
                                                                    -----------
NET CASH USED IN OPERATING ACTIVITIES                                (2,891,573)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable                                 3,712,440
       Payments on land mortgages                                      (222,500)
       Proceeds to affiliate                                           (609,500)
                                                                    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             2,880,440
                                                                    -----------


CASH FLOWS FROM INVESTING ACTIVITIES
       Purchase of sales trailer                                         11,785
                                                                    -----------
NET CASH USED BY INVESTING ACTIVITIES                                   (11,785)
                                                                    -----------


DECREASE IN CASH                                                        (22,918)

CASH, Beginning of period                                                67,949
                                                                    -----------
CASH, End of period                                                 $    45,031
                                                                    ===========



                                     -2-

<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


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.
            Through June 30, 1997, there has been no operating activities.

            REVENUE RECOGNITION

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

            INVENTORIES

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

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

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

            MEMBERS CAPITAL

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

                                     -3-

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997

NOTE 1  -   SUMMARY OF ACCOUNTING POLICIES (continued)

            INCOME TAXES

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

            ESTIMATES

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

NOTE 2  -   INVENTORIES

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

                  Land                                  $  7,086,784
                  Approval costs                             525,662
                  Land improvements and
                    construction costs                     2,476,955
                  Project overhead                           389,095
                  Financing costs                            566,286
                  Sales and marketing                        516,775
                                                         -----------
                                                         $11,561,557
                                                         ===========

            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, 1997 are $210,000.

                                     -4-
<PAGE>

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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


NOTE 3  -   MORTGAGE PAYABLE

            Land and Construction Mortgages (a)         $ 7,516,914
            1st mortgage (b)                              1,699,268
            2nd mortgage(C)                               1,000,000
            3rd mortgage (d)                              1,250,000
                                                        -----------
                                                        $11,466,182
                                                        ===========

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

            o Note A in the maximum amount of $6,030,000 is to fund acquisition
              and improvements. The note has a term of 18 months 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 cost of the related land and site improvements or $110,210.

            o Note B in the amount of $700,000 matures on April 10, 1998 and
              bears interest at 18%. Interest is payable monthly and principal
              is due at maturity.

            The loan is collateralized by a first mortgage on the land and
            improvements of phases one and two (93 lots) of the project and is
            guaranteed by the managing members.

            Matzel & Mumford Mortgage Funding, Inc. ("Funding Company") has a
            first mortgage on two of the lots in the project in the amount of
            $550,000. The note has a term of 12 months and bears interest at
            16%. Interest is payable quarterly and principal is payable with
            each closing at the rate of 105% of the amount outstanding on the
            particular unit.


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

        (c) The Company has a mortgage payable to an investor group which bears
            interest at a rate of 20%.  Interest is payable quarterly on the
            outstanding

                                        -5-

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                                  JUNE 30, 1997


NOTE 3  -   MORTGAGE PAYABLE (continued)

            balance until January 30, 2000, when the loan matures. The interest
            payment is paid current at 14% with 6% deferred until the 31st
            closing when the deferred portion becomes due and payable. Principal
            repayments commence on the twenty first house closing through the
            fiftieth $20,000 per closing and then increase to $40,000 per
            closing for the next ten house closings. The note is collateralized
            by a second mortgage on the land and improvements.

        (d) The Company has a 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. 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 71st closing
            through the 95th closing with the unpaid balance, if any, due
            December 31, 2001. The note is collateralized by a third mortgage on
            the land and improvements and the guarantee of the managing members.

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

NOTE 4  -   RELATED PARTY TRANSACTIONS

            The Company has an agreement with MMO whereby MMO provides
            construction management services at a fee of 4% of the gross selling
            price of each house. MMO is entitled to receive monthly draws of
            $30,000 per month. Since inception, the Company has incurred
            $210,000 in management fees which have been capitalized in
            inventories at June 30, 1997.

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

                                     -6-

<PAGE>

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 1997, the Funding Company made four mortgage
loans to four different project entities. One first mortgage loan was made to
Matzel & Mumford at West Windsor, L.L.C. ("West Windsor"), and another was made
to Section 13 of the Hills, L.L.C. ("Section13"). Another first mortgage loan
was made to Matzel & Mumford at White Oak Estates, L.L.C. ("White Oak") for the
construction of three spec homes. Finally, the Funding Company made a first
mortgage loan to Matzel & Mumford at Freehold, L.L.C. ("Freehold") for
construction of two spec houses. All of these loans and the borrowers were
discussed in the Funding Company's Form 10-QSB for quarter ended March 31, 1997
dated May 13, 1997.

     As of June 30, 1997, the Funding Company had an aggregate of $3,925,570 of
loans outstanding, allocated as follows: to Section 13 ( an aggregate of
$119,715 secured by first mortgages), to Freehold (an aggregate of $603,383
secured by first mortgages), to Matzel & Mumford at South Brunswick, L.L.C.
("South Brunswick"), (an aggregate of $1,800,000 of which $1,100,000 is secured
by a first mortgage and $700,000 secured by a second mortgage), to White Oak (an
aggregate of $574,049 secured by a first mortgage), and to West Windsor (an
aggregate of $828,423 secured by a first mortgage). The financial statements of
each of these entities are included with this Quarterly Report. The Funding
Company also had $74,430 deposited in a cash collateral account with First Union
National Bank, as trustee for the holders of the Notes.

During the second quarter of 1997, Matzel & Mumford at Piscataway, L.L.C.
("Piscataway") repaid its previously outstanding loan from the Funding Company
in full.

Subsequent to June 30, 1997, the Funding Company made an additional loan to one
project entity. Further, the Funding Company intends to make an additional loan
to South Brunswick. See Item 5, "Other Information" for a description of these
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.

Subsequent to June 30, 1997, the Funding Company has made a first mortgage loan
to Matzel & Mumford at Apple Ridge II, LLC ("Apple Ridge") in the amount of
$1,000,000 for land acquisition. The previous transaction was reported on
Current Form 8-K dated July 15, 1997. The Funding Company also anticipates
making an additional first mortgage loan in the third quarter of 1997 to South
Brunswick in the amount of $945,125 to refinance a second mortgage to the land
seller.

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).

<PAGE>


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

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

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

27    Financial Data Schedules.

      (b) REPORTS ON FORM 8-K

     During the third quarter of 1997, the Funding Company filed a Current
Report on Form 8-K on July 15, 1997 concerning a loan from the Funding Company
to an M&M Project Entity.


<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 15, 1997            By:  /s/ ROGER MUMFORD
                                     -------------------------------------
                                      Roger Mumford, President
                                      (Principal Executive Officer)

                                  By: /s/ RICHARD G. ANDERSON
                                     -------------------------------------
                                      Richard G. Anderson,
                                      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: May 15, 1997                By:  /s/ ROGER MUMFORD
                                     -------------------------------------
                                       Roger Mumford, Director


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