1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q


              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended SEPTEMBER 30, 1999

                        Commission File Number: 0-19822


                        LITCHFIELD FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

MASSACHUSETTS                                      04-3023928
state or other jurisdiction          (I.R.S. Employer Identification No.)
of incorporation or organization)


430 MAIN STREET, WILLIAMSTOWN, MA                    01267
(Address of principal executive offices)           (Zip Code)


      Registrant's telephone number, including area code: (413) 458-1000


             (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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


As of  November  1,  1999,  there  were  6,984,601  shares  of  common  stock of
Litchfield Financial Corporation outstanding.





                                                                       FORM 10-Q
<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                                    FORM 10-Q

                        QUARTER ENDED SEPTEMBER 30, 1999

                                      INDEX
<CAPTION>

<S>                                                                   <C>
PART I - FINANCIAL INFORMATION

     Item 1. Financial Statements.............................         3

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations....        16

     Item 3. Quantitative and Qualitative Disclosures
             About Market Risk................................        22


PART II - OTHER INFORMATION

     Item 1. Legal Proceedings................................        23

     Item 2. Changes in Securities and Use of Proceeds........        23

     Item 3. Defaults Upon Senior Securities..................        23

     Item 4. Submission of Matters to a Vote of Security Holders      23

     Item 5. Other Information................................        23

     Item 6. Exhibits and Reports on Form 8-K.................        23


SIGNATURES....................................................        24


</TABLE>


<TABLE>



                         PART I - FINANCIAL INFORMATION
                          Item 1. Financial Statements

                        LITCHFIELD FINANCIAL CORPORATION
                           Consolidated Balance Sheets
               (In thousands, except share and per share amounts)





<CAPTION>
                                                    September 30,    December 31,

                                                        1999            1998
                                                      ---------         ----
                           ASSETS                    (unaudited)
<S>                                                  <C>            <C>
Cash and cash equivalents......................      $  37,107      $  10,537
Restricted cash................................         18,494         27,898
Loans held for sale, net.......................          3,391         19,750
Other loans, net ..............................        508,504        191,292
Retained interests in loan sales, net .........          6,167         28,883
Other..........................................         30,420         15,522
                                                      ---------        ------
      Total assets.............................       $604,083       $293,882
                                                      ========       ========

       LIABILITIES, COMMITMENTS AND STOCKHOLDERS' EQUITY
Liabilities:
   Lines of credit.............................       $329,415      $  49,021
   Accounts payable and other liabilities......          6,683          9,812
   Dealer/developer reserves...................         10,752          9,979
   Deferred income taxes.......................          8,501          8,388
   Long-term notes.............................        133,882        134,588
                                                       -------        -------
      Total liabilities........................        489,233        211,788
                                                       -------        -------

Commitments:
   Litchfield Obligated Mandatorily Redeemable
Preferred Securities of Trust Subsidiary Holding
Debentures of Litchfield........................        26,200            --
                                                        ------         ------

Stockholders' equity:
   Preferred stock, $.01 par value; authorized
1,000,000 shares, none issued and outstanding..            --             --
   Common stock, $.01 par value; authorized
12,000,000 shares, 6,984,601 shares issued
and outstanding in 1999 and 6,886,329 shares
issued and outstanding in 1998.................             70             69
   Additional paid in capital..................         59,647         58,040
   Accumulated other comprehensive income......            200          1,250
   Retained earnings...........................         28,733         22,735
                                                        ------         ------
      Total stockholders' equity...............         88,650         82,094
                                                        ------         ------
      Total liabilities, commitments and              $604,083       $293,882
      stockholders' equity.....................       ========       ========


</TABLE>









    See accompanying notes to unaudited consolidated financial statements.



<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                        Consolidated Statements of Income
               (In thousands, except share and per share amounts)
                                    Unaudited
<CAPTION>

<S>                                                 <C>          <C>
                                                     Three Months Ended
                                                        September 30,
                                                        1999        1998
                                                        ----        ----
Revenues:
   Interest and fees on loans...................    $ 9,493       $ 6,819
   Gain on sale of loans........................        987         2,906
   Servicing and other income...................        509           740
                                                       ----          ----
                                                     10,989        10,465
                                                     ======        ======
Expenses:
   Interest expense.............................      5,824         3,423
   Salaries and employee benefits...............      1,748         1,277
   Other operating expenses.....................      1,302           906
   Provision for loan losses....................        605           360
                                                       ----          ----
                                                      9,479         5,966

Income before income taxes and distributions on       1,510         4,499
preferred securities............................
Provision for income taxes......................        582         1,732
Distributions on preferred securities (net of tax
benefit of $262)................................        418           --
                                                       ----          ----
Income before extraordinary item................        510         2,767
Extraordinary item (net of tax benefit of $48)..         --           (77)
                                                       -----         ----
Net income......................................      $ 510       $ 2,690
                                                       =====       =======


Basic per common share amounts:
   Income before extraordinary item ............   $     .07      $   .40
   Extraordinary item ..........................          --         (.01)
                                                        -----        ------
   Net income...................................   $     .07        $ .39
                                                        ======       =====

Basic weighted average number of shares.........     6,984,158     6,835,775

Diluted per common share amounts:
   Income before extraordinary item ............   $     .07      $   .39
   Extraordinary item ..........................          --         (.01)
                                                        -----        ------
   Net income...................................   $     .07      $   .38
                                                       ======        =====

Diluted weighted average number of shares.......     7,302,008     7,158,882


</TABLE>




    See accompanying notes to unaudited consolidated financial statements.

<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                        Consolidated Statements of Income
               (In thousands, except share and per share amounts)
<CAPTION>
                                    Unaudited
<S>                                               <C>           <C>

                                                      Nine Months Ended
                                                        September 30,
                                                     1999         1998
                                                     ----         ----
Revenues:
   Interest and fees on loans...................   $25,857      $18,107
   Gain on sale of loans........................     7,866        8,585
   Servicing and other income...................     1,613        1,699
                                                     -----        -----
                                                    35,336       28,391
                                                     =====        =====
Expenses:
   Interest expense.............................    15,176       10,115
   Salaries and employee benefits...............     4,452        3,557
   Other operating expenses.....................     3,341        2,775
   Provision for loan losses....................     1,605        1,170
                                                     -----        -----
                                                    24,574       17,617
                                                     =====        =====

Income before income taxes and distributions on
preferred securities............................    10,762       10,774
Provision for income taxes......................     4,144        4,148
Distributions on preferred securities (net of tax
benefit of $390)................................       623           --
                                                      ----         ----
Income before extraordinary item................     5,995        6,626
Extraordinary item (net of tax benefit of $48)..       --           (77)
                                                     -----         ----
Net income......................................   $ 5,995       $ 6,549
                                                    =======      =======


Basic per common share amounts:
   Income before extraordinary item ............    $  .87        $ 1.09
   Extraordinary item ..........................        --          (.01)
                                                      -------      ------
   Net income...................................    $  .87        $ 1.08
                                                      ======       ======

Basic weighted average number of shares.........    6,926,644    6,083,183

Diluted per common share amounts:
   Income before extraordinary item ............     $  .83       $ 1.03
   Extraordinary item ..........................         --         (.01)
                                                      -------      ------
   Net income...................................     $  .83       $ 1.02
                                                      ======       ======

Diluted weighted average number of shares.......    7,227,287    6,432,422

</TABLE>



    See accompanying notes to unaudited consolidated financial statements.

<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                Consolidated Statement of Stockholders' Equity
                     (In thousands, except share amounts)
                                    Unaudited

<CAPTION>

<S>                               <C>        <C>         <C>              <C>          <C>

                                                          Accumulated
                                             Additional      Other
                                   Common     Paid In    Comprehensive     Retained
                                   Stock      Capital    Income (Loss)     Earnings      Total
                                   -----      -------    ------------      --------      -----
Balance, December  31, 1998......   $69       $58,040       $1,250          $22,735     $82,094

  Issuance of 102,818 shares of
   common stock..................     1         1,684           ---             ---       1,685

  Retirement of 4,546 shares of
   treasury stock................    ---          (77)          ---             ---         (77)

  Other comprehensive loss, net
   of tax........................    ---           ---       (1,050)            ---      (1,050)

  Tax benefit from stock options
    exercised..........              ---           ---          ---               7           7

  Preferred stock dividends paid
    by majority owned subsidiary.    ---           ---          ---              (4)         (4)
  Net income...........              ---           ---          ---           5,995       5,995
                                    ----      ----------     --------       ---------     -----

Balance, September 30, 1999......   $70       $59,647       $   200         $28,733     $88,650
                                    ===       =======        =======        =======     =======


</TABLE>





    See accompanying notes to unaudited consolidated financial statements.

<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                Consolidated Statements of Comprehensive Income
                                 (In thousands)
                                    Unaudited
<CAPTION>

<S>                                                 <C>            <C>


                                                     Three Months Ended
                                                        September 30,
                                                       1999       1998

Net income........................................    $  510       $2,690
Unrealized  (loss) gain on retained  interests in
  loan  sales,  net of tax  (benefit)  expense of
  ($1,973)   and   $14   for   1999   and   1998,
  respectively.....................................   (3,152)          22

Comprehensive (loss) income........................ ($ 2,642)      $2,712
                                                      =======      ======
</TABLE>




<TABLE>
<CAPTION>

<S>                                                  <C>           <C>
                                                        Nine Months Ended
                                                          September 30,
                                                        1999         1998

Net income.........................................   $5,995       $6,549
Unrealized  (loss) gain on retained  interests in
  loan  sales,  net of tax  (benefit)  expense of
  ($657) and $126 for 1999 and 1998, respectively..   (1,050)         202

Comprehensive income...............................   $4,945       $6,751
                                                      ======       ======

</TABLE>



      See accompanying notes to unaudited consolidated financial statements.


<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                      Consolidated Statements of Cash Flows
                                 (In thousands)
<CAPTION>
                                    Unaudited
<S>                                                 <C>              <C>
                                                   Nine Months Ended September 30,
                                                         1999          1998

Cash flows from operating activities:
    Net income...................................    $  5,995       $  6,549
    Adjustments to reconcile net income to net
cash provided by
    operating activities:
       Gain on sale of loans.....................      (7,866)       (8,585)
       Amortization and depreciation.............       1,056           735
       Amortization of retained interests in
loan sales.......................................       5,463         4,569
       Provision for loan losses.................       1,605         1,170
       Deferred income taxes.....................         113         1,830
       Net changes in operating assets and
liabilities:
          Restricted cash........................       9,404        (5,445)
          Loans held for sale....................     (76,370)        6,748
          Retained interests in loan sales.......       3,549        (1,903)
          Dealer/developer reserves..............         773          (627)
          Net change in other assets and
          liabilities............................      (6,053)       (1,652)
                                                       -------       -------
         Net cash (used in) provided by operating
          activities.............................     (62,331)        3,389
                                                       -------       -------
Cash flows from investing activities:
    Net originations, purchases and principal
payments on other loans..........................     (95,145)     (128,624)
    Other loans sold.............................      31,609        58,822
    Collections on retained interests in loan
sales............................................       4,592         5,863
    Capital expenditures and other assets........      (2,150)       (1,296)
    Investments in affiliates....................      (6,990)         (306)
                                                       ------         -----
       Net cash used in investing activities.....     (68,084)      (65,541)
                                                      -------        -------

Cash flows from financing activities:
    Net borrowings on lines of credit............     129,887        42,163
    Payments on term note........................         --         (5,210)
    Retirement of long-term notes................       (706)          (291)
    Proceeds from issuance of preferred
securities.......................................      26,200            --
    Purchase and retirement of treasury stock....         (77)           --
    Net proceeds from issuance of common stock...       1,685        20,927
    Payment of preferred stock dividend..........          (4)           --
                                                         ----          ----
       Net cash provided by financing activities.     156,985        57,589
                                                      -------        ------

Net increase (decrease) in cash and cash
equivalents......................................      26,570        (4,563)
Cash and cash equivalents, beginning of period...      10,537        19,295
                                                       ------        ------
Cash and cash equivalents, end of period.........     $37,107       $14,732
                                                      =======       =======

Supplemental Schedule on Noncash Financing and
Investing Activities:
    Exchange of loans for retained interests in
loan sales.......................................     $ 1,717       $   692
    Transfers from loans to real estate
acquired through foreclosure.....................     $ 3,105       $ 1,374

Noncash Activities:
    Increase in other loans relating to loan
sale call options................................    $167,225       $    --
    Increase in lines of credit relating to
loan sale call options...........................    $150,507       $    --

Supplemental Cash Flow Information:
    Interest paid................................    $ 14,563       $ 9,948
    Income taxes paid............................    $  4,473       $ 1,419
</TABLE>

    See accompanying notes to unaudited consolidated financial statements.




                                                                       FORM 10-Q
                        LITCHFIELD FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    Unaudited

A. Basis of Presentation

     The accompanying  unaudited consolidated interim financial statements as of
September 30, 1999 and for the three and nine month periods ended  September 30,
1999 and  1998,  have  been  prepared  in  accordance  with  generally  accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, all adjustments (consisting of normal accruals) considered necessary
for a fair presentation have been included.  Operating results for the three and
nine month periods ended September 30, 1999, are not  necessarily  indicative of
the  results  expected  for the year  ending  December  31,  1999.  For  further
information,  refer to the consolidated  financial  statements and notes thereto
included in Litchfield  Financial  Corporation's  annual report on Form 10-K for
the year ended December 31, 1998.

     In June 1998, the Financial  Accounting Standards Board ("FASB")issued
Statement of Financial  Accounting  Standards No. 133 ("Statement No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133, as amended by Statement No. 137 issued in June 1999,  is effective for all
fiscal  quarters of all fiscal years beginning after June 15, 2000, with early
adoption permitted as of the  beginning of any quarter after the date of
issuance.  Statement No. 133 establishes  accounting  and  reporting  standards
for  derivative  instruments, including  certain  derivatives embedded in other
contracts  and for  hedging activities.  It requires  that an entity  recognize
all  derivatives  as either assets or liabilities  in the statement of financial
position and measure those instruments at fair value.  If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted  transaction, or (c) a hedge of the foreign  currency  exposure
of a net  investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated  forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting  designation.
The  provisions of Statement No. 133 can not be applied retroactively to
financial statements of prior periods.

     The  Company  plans  to  adopt  Statement  No.  133 in the  fiscal  quarter
beginning January 1, 2001. At the date of initial application,  the Company must
recognize any freestanding derivative instruments in the balance sheet as either
assets or  liabilities  and measure them at fair value.  The Company  shall also
recognize  offsetting gains and losses on hedged assets,  liabilities,  and firm
commitments  by adjusting  their  carrying  amounts at that date as a cumulative
effect of a change in accounting  principal.  Whether such transition adjustment
is reported in net income, other comprehensive income, or allocated between both
is based on the hedging relationships,  if any, that existed for that derivative
instrument  and were the  basis  for  accounting  prior  to the  application  of
Statement No. 133. The Company is evaluating the effect that the  implementation
of  Statement  No. 133 will have on its  results  of  operations  and  financial
position.

     On August 23,  1999,  the Company  acquired  approximately  53% of American
Growth Finance, Inc. ("AGF"), headquartered in Dallas, Texas. AGF is an accounts
receivable  factoring  company  targeting  service  providers  to  Fortune  1000
companies. In addition to its Dallas headquarters,  AGF has business development
offices in Orlando and Tampa,  Florida,  and  Nashville,  Tennessee.  During the
fiscal year 1999,  the Company  provided  AGF with a revolving  secured  line of
credit.  The Company accounted for this acquisition by the purchase method.  The
total purchase price was $1,650,000.  The Company has the right to acquire up to
100% of AGF through 2001.  Goodwill of $545,000  resulting  from the purchase is
being amortized on a straight-line  basis over a period of 20 years. The results
of operations of AGF have been included in the Company's  income  statement from
August 23, 1999.

B.  Gain on Sale of Loans and Retained Interests in Loan Sales

     Gains on sales of loans are based on the  difference  between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any  assets or  liabilities  that are newly  created as a result of the
transaction.  The previous  carrying amount is allocated between the assets sold
and any retained  interests  based on their  relative fair values at the date of
transfer. Retained interests in transferred assets





                                                                       FORM 10-Q
                        LITCHFIELD FINANCIAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    Unaudited

consist   primarily  of  subordinate   portions  of  the  principal  balance  of
transferred  assets and interest only strips,  which are  initially  recorded at
fair value.

     The Company estimates fair value using discounted cash flow analysis, since
quoted  market  prices  are  not  readily  available.   The  Company's  analysis
incorporates  estimates  that  market  participants  would be expected to use in
their  estimates  of future cash flows,  including  assumptions  about  interest
rates,  defaults and prepayment rates.  Estimates made are based on, among other
things,  the Company's past experience  with similar types of financial  assets.
The interest  rates paid to investors  range from 6.0% to 9.0%.  The  prepayment
rates  were  17.5% for Land Loan  sales  and 18.0% for VOI Loan  sales.  For the
Hypothecation  Loan sales,  the prepayment  rates for the underlying  collateral
used were 17.5% for Land Loans and 18.0% for VOI Loans.  The  Company  estimates
default  rates  to be  1.9%  on  Land  Loans,  3.0%  on VOI  Loans  and  0.5% on
Hypothecation  Loans.  In valuing its  retained  interests  in loan  sales,  the
Company selects discount rates commensurate with the duration and risks embedded
in the particular assets. Specifically,  the Company uses discount rates ranging
from the investor  pass-through rates (for restricted cash) to the Baa corporate
bond rate plus 325 basis points (for interest only strips and retained principal
certificates) to estimate the fair value of its retained interests.

     There is no servicing asset or liability  arising from loan sales,  because
the Company  estimates that the benefits of servicing  approximate  the costs to
meet its servicing responsibilities.

     On a quarterly  basis,  the Company assesses the carrying value of retained
interests in loans sold by comparing actual and assumed interest, prepayment and
default rates on a disaggregated  basis  reflecting  factors such as origination
dates and types of loans.  The Company  adjusts the  carrying  value of retained
interests accordingly.

     Since its  inception,  the Company has sold  $627,692,000  of loans at face
value  ($492,960,000  through December 31, 1998). The principal amount remaining
on the loans sold was  $67,432,000  at September  30, 1999 and  $238,132,000  at
December 31, 1998.  The Company  guarantees,  through  replacement or repayment,
loans in default up to a specified  percentage  of loans sold.  Dealer/developer
guaranteed loans are secured by repurchase or replacement guarantees in addition
to, in most instances, dealer/developer reserves.

     On September 28, 1999,  in  anticipation  of the merger with  Textron
Finacial Corporation, a Delaware corporation, and its wholly-owned subsidiary,
Lighthouse Acquisition Corporation, a Massachusetts corporation (collectively
"Textron"), the Company  discontinued  new loan sales that resulted in gain on
sale  accounting. The Company completed certain previously  committed  loan sale
transactions as loan sales, but structured other transactions as financings.

     In  September  1999 the Company obtained call options to repurchase certain
previously sold loans amounting to $149,458,000.  These call options grant the
Company effective control over the sold loans, as defined under FASB Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." As a
consequence,  the Company has recognized these loans on its balance sheet under
Other Loans at their fair values along with the corresponding  liabilities
included as secured borrowings under Lines of Credit as of the effective date of
the call options.  Any  difference  between the fair value and the par value
have been  recognized  as a premium or  discount  on the  purchase
price and has been accounted for accordingly.

     In October  and  November  1999,  the  Company  also  obtained call options
to repurchase certain other previously sold loans amounting to $45,539,000.
During the fourth quarter of 1999, the Company will account for these loans in
the same manner as stated above.

     The   Company's   exposure   to  loss  on  loans   sold  in  the  event  of
non-performance by the consumer, the dealer/developer on its guarantee,  and the
determination  that the  collateral is of no value was  $10,692,000 at September
30,  1999  ($12,750,000  at  December  31,  1998).  Such  amounts  have not been
discounted.  The  Company  repurchased  $518,000  and $57,000 of loans under the
recourse  provisions  of loan sales during the three months ended  September 30,
1999 and 1998,  respectively.  Loans  repurchased  during the nine months  ended
September  30,  1999 and 1998 were  $921,000  and  $201,000,  respectively,  and
$491,000 during the year ended December 31, 1998. In addition,  when the Company
sells loans  through  securitization  programs,  the Company  commits  either to
replace or repurchase any loans that do not conform to the requirements  thereof
in the operative loan sale documents.  As of September 30, 1999,  $17,005,000 of
the Company's  cash was  restricted as credit  enhancements  in connection  with
certain   securitization   programs.  To  date,  the  Company  has  participated
$17,628,000 of A&D and Other Loans ($10,505,000 through December 31, 1998).

     The  Company's  Serviced  Portfolio  is  geographically   diversified  with
collateral and consumers located in 48 and 50 states, respectively. The Serviced
Portfolio  consists of the principal amount of loans serviced by or on behalf of
the  Company,  except loans  participated  without  recourse to the Company.  At
September  30,  1999,  12.4% and 12.3% of the Serviced  Portfolio by  collateral
location was located in Florida and Texas, respectively,  and 14.5% and 11.8% of
the Serviced  Portfolio by borrower  location were located in Florida and Texas,
respectively.  At December  31,  1998,  14.7%,  10.3% and 10.2% of the  Serviced
Portfolio by collateral location were located in Texas,  Florida and California,
respectively, and 16.1% and 14.4% of the Serviced Portfolio by borrower location
were located in Florida and Texas, respectively. At September 30, 1999, no other
state  accounted  for more  than  10.0% of the  total by  either  collateral  or
borrower location.


C. Allowance for Loan Losses and Estimated Recourse Obligations


     An  analysis  of the total  allowances  for all loan  losses  and  recourse
obligations follows:
<TABLE>
<CAPTION>

<S>                                                <C>             <C>
    (Dollars in thousands)                         September 30,   December 31,
                                                       1999            1998
                                                    ---------        ---------
    Allowance  for  losses  on loans  held for
    sale......................................     $     50          $   549
    Allowance for losses on other loans.......        6,281            2,477
    Estimated    recourse    obligations    on
    retained interests in loan sales..........        1,140            3,681
                                                      -----            -----
                                                     $7,471           $6,707
                                                     ======            =====
</TABLE>


D.  Debt


     The Company finances a portion of its liquidity needs with secured lines of
credit with sixteen participating  institutions.  Interest rates on the lines of
credit range from the  Commercial  Paper rates plus 1.66% to the prime rate plus
1.00%. The Company is not required to maintain  compensating balances or forward
sales commitments under the terms of these lines of credit.








     The lines of credit mature as follows:


                             (Dollars in thousands)
<TABLE>
<CAPTION>


                        Date                 Amount
                        -----                ------
<S>                      <C>                 <C>
                        March 2000          25,000
                        April 2000           5,000
                        May 2001             5,000
                        June 2001          150,000
                        April 2002          80,000
                        July 2002           10,393
                        September 2002       6,474
                        October 2002        40,000
                        August 2004         12,601
                        September 2006      35,625
                        February 2013       50,000
                                           -------
                                          $420,093
</TABLE>


     Financial  data  relating to the  Company's  secured  lines of credit is as
follows:
<TABLE>
<CAPTION>
<S>                                          <C>               <C>
  (Dollars in thousands)                     September 30,     December 31,                                           31,
                                                 1999             1998
                                              ----------       -----------
  Lines of credit available ..........        $420,093          $116,000
  Borrowings outstanding at end
    of period ........................        $329,415           $49,021
  Weighted average interest rate
    at end of period..................            7.3%             7.6%
  Maximum borrowings outstanding
    at any month end..................        $329,415           $73,666
  Average amount outstanding
    during the period.................         $68,859           $37,485
  Weighted average interest rate
    during the period (determined by
    dividing interest expense by
    average borrowings)...............           7.4%             7.9%

</TABLE>

      As of  September  30,  1999 and  December  31,  1998,  the  Company had no
unsecured lines of credit.

     The Company has a revolving  line of credit and sale facility as part of an
asset backed  commercial  paper  facility with a multi-seller  commercial  paper
issuer ("Conduit A"). In June 1998, the Company amended the facility to increase
the  facility to  $150,000,000,  subject to certain  terms and  conditions.  The
facility matures in June 2001.

     In  connection  with  the  facility,  the  Company  formed  a  wholly-owned
subsidiary,  Litchfield Mortgage Securities  Corporation 1994, to purchase loans
from the Company. In October 1998,  Litchfield  Mortgage Securities  Corporation
1994 was merged with and into Litchfield  Mortgage  Securities Company 1994, LLC
("LMSC").  LMSC  either  pledges  the loans on a  revolving  line of credit with
Conduit A or sells the loans to Conduit A. Conduit A issues  commercial paper or
other  indebtedness to fund the purchase or pledge of loans from LMSC. Conduit A
is not affiliated with the Company or its  affiliates.  As of September 30, 1999
and December  31, 1998,  the  outstanding  balance of the sold or pledged  loans
securing  this  facility  was   $93,068,000  and   $137,532,000,   respectively.
Outstanding  borrowings  at September 30, 1999 were  $85,414,000.  There were no
outstanding  borrowings under the line of credit at December 31, 1998.  Interest
is payable on the line of credit at an interest rate based on certain commercial
paper rates.

     In March 1997,  the Company  closed an additional  revolving line of credit
and sale facility of $25,000,000  with another  multi-seller of commercial paper
conduit ("Conduit B"). The facility,  which matures in March 2000, is subject to
certain  terms  and  conditions,   credit  enhancement   requirements  and  loan
eligibility criteria. The outstanding aggregate balance of the loans pledged and
sold under the facility at any time cannot exceed $25,000,000.

     In  connection  with  the  facility,  the  Company  formed  a  wholly-owned
subsidiary,  Litchfield  Capital  Corporation  1996, to purchase  loans from the
Company.  In October 1998,  Litchfield Capital Corporation 1996, was merged with
and into Litchfield  Capital  Company 1996, LLC ("LCC").  LCC either pledges the
loans on a revolving line of credit with Conduit B or sells the loans to Conduit
B. Conduit B issues commercial paper or other  indebtedness to fund the purchase
or pledge of loans from LCC. Conduit B is not affiliated with the Company or its
affiliates.  As of September  30, 1999 and December  31, 1998,  the  outstanding
aggregate  balance  of  the  loans  sold  or  pledged  under  the  facility  was
$12,769,000 and $10,632,000,  respectively. There were no outstanding borrowings
under the line of credit as of September 30, 1999 or December 31, 1998. Interest
is payable on the line of credit at an interest rate based on certain commercial
paper rates.

     The Company also finances a portion of its liquidity with  long-term  debt.
The following table shows the total long-term debt  outstanding at September 30,
1999 and December 31, 1998:
<TABLE>
<CAPTION>
<S>                                 <C>             <C>

                                    September 30,   December 31,
       (Dollars in thousands)           1999           1998
        9.3% Notes...............   $  20,000      $  20,000
        8.45% Notes due 2002.....      51,232         51,282
        8.875% Notes due 2003....      14,460         15,066
        8.25% Notes due 2003.....      10,000         10,000
        9.25% Notes due 2003.....      20,000         20,000
        10% Notes due 2004.......      18,190         18,240
                                    ----------       -------
                                     $133,882       $134,588
</TABLE>

     The 9.3% Notes  require  principal  reductions of  $7,500,000,  $6,000,000,
$6,000,000 and $500,000 in March 2001, 2002, 2003 and 2004, respectively.
Interest is payable semiannually in arrears.

     The  Company  shall  have the  option to redeem  all or any  portion of the
long-term notes at predetermined  redemption  prices.  The earliest call date of
each issuance is as follows:

             9.3% Notes.........................    April 1998
             8.45% Notes due 2002............... November 1999
             8.875% Notes due 2003..............     June 1996
             8.25% Notes due 2003............... November 2000
             9.25% Notes due 2003............... December 2000
             10% Notes due 2004.................    April 1998

E.    Commitments

     On April 14, 1999, the Company,  Litchfield Capital Trust I ("Trust I") and
Litchfield Capital Trust II,  subsidiaries of the Company and statutory business
trusts   created  under  the  Business  Trust  Act  of  the  State  of  Delaware
(collectively,  the "Trusts"),  filed a  Registration  Statement on Form S-3, as
amended,   with  the  Securities  and  Exchange   Commission   relating  to  the
registration  of  $100,000,000  in  aggregate  principal  amount  of  (i)  trust
preferred  securities of the Trusts, (ii) junior subordinated  debentures of the
Company,  and (iii)  guarantee  of  preferred  securities  of the  Trusts by the
Company.  In connection  with this offering,  the Trusts will sell the preferred
securities to the public and common securities to the Company,  use the proceeds
from those sales to buy an equivalent  principal  amount of junior  subordinated
debentures  issued by the  Company  and  distribute  the  interest  payments  it
receives on the junior  subordinated  debentures to the holders of preferred and
common securities.

     On May 19, 1999,  Trust I issued  2,500,000 of 10% Series A Trust Preferred
Securities  ("Series A Preferred  Securities") to the public for $25,000,000 and
used  the  proceeds  to  buy  an  equivalent  amount  of  10%  Series  A  Junior
Subordinated  Debentures due 2029 ("Series A Debentures")  from the Company.  On
June 8, 1999, the underwriters  exercised their option to purchase an additional
120,000 10% Series A Preferred  Securities  for $1,200,000 and the proceeds were
also used to buy an equivalent  amount of Series A Debentures  from the company.
The sole assets of the Trust I are the Series A Debentures. The Company owns all
the  securities  of Trust I that  possess  general  voting  rights.  The Trust's
obligation under the Series A Preferred Securities are fully and unconditionally
guaranteed by the Company.  Trust I will redeem all of the outstanding  Series A
Preferred  Securities  when the Series A Debentures are paid at maturity on June
30,  2029,  or  otherwise  become due. The Company will have the right to redeem
100% of the principal plus accrued interest and unpaid interest on or after June
30,  2004.  Interest  is  paid  on  the  Series  A  Debentures  quarterly,  with
corresponding  quarterly  distributions to the holders of the Series A Preferred
Securities.

F.  Derivative Financial Instruments Held for Purposes Other than Trading

     The Company  entered into two interest  rate swap  agreements to manage its
basis  exposures.  The swap  agreements  involve  the payment of interest to the
counterparty  at the prime rate on a  notional  amount of  $110,000,000  and the
receipt  of  interest  at the  commercial  paper rate plus a spread of 277 basis
points on a notional  amount of $80,000,000  and the LIBOR rate plus a spread of
267 basis points on notional amount of $30,000,000.  The swap agreements  expire
in June  2000.  There is no  exchange  of the  notional  amounts  upon which the
interest payments are based.

     The differential to be paid or received as interest rates change is accrued
and  recognized as an adjustment  to interest  income from the excess  servicing
asset.  The related amount  receivable  from or payable to the  counterparty  is
included  in other  assets  or other  liabilities.  The fair  values of the swap
agreements are not recognized in the financial  statements.  The Company intends
to keep the contracts in effect until they mature in June 2000.

     The Company  entered  into an interest  rate cap  agreement  with a bank in
order to manage its  exposure  to  certain  increases  in  interest  rates.  The
interest  rate  cap  entitles  the  Company  to  receive  payments,  based on an
amortizing notional amount, when commercial paper rates exceed 8.0%. If payments
were to be received as a result of the cap agreement, they would be accrued as a
reduction of interest expense.  The notional amount outstanding at September 30,
1999 was $3,201,000. This agreement expires in July 2005.

     The  Company  does  not  use  interest  rate  swap   agreements  or  other
derivative  instruments  for  speculation.  The  Company  is  exposed to credit
loss in the  event  of  non-performance  by the  swap  counterparty  or the cap
provider.

G.  Subsequent Events

     On September 22, 1999,  the Company signed a definitive  merger  agreement,
(the "Merger") with Textron Financial Corporation,  a Delaware corporation,  and
its wholly-owned subsidiary, Lighthouse Acquisition Corporation, a Massachusetts
corporation (collectively, "Textron"). Pursuant to the merger and subject to the
conditions  stated therein,  Textron was to, as soon as practicable  thereafter,
commence an offer to purchase all of the issued and outstanding shares of common
stock,  par value $.01 per share (the  "Shares"),  of the  Company at a price of
$24.50 per share.

     On September 29, 1999,  Textron filed a Tender Offer  Statement on Schedule
14D-1  (as  amended  by  Amendment  No. 1 thereto  filed on  October  12,  1999,
Amendment  No. 2 thereto  filed on October  29,  1999,  and the Final  Amendment
thereto filed on November 9, 1999) to purchase the Shares.

     As of  October  27,  1999,  the  close of the  tender  period,  holders  of
approximately  96.7% of the  common  stock of the  Company  had  tendered  their
shares.  As a result,  on November 4, 1999,  the Company  became a  wholly-owned
subsidiary of Textron and each outstanding Share was canceled,  extinguished and
converted into the right to receive $24.50 per Share in cash,  without  interest
thereon, less any applicable holding taxes.

     On November 3, 1999,  Textron  requested that the Nasdaq delist Shares from
NASDAQ.  On November 9, 1999,  Textron filed a Form 15 to deregister  the Shares
with the Securities and Exchange Commission as soon as practicable.

     In November 1999, the Company repaid all of its then  outstanding  lines of
credit of  $494,452,000  and  $14,460,000 of its long-term debt as the result of
merger.  In  addition,  the  Company  has called an  additional  $89,422,000  of
long-term debt in accordance  with the terms of the agreements  which it expects
to redeem over the next three months.




Item 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS


Forward-looking Statements

    Except for the historical information contained or incorporated by reference
in this Form 10-Q, the matters discussed or incorporated by reference herein are
forward-looking  statements.  Such forward-looking  statements involve known and
unknown  risks,  uncertainties  and other  factors  that may  cause  the  actual
results,  performance or achievements of the Company, or industry results, to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such forward-looking  statements.  Such factors include,
among  others,  the risk  factors set forth under "Risk  Factors" as well as the
following: general economic and business conditions; industry trends; changes in
business strategy or development plans;  availability and quality of management;
and availability,  terms and deployment of capital.  Special attention should be
paid  to  such  forward-looking   statements  including,  but  not  limited  to,
statements  relating  to  (i)  the  Company's  ability  to  execute  its  growth
strategies and to realize its growth  objectives and (ii) the Company's  ability
to obtain sufficient  resources to finance its working capital needs and provide
for its known obligations. Refer to the Company's annual report on Form 10-K for
the year ended 1998 for a complete  list of  factors as  discussed  under  "Risk
Factors".

Overview

     Litchfield  Financial  Corporation (the "Company") is a diversified finance
company  that  provides  financing  to  creditworthy  borrowers  for  assets not
typically financed by banks. The Company provides this financing by making loans
to businesses secured by consumer  receivables or other assets and by purchasing
loans and tax lien certificates.

     The Company  purchases  consumer loans (the "Purchased  Loans")  consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership  interests  popularly known as timeshare  interests ("VOI
Loans").  The Company also provides  financing to rural land dealers,  timeshare
resort   developers   and  other  finance   companies   secured  by  receivables
("Hypothecation  Loans") and to dealers and developers for the  acquisition  and
development of rural land and timeshare resorts ("A&D Loans"). In addition,  the
Company purchases other loans, such as consumer home equity loans, mortgages and
construction  loans and tax lien  certificates,  and provides financing to other
businesses secured by receivables or other assets ("Other Loans").

     The Company extends Hypothecation Loans to land dealers,  resort developers
and  other  finance  companies  secured  by  receivables.   Hypothecation  Loans
typically have advance rates of 75% to 90% of the current balance of the pledged
receivables and variable interest rates based on the prime rate plus 1.5% to 4%.

     The  Company  also  purchases  Land  Loans and VOI  Loans.  Land  Loans are
typically secured by one to twenty acre rural parcels. Land Loans are secured by
property located in 39 states,  predominantly in the southern United States. VOI
Loans  typically  finance  consumer  purchases of  ownership  interests in fully
furnished vacation  properties.  VOI Loans are secured by property located in 18
states,  predominantly  in  California  and Florida.  The Company  requires most
dealers  or  developers  from  whom it buys  loans  to  guarantee  repayment  or
replacement of any loan in default. Ordinarily, the Company retains a percentage
of the purchase price as a reserve until the loan is repaid.

     The Company also makes A&D Loans to land dealers and resort  developers for
the acquisition and development of rural land and timeshare  resorts in order to
finance  additional  receivables  generated  by the A&D  Loans.  At the time the
Company makes A&D Loans, it typically receives an exclusive right to purchase or
finance the related consumer receivables generated by the sale of the subdivided
land or timeshare  interests.  A&D Loans  typically have loan to value ratios of
60% to 80% and variable interest rates based on the prime rate plus 2% to 4%.

     The principal  sources of the  Company's  revenues are interest and fees on
loans, gains on sales of loans and servicing and other income. Gains on sales of
loans are based on the difference between the allocated cost basis of the assets
sold and the proceeds  received,  which includes the fair value of any assets or
liabilities  that are newly  created as a result of the  transaction.  Because a
significant  portion of the  Company's  revenues is comprised of gains  realized
upon sales of loans,  the timing of such sales has a  significant  effect on the
Company's results of operations.

     On September 22, 1999,  the Company signed a definitive  merger  agreement,
(the "Merger") with Textron Financial Corporation,  a Delaware corporation,  and
its wholly-owned subsidiary, Lighthouse Acquisition Corporation, a Massachusetts
corporation (collectively, "Textron"). Pursuant to the merger and subject to the
conditions  stated therein,  Textron was to, as soon as practicable  thereafter,
commence an offer to purchase all of the issued and outstanding shares of common
stock,  par value $.01 per share (the  "Shares"),  of the  Company at a price of
$24.50 per share.

     On September 29, 1999,  Textron filed a Tender Offer  Statement on Schedule
14D-1  (as  amended  by  Amendment  No. 1 thereto  filed on  October  12,  1999,
Amendment  No. 2 thereto  filed on October  29,  1999,  and the Final  Amendment
thereto filed on November 9, 1999) to purchase the Shares.

     As of  October  27,  1999,  the  close of the  tender  period,  holders  of
approximately  96.7% of the  common  stock of the  Company  had  tendered  their
shares.  As a result,  on November 4, 1999,  the Company  became a  wholly-owned
subsidiary of Textron and each outstanding Share was canceled, extinguished, and
converted into the right to receive $24.50 per Share in cash,  without  interest
thereon, less any applicable holding taxes.

     On November 3, 1999,  Textron  requested  that the NASD delist  Shares from
NASDAQ.  On November 9, 1999,  Textron filed a Form 15 to deregister  the Shares
with the Securities and Exchange Commission as soon as practicable.


Results of Operations

     The following  table sets forth the  percentage  relationship  to revenues,
unless  otherwise  indicated,   of  certain  items  included  in  the  Company's
statements of income.
<TABLE>
<CAPTION>
<S>                                   <C>        <C>         <C>        <C>

                                      Three Months Ended     Nine Months Ended
                                         September 30,        September  30,
                                        1999      1998        1999      1998
                                        ----      ----        ----      ----
   Revenues
       Interest and fees on loans...... 86.4%     65.1%       73.2%     63.8%
       Gain on sale of loans...........  9.0      27.8        22.2      30.2
       Servicing and other income......  4.6       7.1         4.6       6.0
                                         ---     -----        ----      ----
                                       100.0     100.0       100.0     100.0
                                       -----     -----       -----     -----
   Expenses
       Interest expense...............  53.0      32.7        42.9      35.6
       Salaries and employee
   benefits...........................  15.9      12.2        12.6      12.5
       Other operating expenses.......  11.9       8.7         9.5       9.8
       Provision for loan losses......   5.5       3.4         4.5       4.1
                                         ---      -----       ----      ----
                                        86.3      57.0        69.5      62.0
                                       -----     -----        ----      ----

   Income before income taxes
   and distributions
     on preferred securities..........  13.7      43.0        30.5      38.0
   Provision for income taxes.........   5.3      16.6        11.7      14.6
   Distributions on preferred
   securities, net....................   3.8       --          1.8       --
                                        ----      ----        -----     -----
   Income before extraordinary item...   4.6      26.4        17.0      23.4
   Extraordinary item, net............    --      (0.7)         --      (0.3)
                                         ----     ----        -----     -----
   Net income..........................  4.6%     25.7%       17.0%     23.1%
                                         ====     ====        ====      ====
</TABLE>

     Revenues  increased 5.0% and 24.5% to $10,989,000  and  $35,336,000 for the
three and nine months ended September 30, 1999, from $10,465,000 and $28,391,000
for the same  periods in 1998.  Net income for the three and nine  months  ended
September 30, 1999 decreased 81.0% and 8.5% to $510,000 and $5,995,000  compared
to  $2,690,000  and  $6,549,000  for the same  periods in 1998.  Net income as a
percentage  of revenues  was 4.6% and 17.0% for the three and nine months  ended
September  30,  1999  compared  to 25.7% and 23.1% for the three and nine months
ended September 30, 1998. Loan purchases and  originations  grew 29.8% and 31.9%
to $121,777,000  and  $338,741,000 for the three and nine months ended September
30, 1999 from  $93,784,000  and  $256,861,000  for the same periods in 1998. The
average Serviced Portfolio increased 43.3% to $517,565,000 at September 30, 1999
from $361,181,000 at September 30, 1998.

     Interest  and fees on loans  increased  39.2% and 42.8% to  $9,493,000  and
$25,857,000  for the  three  and nine  months  ended  September  30,  1999  from
$6,819,000 and $18,107,000 for the same periods in 1998, primarily as the result
of the higher average  balance of other loans during the 1999 period,  which was
only partially offset by a decrease in the average rate. The average rate earned
on the Serviced Portfolio decreased to 11.4% at September 30, 1999 from 12.0% at
September 30, 1998,  primarily due to the effect of the growth in  Hypothecation
Loans as a percentage of the  portfolio.  Hypothecation  Loan yields are usually
less than Land Loan or VOI Loan yields,  but servicing costs and loan losses are
generally less as well.

     Gain on the  sale of  loans  decreased  66.0%  and  8.4%  to  $987,000  and
$7,866,000  for the  three  and  nine  months  ended  September  30,  1999  from
$2,906,000  and $8,585,000 in the same periods in 1998. The volume of loans sold
decreased  58.6% to  $14,266,000  for the three months ended  September 30, 1999
from $34,474,000 during the three months ended September 30, 1998. The volume of
loans sold increased 30.4% to  $134,732,000  for the nine months ended September
30, 1999 from $103,356,000  during the nine months ended September 30, 1998. The
change in the gain on sale of loans was not  proportionate  to the change in the
volume of loans sold  primarily due to variations in the mix of loans sold.  The
yield on Hypothecation and Other loan sales is generally lower than the yield on
Land and VOI loan sales. In addition, approximately $17,508,000 of loan sales in
the  nine  months  ended  September  30,  1999  consisted  of  loans  that  were
repurchased from certain facilities due to clean up calls and other factors that
made it more  economical to repurchase and resell the loans.  As a result of the
repurchase,  there was recapture of unamortized  gain, which reduced the overall
yield on these loan sales.

     In the third quarter of 1999,  $50,000,000 of loans were placed with an
investor. The terms of the  agreement  permitted  the  Company to buy back these
loans at the option of the Company.  Since the terms of the agreement gave the
Company a call option, the transaction was accounted for as a secured borrowing
and no gain was  recognized on this transaction.  The loans are  included in the
Other Loans  section of the balance sheet and the liability  resulting from the
proceeds received is included in the Lines of Credit.

     On September 28, 1999,  in  anticipation  of its merger with  Textron,  the
Company  discontinued  new loan sales that resulted in gain on sale  accounting.
The Company completed certain previously  committed  loan sale transactions,
but structured other transactions as financings.

     In September  1999, the Company obtained call option to repurchase  certain
previously sold loans amounting to $149,458,000.  These call optio9ns grant the
Company effective control over the sold loans, as defined under FASB Statement
of Financial Accounting Standards No. 125, "accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities."  As a
consequence,  the Company has recognized  these loans on its balance sheet under
Other Loans at their fair values along with the corresponding  liabilities
included as secured borrowings under Lines of Credit as of the effective date of
the call options.  Any  difference  between the fair value and
the par value has been  recognized  as a premium or  discount  on the  purchase
price and has been accounted for accordingly.

     In October and November 1999,  the  Company  also  obtained call options to
repurchase certain other previously sold loans amounting to $45,539,000.  During
the fourth quarter of 1999, the Company will account for these loans in the same
manner as stated above.

     Servicing  and  other  income  decreased  31.2%  and 5.1% to  $509,000  and
$1,613,000 for the three and nine months ended September 30, 1999,  respectively
from  $740,000 and  $1,829,000  for the same  periods in 1998.  The decrease was
largely  due to a  significant  repayment  fee from an A&D Loan  realized in the
third quarter of 1998.  Loans serviced for others decreased 71.0% to $67,432,000
as of September 30, 1999 from  $232,272,000  at September 30, 1998 as the result
of recognizing certain sold loans on the balance sheet as of September 30, 1999.
Servicing   income   remained   relatively   constant  due  to  an  increase  in
Hypothecation  Loans serviced for others and a decrease in the average servicing
fee per loan.


     Interest  expense  increased  70.1% and 50.0% to $5,824,000 and $15,176,000
during the three and nine months ended  September 30, 1999 from  $3,423,000  and
$10,115,000  for the same  periods in 1998.  The  increase in  interest  expense
primarily  reflects an increase in average  borrowings  which was only partially
offset by lower  rates.  During the three and nine months  ended  September  30,
1999,  borrowings  averaged  $363,709,000 and $341,524,000 at an average rate of
8.2% and 8.3%  respectively,  as compared to $142,225,000 and $140,577,000 at an
average rate of 8.8% for both  periods in 1998.  Interest  expense  includes the
amortization of deferred debt issuance costs.

     Salaries and employee benefits  increased 36.9% and 25.2% to $1,748,000 and
$4,452,000  for the  three  and  nine  months  ended  September  30,  1999  from
$1,277,000 and $3,557,000 for the same periods in 1998 because of an increase in
the number of employees in 1999,  primarily related to bringing customer service
and  collections  in house,  and to a lesser  extent,  an increase in  salaries.
Personnel costs as a percentage of revenues increased to 15.9% and 12.6% for the
three and nine months ended  September  30, 1999 compared to 12.2% and 12.5% for
the  same  periods  in 1998.  Also,  as a  percentage  of the  average  Serviced
Portfolio, personnel costs remained relatively constant at 1.3% and 1.2% for the
three and nine months ended September 30, 1999 compared to 1.3% for both periods
in 1998.

     Other  operating  expenses  increased  43.7%  and 20.4% to  $1,302,000  and
$3,341,000 for the three and nine months ended  September 30, 1999 from $906,000
and $2,775,000 for the same periods in 1998. Other operating  expenses increased
due to the growth in the Serviced  Portfolio that was only  partially  offset by
the  decrease in third party  servicing  expenses  related to bringing  customer
service and collections in-house.  As a percentage of revenues,  other operating
expenses  increased  to 11.8% and  decreased  slightly to 9.5% for the three and
nine months ended  September 30, 1999,  respectively,  compared to 8.7% and 9.8%
for the  corresponding  periods in 1998. As a percentage of the average Serviced
Portfolio,  other operating  expenses remained  relatively  constant at 0.9% for
both the three and nine months  ended  September  30, 1999  compared to 0.9% and
1.0% for the same periods in 1998.

     During the three and nine months ended  September  30, 1999,  the provision
for loan  losses  increased  68.1% and 37.2% to  $605,000  and  $1,605,000  from
$360,000 and $1,170,000 for the same periods in 1998 primarily due to the growth
of the Serviced Portfolio.


 Liquidity and Capital Resources

     The Company's  business  requires  continued  access to short and long-term
sources of debt  financing  and equity  capital.  The Company's  principal  cash
requirements  arise from loan  originations,  repayment  of debt on maturity and
payments of operating and interest  expenses.  The Company's  primary sources of
liquidity will be its parent company, Textron.

     In November 1999, as a result of the merger,  the Company repaid all of its
thn outstanding lines of credit of $494,452,000 and $14,460,000 of its long-term
debt. In addition,  during the next three months,  the Company intends to redeem
an additional $89,422,000 of long-term debt.

     In May 1999,  Litchfield  Capital  Trust I issued  2,500,000  shares of 10%
Series A Trust Preferred Securities ("Series A Preferred Securities") at $10 per
share.  The proceeds of the offering  were  $25,000,000  and were used to buy an
equivalent  amount of 10%  Series A Junior  Subordinated  Debentures  ("Series A
Debentures")   due  2029  issued  by  the  Company.   In  connection   with  the
underwriters'  option to purchase  additional  shares to cover  over-allotments,
Litchfield  Capital Trust I issued an additional  120,000 10% Series A Preferred
Securities in June 1999.  The proceeds of these shares  totaled  $1,200,000  and
were also used to buy an equivalent  amount of Series A Debentures issued by the
Company.  The Company  will have the right to redeem 100% of the  principal  and
accrued  interest and unpaid  interest on or after June 30,  2004,  or otherwise
become  due.  Interest  is paid  on the  Series  A  Debentures  quarterly,  with
corresponding  quarterly  distributions to the holders of the Series A Preferred
Securities.

     The  Company  entered  into two  interest  rate swap  agreements.  The swap
agreements involve the payment of interest to the counterparty at the prime rate
on a  notional  amount  of  $110,000,000  and the  receipt  of  interest  at the
commercial paper rate plus a spread and the LIBOR rate plus a spread on notional
amounts of $80,000,000 and $30,000,000, respectively. The swap agreements expire
in June 2000.  There is no exchange of the notional  amounts upon which interest
payments are based.

     The Company  entered  into an interest  rate cap  agreement  with a bank in
order to manage its  exposure  to  certain  increases  in  interest  rates.  The
interest  rate cap  entitles  the  Company to  receive  an  amount,  based on an
amortizing  notional  amount,  which at September 30, 1999 was $3,201,000,  when
commercial paper rates exceed 8%. This agreement expires in July 2005.

     Historically,  the Company has not required major capital  expenditures  to
support its operations.

Acquisitions

     In the third  quarter of 1998,  the Company  acquired  25% of Land  Finance
Company ("Land Finance") a broker specializing in the land business,  located in
Atlanta, Georgia. At the time of the transaction, the Company received the right
to acquire  additional shares of Land Finance at future dates. On April 1, 1999,
the Company  acquired the  remaining 75% of Land Finance that it did not already
own. All of Land Finance's  employees became employees of the Company as of that
date. The Company has accounted for this acquisition by the purchase method. The
total purchase price was $275,000  consisting of the issuance of 9,092 shares of
common  stock with a fair value of $155,000 and $120,000 of expenses and assumed
liabilities. Goodwill of $225,000 resulting from the purchase is being amortized
on a straight-line  basis over a period of 10 years. The results of operation of
Land Finance have been  included in the  Company's  income  statement  beginning
April 1, 1999.

     On June 17, 1999, the Company acquired 100% of Ironwood Acceptance Company,
L.L.C.,   ("Ironwood  LLC"),  located  in  Scottsdale,   Arizona.  Ironwood  LLC
purchases,  services and  liquidates  tax lien  certificates.  During the fiscal
years 1997 and 1998, the Company provided Ironwood LLC with a Hypothecation Loan
for the  purchase  of tax lien  certificates.  All of Ironwood  LLC's  employees
became  employees  of the Company  following  the  acquisition.  The Company has
accounted for this acquisition by the purchase method.  The total purchase price
was  $15,833,000,  consisting  of the issuance of 91,665  shares of common stock
with a fair  value  of  $1,519,000  and  $13,523,000  of  expenses  and  assumed
liabilities.  Goodwill  of  $3,255,000  resulting  from  the  purchase  is being
amortized  on a  straight-line  basis over a period of 20 years.  The results of
operations of Ironwood have been included in the Company's income statement from
June 17, 1999.

     On August 23,  1999,  the Company  acquired  approximately  53% of American
Growth Finance, Inc. ("AGF"), headquartered in Dallas, Texas. AGF is an accounts
receivable  factoring  company  targeting  service  providers  to  Fortune  1000
companies. In addition to its Dallas headquarters,  AGF has business development
offices in Orlando and Tampa,  Florida,  and  Nashville,  Tennessee.  During the
fiscal year 1999,  the Company  provided  AGF with a revolving  secured  line of
credit.  The Company accounted for this acquisition by the purchase method.  The
total purchase price was $1,650,000.  The Company has the right to acquire up to
100% of AGF through 2001.  Goodwill of $545,000  resulting  from the purchase is
being amortized on a straight-line  basis over a period of 20 years. The results
of operations of AGF have been included in the Company's  income  statement from
August 23, 1999.

Credit Quality and Allowances for Loan Losses

     The Company maintains  allowances for loan losses and recourse  obligations
on  retained  interests  in loan  sales  at  levels  which,  in the  opinion  of
management,  provide  adequately for current and estimated future losses on such
assets.  Past-due loans (loans 31 days or more past due which are not covered by
dealer/developer  reserves  or  guarantees)  as a  percentage  of  the  Serviced
Portfolio as of September 30, 1999, increased to 1.09% from .95% at December 31,
1998.  Management  evaluates the adequacy of the allowances on a quarterly basis
by examining current  delinquencies,  the  characteristics of the accounts,  the
value of the underlying collateral,  and general economic conditions and trends.
Management  also  evaluates  the extent to which  dealer/developer  reserves and
guarantees  can be  expected to absorb loan  losses.  When the Company  does not
receive guarantees on loan portfolios  purchased,  it adjusts its purchase price
to reflect  anticipated losses and its required yield. This purchase  adjustment
is recorded as an increase in the allowance for loan losses and is used only for
the respective  portfolio.  A provision for loan losses is recorded in an amount
deemed  sufficient by management to maintain the allowances at adequate  levels.
Total allowances for loan losses and recourse  obligations on retained interests
in loan sales  increased  to  $7,471,000  at  September  30,  1999  compared  to
$6,707,000 at December 31, 1998.  The allowance  ratio (the  allowances for loan
losses  divided by the amount of the Serviced  Portfolio)  at September 30, 1999
decreased to 1.30% compared to 1.44% at December 31, 1998.

     As part of the Company's  financing of Purchased  Loans,  arrangements  are
entered  into  with  dealers  and  resort   developers,   whereby  reserves  are
established to protect the Company from potential  losses  associated  with such
loans.  As  part  of  the  Company's  agreement  with  the  dealers  and  resort
developers,  a portion of the amount payable to each dealer and resort developer
for a Purchased  Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans. The Company  negotiates the amount of the
reserves with the dealers and  developers  based upon various  criteria,  two of
which are the  financial  strength  of the dealer or  developer  and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,384,000  and  $9,979,000  at  September  30,  1999 and  December  31,  1998,
respectively.   The  Company  generally  returns  any  excess  reserves  to  the
dealer/developer  on a  quarterly  basis as the  related  loans  are  repaid  by
borrowers.


Year 2000 Compliance

     Many currently  installed  computer systems and software products are coded
to accept only two-digit  entries in the date code field and cannot  distinguish
21st  century  dates  from 20th  century  dates.  As a result,  many  companies'
software  and  computer  systems may need to be upgraded or replaced in order to
comply with "Year 2000" requirements.

     State of  Readiness.  The  Year  2000  readiness  process  consists  of the
following phases: (i) identification of all IT Systems and non-IT Systems;  (ii)
assessment of repair or replacement  requirements;  (iii) repair or replacement;
(iv) testing; (v) implementation;  and (vi) creation of contingency plans in the
event of Year 2000  failures.  The Company has evaluated the Year 2000 readiness
of the information  technology systems used in its operations ("IT Systems") and
it non-IT Systems, such as building security, voice mail and other systems.

     The Company  has tested all  computing  equipment  and deemed it to be Year
2000 ready.  All  non-computing  equipment and computer  systems are deemed Year
2000 ready based on  manufacturer's  warranty.  Until  September  30, 1999,  the
Company used a third party servicer to perform some  functions,  such as receipt
and posting of loan  payments and other loan related  activity.  The third party
servicer  has  represented  to the  Company  that  its  systems  are  Year  2000
compliant. Effective October 1, 1999, the Company began performing substantially
all such functions and its system is Year 2000 compliant.

     In  addition,  the  Company  relies  upon  various  vendors,   governmental
agencies,  utility  companies,  telecommunication  service  companies,  delivery
service  companies and other  service  providers who are outside of its control.
There is no assurance  that such  parties  will not suffer a Year 2000  business
disruption,  which  could  have a  material  adverse  effect  on  the  Company's
financial  condition and results of  operations.  The Company has inquired as to
the Year 2000  readiness  of vendors  and  customers  with whom the  Company has
material relationships.  As a result of information provided to the Company, the
Company believes any material business partners are Year 2000 compliant.

     Costs.  To date, the Company has not incurred any material  expenditures in
connection with identifying or evaluating Year 2000 compliance  issues.  Most of
its expenses have related to the opportunity  cost of time spent by employees of
the Company evaluating Year 2000 compliance matters generally. At this time, the
Company does not possess all the information necessary to estimate the potential
impact of Year 2000 compliance issues relating to its vendors, its customers and
other  parties.  Such  impact,  including  the  effect of a Year  2000  business
disruption,  could have a material  adverse  effect on the  Company's  financial
condition and results of operations.

     Contingency  Plan.  The Company has  developed  a  comprehensive  disaster
recovery plan which will be activated if a Year 2000 issue arises.


Inflation

     Inflation  has not had a  significant  effect  on the  Company's  operating
results to date.




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Exposure to Market Risk

    The Company performs an interest rate  sensitivity  analysis to identify the
potential interest rate exposures. Specific interest rate risks analyzed include
asset/liability mismatches, basis risk, risk caused by floors and caps, duration
mismatches and re-pricing lag in response to changes in a base index.

    A  simulated  earnings  model is used to  identify  the  impact of  specific
interest rate movements on earnings per share for the next 12 months.  The model
incorporates   management's   expectations  about  future  origination   levels,
origination mix,  amortization rates,  prepayment speeds,  timing of loan sales,
timing of  capital  issues,  extensions  and/or  increases  in lines of  credit,
pricing of originations and cost of debt and lines of credit.

    The  Company's  objective  in managing  the  interest  rate  exposures is to
maintain,  at a  reasonable  level,  the  impact  on  earnings  per  share of an
immediate and sustained  change of 100 basis points in interest  rates in either
direction.  The Company  periodically reviews the interest rate risk and various
options  such as  capital  structuring,  product  pricing,  hedging  and  spread
analysis to manage the interest rate risk at reasonable levels.

    As  of  September  30,  1999,  the  Company  had  the  following   estimated
sensitivity profile:

        Interest  rate  changes  (in  basis points)     100        (100)
        Impact on earnings per share                  ($0.08)      $0.16
        Impact  on   interest   income  and
        pre-tax earnings                            ($860,000)   $1,851,000






PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

        None


Item 2.  Changes in Securities and Use of Proceeds

        None


Item 3.  Defaults Upon Senior Securities

        None


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

        None


Item 5.  Other Information

     On September  22, 1999,  the Company  entered into an Agreement and Plan of
Merger with a subsidiary of Textron, Inc. Pursuant to the merger agreement,  all
of the  outstanding  shares of the  Company's  Common Stock were  purchased at a
price of $24.50 per  share.  Refer to  Schedule  14D-9  filed by the  Company on
September 29, 1999 for further information.











Item 6.   Exhibits and Reports on Form 8-K

     The following exhibits are filed herewith:

         10.204  Amendment  No. 5 to the Second  Amended and  Restated  Loan and
                 Security  Agreement dated May 28, 1997, among BankBoston,  N.A,
                 Sovereign Bank and the Company.

         11.1    Statement re: computation of earnings per share

         27.1    Financial Data Schedule

     Reports on Form 8-K

         Form 8-K filed August 24, 1999 regarding the  acquisition of 53% of the
           outstanding shares of American Growth Finance.

         Form 8-K filed  September  24,  1999  regarding  the  merger  agreement
           between Textron Financial Corporation and the Company.








































                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                  LITCHFIELD FINANCIAL CORPORATION




DATE: November 12, 1999            /s/ Richard A. Stratton
                                   -------------------------------

                                  RICHARD A. STRATTON
                                  Chief Executive Officer,
                                  President and Director





DATE:  November 12, 1999          /s/ Ronald E. Rabidou
                                  ----------------------------------------
                                  RONALD E. RABIDOU
                                  Chief Financial Officer, Executive
                                  Vice President and Treasurer