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 MARCH 31, 1997

                         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)


               789 MAIN ROAD, STAMFORD, VT               05352
      ___________________________________________________________
      (Address of principal executive offices)         (Zip Code)


       Registrant's telephone number, including area code: (802) 694-1200
                                                           ______________

              
              ____________________________________________________
              (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 May 12, 1997,  5,536,651  shares of common stock of  Litchfield  Financial
Corporation were outstanding.

                                       1
<PAGE>


                    LITCHFIELD FINANCIAL CORPORATION
                               FORM 10-Q

                      QUARTER ENDED MARCH 31, 1997

                                 INDEX

                                                                            PAGE
PART I - FINANCIAL INFORMATION

     Item 1. Financial Statements                                              3

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations                    11


PART II - OTHER INFORMATION

     Item 1. Legal Proceedings                                                17

     Item 2. Changes in Securities                                            17

     Item 3. Defaults Upon Senior Securities                                  17

     Item 4. Submission of Matters to a Vote of Security Holders              17

     Item 5. Other Information                                                17

     Item 6. Exhibits and Reports on Form 8-K                                 17


SIGNATURES                                                                    18



                                       2

<PAGE>

                                                                       FORM 10-Q

                        LITCHFIELD FINANCIAL CORPORATION

                    NOTES TO UNAUDITED FINANCIAL STATEMENTS





                          PART I - FINANCIAL STATEMENTS
                          Item 1. Financial Statements

                        LITCHFIELD FINANCIAL CORPORATION
                           Consolidated Balance Sheets
                         (in 000's except share amounts)
<TABLE>
<S>                                                   <C>

                                                       March 31,    December 31,
                                                         1997          1996
                                                      ___________   ____________
                                                      (unaudited)
                                 ASSETS
Cash and cash equivalents                                $ 8,586         $ 5,557
Restricted cash                                           20,827          18,923
Loans held for sale, net of allowance for 
loan losses of $827 in 1997 and $817 in 1996              12,895          12,260
Loans held for investment, net of allowance
 for loan losses of $1,385 in 1997 and $1,200
 in 1996                                                  90,969          79,996
Retained interests in loan sales                          28,285          28,912
Other assets                                               7,467           7,041
                                                        --------        --------   
     Total assets                                       $169,029        $152,689
                                                        ========        ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Lines of credit                                      $ 47,529        $ 36,299
   Term note payable                                       6,903           7,428
   Accounts payable and accrued liabilities                6,982           3,811
   Dealer/developer reserves                              10,631          10,628
   Deferred income taxes                                   5,472           5,080
                                                        --------        --------
                                                          77,517          63,246
                                                        --------        --------

   10% Notes due 2002                                     12,785          12,785
   8 7/8 % Notes due 2003                                 15,930          15,930
   10% Notes 2004                                         18,280          18,280
                                                         -------         -------
                                                          46,995          46,995
                                                         -------         -------
                                                             
Stockholders' equity:
   Preferred stock, $.01 par value;
     authorized 1,000,000 shares, 
     none issued and outstanding                             ---             ---
   Common stock, $.01 par value; 
     authorized 8,000,000 shares,
     5,525,251 shares issued and 
     outstanding in 1997 and 5,444,399 
     shares issued and outstanding in 1996                    55              54
   Additional paid in capital                             35,321          34,633
   Net unrealized gain on retained
       interests in loan sales                               235             ---
   Retained earnings                                       8,906           7,761
                                                          -------        -------
     Total stockholders' equity                           44,517          42,448
                                                         --------       --------
     Total liabilities and stockholders' equity          $169,029       $152,689
                                                         ========       ========


</TABLE>




     See accompanying notes to unaudited consolidated financial statements.

                                       3



<PAGE>

                                                                       FORM 10-Q


                        LITCHFIELD FINANCIAL CORPORATION
                       Consolidated Statements of Income
                 (in 000's except share and per share amounts)
                                   Unaudited
<TABLE>
<S>                                                 <C>
   

                                                    Three Months Ended March 31,
                                                    ____________________________
                                                              1997          1996
                                                              ____          ____
Revenues:
   Interest income                                          $4,546        $3,292
   Gain on sale of loans                                     1,504           880
   Servicing and other fee income                              357           478
                                                            ------        ------
                                                             6,407         4,650
                                                            ======        ======
Expenses:
   Interest expense                                          2,394         1,529
   Salaries and employee benefits                              813           737
   Other operating expenses                                    903           664
   Provision for loan losses                                   435           425
                                                            ------        ------
                                                             4,545         3,355
                                                            ------        ------

Income before income taxes                                   1,862         1,295
Provision for income taxes                                     717           497
                                                            ------        ------
Net income                                                  $1,145        $  798
                                                            ======        ======


Primary and fully-diluted net income per common share      $   .20       $   .14
                                                           =======       =======


Fully diluted weighted average number of shares          5,791,669     5,700,891


</TABLE>



















     See accompanying notes to unaudited consolidated financial statements.

                                       4

<PAGE>

                                                                       FORM 10-Q


                        LITCHFIELD FINANCIAL CORPORATION
                Consolidated Statements of Stockholders' Equity
                                   (in 000's)
                                   Unaudited









<TABLE>


<S>                               <C>

                                                            Net Unrealized
                                                            Gain on
                                              Additional    Retained
                                  Common      Paid In       Interests in     Retained
                                   Stock      Capital       Loan  Sales      Earnings       Total
                                  ______     _________      ____________     ________     _______
                               
Balance, December 31, 1996           $54       $34,633          $  ---         $7,761     $42,448

  Issuance of  80,852 shares 
     of common stock                   1           688             ---            ---         689

  Net unrealized gain on 
     retained interests in 
     loan sales                      ---           ---             235            ---         235

  Net income                         ---           ---             ---          1,145       1,145
                                   -----       -------            ----         ------     -------
Balance, March 31, 1997              $55       $35,321            $235         $8,906     $44,517
                                   =====       =======            ====         ======     =======    



</TABLE>









     See accompanying notes to unaudited consolidated financial statements.

                                       5

 
<PAGE>

                                                                       FORM 10-Q

                        LITCHFIELD FINANCIAL CORPORATION
                      Consolidated Statements of Cash Flows
                                   (in 000's)
                                    Unaudited
<TABLE>
<S>                                                 <C>

                                                                Three Months Ended March 31,
                                                                ____________________________
                                                                           1997        1996
                                                                       _________     ________

Cash flows from operating activities:
    Net income                                                          $  1,145       $ 798
    Adjustments to reconcile net income to 
      net cash provided by (used in)
      operating activities:
      Gain on sale of loans                                               (1,504)       (880)
      Amortization and depreciation                                          129         145
      Amortization of retained interests in loan sales                     1,014         654
      Provision for loan losses                                              435         425
      Deferred income taxes                                                  392          49
      Net changes in operating assets and liabilities:
         Restricted cash                                                  (1,904)     (1,534)
         Loans held for sale                                                (547)     (6,185)
         Retained interests in loan sales                                   (132)       (235)
         Dealer/developer reserves                                             3        (137)
         Net change in other assets and liabilities                        2,110        (116)
                                                                           -----      -------
      Net cash provided by (used in) operating activities                  1,141      (7,016)
                                                                           -----      -------
Cash flows from investing activities:
    Redemption of investments held to maturity                                16           24
    Net originations and principal payments on loans
       held for investment                                               (10,973)      (9,008)
    Collections on retained interests in loan sales                        1,499          ---
    Capital expenditures and other assets                                   (48)          (12)
                                                                         --------     --------
       Net cash used in investing activities                              (9,506)      (8,996)
                                                                         --------     --------

Cash flows from financing activities:
    Net borrowings on lines of credit                                     11,230        2,400
    Payments on term note                                                   (525)        (447)
    Net proceeds from issuance of common stock                               689           28
                                                                         --------    --------
      Net cash provided by financing activities                           11,394        1,981
                                                                         --------    --------

Net increase (decrease) in cash and cash equivalents                       3,029      (14,031)
Cash and cash equivalents, beginning of period                             5,557       18,508
                                                                        --------    ---------
Cash and cash equivalents, end of period                                $  8,586    $   4,477
                                                                        ========    =========
Supplemental Schedule of Noncash Financing 
and Investing Activities:
    Transfers from loans to real estate 
    acquired through foreclosure                                         $   447    $    107       
                                                                         =======    ========
Supplemental Cash Flow Information:
    Interest paid                                                       $  2,300    $  1,522
                                                                        ========    ========
    Income taxes paid                                                   $    325    $    443
                                                                        ========    ========


</TABLE>









     See accompanying notes to unaudited consolidated financial statements.

                                       6
<PAGE>

                                                                       FORM 10-Q

                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A. Basis of Presentation

      The accompanying unaudited consolidated interim financial statements as of
March 31,  1997 and for the three  month  periods  ended March 31, 1997 and 1996
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 month period ended March 31,
1997, are not necessarily  indicative of the results expected for the year ended
December 31, 1997. For further information,  refer to the consolidated financial
statements and footnotes thereto included in Litchfield Financial  Corporation's
annual report on Form 10-K for the year ended December 31, 1996.

      In  February  1997,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which
is required to be adopted on December 31, 1997.  At that time,  the Company will
be required to change the method  currently  used to compute  earnings per share
and to restate all prior periods.  Under the new  requirements  for  calculating
primary  earnings  per  share,  the  dilutive  effect of stock  options  will be
excluded.  Under the new  standard,  primary  earnings per share would have been
$.01 per share  higher for each of the  quarters  ended March 31, 1997 and 1996.
The impact of Statement 128 on the  calculation  of fully  diluted  earnings per
share for these quarters is not expected to be material.



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

      The Company adopted the requirements of Statement of Financial  Accounting
Standards No. 125  "Accounting  for Transfers and Servicing of Financial  Assets
and  Extinguishments of Liabilities" for transfers of receivables.  There was no
effect on net income in the first  quarter as a result of adopting the standard.
The  Company  has  reclassified  as  retained  interests  in loan sales  certain
subordinated  pass-through  certificates,  interest  only  strips  and  recourse
obligations in connection with adopting the standard.

      Gains on sales of loans are based on the difference  between the allocated
cost basis of the assets sold and the proceeds, which includes the fair value of
any assets or liabilities that are newly created as a result of the transaction.
The Company  carries any  retained  interests  in the  transferred  assets at an
allocated amount of the previous carrying amount.  Newly created interests which
consist primarily of interest only strips and recourse obligations are initially
recorded at fair value.  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 consist primarily
of subordinate portions of the principal balance of transferred assets.

      The Company  estimates  fair value  using  discounted  cash flow  analysis
(using a discount rate  commensurate  with the risks  involved),  because quoted
market prices are not available. The Company's analysis incorporates assumptions
that  market  participants  would use in their  estimates  of future  cash flows

                                       7
<PAGE>
                                                                       FORM 10-Q
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



including assumptions about interest, defaults and prepayment rates. The Company
considers  retained  interests in loan sales, such as subordinated  pass-through
certificates  and  interest  only  strips,  as  available  for sale because such
interests are subject to prepayment.

      There is  generally no  servicing  asset or liability  because the Company
estimates  that the benefits of servicing are just adequate to compensate it for
its servicing responsibilities.

      Since its inception,  the Company has sold  $261,494,000  of loans at face
value  ($249,451,000  through December 31, 1996). The principal amount remaining
on the  loans  sold was  $131,162,000  at March  31,  1997 and  $129,619,000  at
December 31, 1996.  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.

  
     The Company's  undiscounted  exposure to loss on loans sold in the event of
nonperformance  by  the  consumer,   default  by  the  dealer/developer  on  its
guarantee,  and  the  determination  that  the  collateral  is of no  value  was
$8,698,000  at March 31, 1997  ($8,780,000  at December 31,  1996).  The Company
repurchased $335,000 and $115,000 of loans under the recourse provisions of loan
sales during the three months ended March 31, 1997 and 1996,  respectively,  and
$991,000 during the year ended December 31, 1996. 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 March 31, 1997,  $19,616,000 of the
Company's cash was restricted as credit  enhancements in connection with certain
securitization programs.

     The  Company's  Serviced  Portfolio  is  geographically   diversified  with
collateral and consumers located in 41 and 50 states, respectively. The Serviced
Portfolio consists of the principal of Land, VOI and Dealer/Other Loans serviced
by or on behalf of the  Company.  At March 31, 1997,  15.6% of the  portfolio by
collateral  location was located in Texas,  and 14.1% and 14.0% of the portfolio
by borrower  location was located in Texas and Florida,  respectively.  No other
state accounted for more than 10.0% of the total.



C. Allowance for loan losses

The total allowance for loan losses consists of the following:

                                             March 31,          December 31,
                                                 1997              1996
                                            ___________          ___________
     Allowance for losses on loans      
       held for sale                          $ 827,000           $  817,000
     Allowance for losses on loans 
       held for investment                    1,385,000            1,200,000
     Recourse obligation on retained
       interests in loan sales                2,414,000            2,511,000
                                             ----------           ----------
                                             $4,626,000           $4,528,000
                                             ==========           ==========

                                       8

<PAGE>


                                                                       FORM 10-Q
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


D.  Debt

      At March 31, 1997, the Company had a secured line of credit of $30,000,000
from BankBoston,  as lead agent, and Fleet Bank. The Company can elect to borrow
all or part of the  outstanding  balance  on the line of credit  at  either  the
Banks'  prime  interest  rate  or  the  Eurodollar  rate  plus  2%.  Outstanding
borrowings  under the line of credit were  $30,000,000  and $26,200,000 at March
31,  1997  and  December  31,  1996,  respectively.  At  December  31,  1996 the
outstanding  borrowings  were  $26,200,000.  This line of credit is  secured  by
consumer  receivables  and other secured  loans.  The line of credit  matured in
April 1997 and the Company was  granted a thirty day  extension.  The Company is
currently  negotiating a renewal and an amendment to the existing line of credit
which is expected to close in May 1997.  The amendment is to increase the amount
of the line of credit and to extend the  maturity  of the line  beyond one year.
However,  no  assurance  can be given  that such  renewal or  amendment  will be
closed.

      In January  1997,  an  additional  secured line of credit was increased to
$8,000,000 with another financial  institution at that institution's  prime rate
of interest plus 1.25%.  This line of credit matures in January 1998. There were
no outstanding  borrowings on this line of credit at March 31, 1997 and December
31,  1996.  This line of credit is secured  by  consumer  receivables  and other
secured loans.

      In January 1997,  the secured line of credit with the Bank of Scotland was
increased to $20,000,000. Interest is payable quarterly in arrears at the Bank's
prime interest rate plus 1%. The outstanding  borrowings  under this facility at
March  31,  1997  and  December  31,  1996  were   $13,400,000  and  $8,300,000,
respectively.  This  facility is secured by certain  retained  interests in loan
sales, cash collateral accounts and certain other loans and matures in September
1999. The outstanding balance at March 31, 1997 was paid in full in April 1997.

      On March 5, 1997, the Company  entered into a $25,000,000  secured line of
credit  with  Green  Tree  Financial  Servicing  Corporation.   The  outstanding
borrowings at March 31, 1997 were  $3,214,000.  The facility is secured by loans
to developers of VOI resorts for the  acquisition and development of VOI resorts
("Facility  A")  and  the  related  financing  of  consumer  purchases  of  VOIs
("Facility  B").  Interest is payable monthly in arrears at the thirty day LIBOR
rate plus  3.75% for  Facility  A and at the  thirty  day LIBOR rate plus 2% for
Facility B. Although the maximum amount that can be borrowed on each facility is
$15,000,000,  the aggregate  outstanding  borrowings cannot exceed  $25,000,000.
This facility expires in March 2000.

      On March 21, 1997, the Company  entered into a $3,000,000  secured line of
credit with an additional financial institution.  Interest is payable monthly in
arrears  at the  Bank's  base rate plus 1%.  This line of credit is  secured  by
consumer  receivables  and other secured loans and matures in March 1998.  There
were no outstanding borrowings at March 31, 1997.

      The Company is not required to maintain  compensating  balances or forward
sales commitments under the terms of these lines of credit.

      The Company also has a revolving  line of credit and sale facility as part
of  an  asset  backed   commercial   paper   facility   with   Holland   Limited


                                       9
<PAGE>


                                                                       FORM 10-Q
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Securitization, Inc. ("HLS") a multi-seller commercial paper issuer sponsored by
Internationale Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October 1996
the Company  amended the HLS facility to increase the facility to  $100,000,000,
subject to certain  terms and  conditions,  reduce  certain  credit  enhancement
requirements  and expand  certain loan  eligibility  criteria.  The  outstanding
aggregate  balance of the loans  pledged and sold under the HLS  facility at any
time cannot exceed $100,000,000. The HLS facility expires in June 1998.

      In  connection  with the HLS facility,  the Company  formed a wholly owned
subsidiary,   Litchfield  Mortgage  Securities  Corporation  1994  ("LMSC"),  to
purchase  loans from the Company.  LMSC either  pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues  commercial  paper
or other  indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not  affiliated  with the Company or its  affiliates.  As of March 31, 1997, the
outstanding  balance of eligible loans sold under the facility was  $65,939,000.
Outstanding  borrowings  under the line of credit at March 31, 1997 and December
31, 1996 were $915,000 and $1,799,000,  respectively. Interest is payable on the
line of credit at an interest rate based on certain commercial paper rates.

      On March 21, 1997,  the Company  closed an  additional  revolving  line of
credit and sale  facility of  $25,000,000  with  BankBoston's  commercial  paper
conduit,  EagleFunding Capital Corporation  ("EFCC").  The EFCC facility,  which
expires  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 EFCC facility at any
time cannot exceed $25,000,000.

      In connection  with the EFCC  facility,  the Company formed a wholly owned
subsidiary,  Litchfield Capital Corporation 1995 ("LCC"), to purchase loans from
the Company.  LCC either pledges the loans on a revolving line of credit with or
sells the loans to EFCC. EFCC issues  commercial paper or other  indebtedness to
fund the purchase or pledge of loans from LCC. EFCC is not  affiliated  with the
Company or its affiliates.  As of March 31, 1997 the outstanding  balance of the
eligible loans previously sold under the facility was $10,700,000. There were no
amounts  borrowed  under the line of credit as of March 31,  1997.  Interest  is
payable on the line of credit at an  interest  rate based on certain  commercial
paper rates.

      During the first quarter of 1995, the Company  issued a 10.43%  promissory
note with an initial balance of $12,500,000 to an insurance  company.  Principal
is payable monthly based on collection of the underlying collateral. The note is
redeemable only with the approval of the noteholder.  The note is collateralized
by certain  of the  Company's  retained  interests  in loan sales and cash.  The
balance  outstanding on the note was $6,903,000 and $7,428,000 at March 31, 1997
and December 31, 1996, respectively.  As of March 31, 1997 the approximate value
of the underlying collateral was $12,776,000.

      In  April  1997,  the  Company  issued  unsecured  notes  with an  initial
principal balance of $20,000,000 to Teachers  Insurance and Annuity  Association
("TIAA").  Interest  is  payable  at 9.3%  semiannually  in  arrears.  The notes
requires principal reductions of $7,500,000, $6,000,000, $6,000,000 and $500,000
in March 2001,  2002,  2003 and 2004,  respectively.  The proceeds  were used to
repay the  outstanding  balance on the line of credit  with the Bank of Scotland
and a portion of the outstanding balance on the line of credit with BankBoston.


                                       10
<PAGE>

                                                                       FORM 10-Q
  
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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


      Litchfield  Financial  Corporation (the "Company") is a specialty  finance
company  which  provides  financing  for the  purchase  of  rural  and  vacation
properties  ("Land Loans") and financing of vacation  ownership  interests ("VOI
Loans"),  popularly known as timeshare interests. In addition, the Company makes
loans  to  rural  land  dealers  and  resort  developers   secured  by  consumer
receivables and other secured loans (collectively "Dealer/Other Loans").

      The principal sources of the Company's  revenues are (i) interest and fees
on loans,  (ii) gain  from the sale of loans and (iii)  servicing  and other fee
income.  Gains on  sales  of loans  are  based  on the  difference  between  the
allocated  cost basis of the assets sold and the  proceeds,  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.


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.

                                                    Three months ended March 31,
                                                    ----------------------------
                                                        1997               1996
                                                        ----               ----
                                                       
     Revenues:
        Interest and fees on loans                      70.9%              70.8%
        Gain on sale of  loans                          23.5               18.9
        Servicing and other income                       5.6               10.3
                                                       -----               -----
                                                       100.0               100.0
                                                       -----               -----
     Expenses:
        Interest expense                                37.3               32.9
        Salaries and employee benefits                  12.7               15.9
        Other operating expenses                        14.1               14.3
        Provision for loan losses                        6.8                9.1
                                                       -----               -----
                                                        70.9               72.2
                                                       -----               -----

     Income before income taxes                         29.1               27.8
     Provision for income taxes                         11.2               10.6
                                                       ------             ------
     Net income                                         17.9%              17.2%
                                                       ======             ======



      Revenues  increased  37.8% to $6,407,000  for the three months ended March
31, 1997,  from $4,650,000 for the same period in 1996. Net income for the three
months ended March 31, 1997 increased  43.5% to $1,145,000  compared to $798,000
for the same period in 1996. Net income as a percentage of revenues increased to
17.9% for the three months ended March 31, 1997  compared to 17.2% for the three

                                       11
<PAGE>


                                                                       FORM 10-Q
  
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

months ended March 31, 1996. Loan originations grew 36.9% to $36,063,000 for the
three months ended March 31, 1997 from  $26,350,000 for the same period in 1996.
The Serviced  Portfolio  increased  39.7% to $256,192,000 at March 31, 1997 from
$183,448,000 at March 31, 1996.

      Interest and fees on loans  increased  38.1% to  $4,546,000  for the three
months ended March 31, 1997 from $3,292,000 in 1996,  primarily as the result of
the increase in loans held for investment and retained  interests in loan sales.
Interest  and fees on loans,  retained  interests  in loan  sales,  and cash and
investments comprised 74.4%, 19.6%, and 6.0%, respectively, of interest and fees
on loans for the three months ended March 31, 1997,  compared with 67.2%, 22.9%,
and 9.9%,  respectively,  for the same period in the prior year. Interest earned
on loans and  retained  interests  in loan  sales  increased  52.9%  and  18.2%,
respectively,  for the first  three  months of 1997  compared to the first three
months of 1996. Interest earned on cash and investments  decreased 16.4% for the
three  months  ended  March 31, 1997  compared  to the same period in 1996.  The
average  rate  earned  on loans  owned  and  retained  interests  in loan  sales
decreased  to 12.4% for the three months ended March 31, 1997 from 13.3% for the
three months ended March 31, 1996,  primarily due to the effect of the growth in
Dealer/Other Loans as a percentage of the Serviced Portfolio.  Dealer/Other Loan
yields are  usually  less than Land Loan or VOI Loan  yields,  but  Dealer/Other
Loans servicing costs and loan losses are generally less as well.

      Gain on the sale of loans  increased  70.9% to  $1,504,000  for the  three
months ended March 31, 1997 from $880,000 in the same period in 1996. The volume
of loans sold increased  127.3% to $12,043,000  for the three months ended March
31, 1997 from $5,299,000 during the  corresponding  period in 1996. Gain on sale
of loans increased less than the volume of loans sold primarily due to the lower
amount of discount  relating to loans sold and,  to a lesser  extent,  the lower
spread between the coupon rate of the loans sold and the pass-through rate.

      Loans serviced for others  increased 26.2% to $131,162,000 as of March 31,
1997  from  $103,952,000  at March 31,  1996.  Servicing  and  other fee  income
decreased  25.3% to $357,000 for the three  months  ended March 31,  1997,  from
$478,000  compared  to the same period in 1996.  Servicing  and other fee income
decreased despite the increase in loans serviced for others due to a decrease in
the average  servicing fee per loan. In connection with the Company's  continued
growth,  the Company  decided to  subcontract  its servicing  rights in order to
avoid incurring  additional fixed overhead costs associated with such servicing.
Accordingly,  the Company  subcontracted,  to an unaffiliated  third party,  the
servicing of VOI Loans in 1995 and Land and Dealer/Other Loans in April 1996.

      Interest  expense  increased  56.6% to $2,394,000  during the three months
ended March 31 , 1997 from  $1,529,000 for the same period in 1996. The increase
in interest expense primarily  reflects an increase in average  borrowings which
was only  partially  offset by a  decrease  in average  rates.  During the three
months ended March 31, 1997,  borrowings averaged $98,952,000 at an average rate
of 8.9% as compared to $57,602,000 and 9.8%, respectively,  for the three months
ended March 31,1996. Interest expense includes the amortization of deferred debt
issuance costs.

      Salaries and employee  benefits  increased 10.3% to $813,000 for the three
months ended March 31, 1997 from $737,000 for the same period in 1996 because of
an  increases in the number of  employees  in 1997 and, to a lesser  extent,  an
increase in  salaries.  The number of full time  equivalents  increased to 61 at
March 31, 1997 compared to 53 at March 31, 1996. Personnel costs as a percentage
of  revenues  decreased  to 12.7%  for the three  months  ended  March 31,  1997
compared  to  15.9%  for the  same  period  in 1996  primarily  as a  result  of
subcontracting of servicing to a third party.

                                       12
<PAGE>


                                                                       FORM 10-Q
  
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      Other operating  expenses increased 36.0% to $903,000 for the three months
ended March 31, 1997 from $664,000 for the same period in 1996  primarily as the
result of  subcontracting  of  servicing to a third  party.  As a percentage  of
revenues,  other operating  expenses  decreased  slightly to 14.1% for the first
three months in 1997 compared to 14.3% for the first three months in 1996.

      During the three months ended March 31, 1997,  the Company  increased  its
provision  for loan losses 2.4% to $435,000 from $425,000 for the same period in
1996.  The provision for loan losses  increased  less than the increase in loans
owned and retained interests in loan sales because of the growth in Dealer/Other
Loans  as a  percentage  of the  serviced  portfolio.  Dealer/Other  Loans  have
experienced  significantly  lower  delinquency and default rates than Land Loans
and VOI Loans.



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,
payments of operating and interest expenses and loan repurchases.  The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of  credit,  long-term  debt and  equity  offerings  and cash  flows  from
operations.

      In connection  with certain loan sales,  the Company commits to repurchase
from  investors  any such  loans  that  become 90 days or more  past  due.  This
obligation  is subject  to  various  terms and  conditions,  including,  in some
instances,  a  limitation  on the  amount of loans  that may be  required  to be
repurchased.  There were  approximately  $8,698,000  of loans at March 31,  1997
which the  Company  could be required to  repurchase  in the future  should such
loans  become 90 days or more past due.  The Company  repurchased  $335,000  and
$155,000 of such loans under the  recourse  provisions  of loan sales during the
three months ended March 31, 1997 and 1996, respectively.  As of March 31, 1997,
$19,616,000  of the  Company's  cash was  restricted as credit  enhancements  in
connections with certain securitization programs.

      The Company funds its loan purchases in part with borrowings under various
bank lines of credit. Lines are paid down when the Company receives the proceeds
from the sale of the loans or when  cash is  otherwise  available.  At March 31,
1997, the Company had a secured line of credit of $30,000,000  from  BankBoston,
as lead agent,  and Fleet  Bank.  The Company can elect to borrow all or part of
the  outstanding  balance  on the line of  credit  at either  the  Banks'  prime
interest rate or the Eurodollar rate plus 2%.  Outstanding  borrowings under the
line of credit were  $30,000,000  and $26,200,000 at March 31, 1997 and December
31, 1996,  respectively.  At December 31, 1996 the  outstanding  borrowings were
$26,200,000.  This line of credit is secured by consumer  receivables  and other
secured  loans.  The line of credit  matured in April 1997 and the  Company  was
granted a thirty day extension.  The Company is currently  negotiating a renewal
and an amendment  to the  existing  line of credit which is expected to close in
May 1997.  The  amendment is to increase the amount of the line of credit and to
extend the maturity of the line beyond one year.  However,  no assurance  can be
given that such renewal or amendment will be closed.

      In January  1997,  an  additional  secured line of credit was increased to
$8,000,000 with another financial  institution at that institution's  prime rate

                                       13
<PAGE>


                                                                       FORM 10-Q
  
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

of interest plus 1.25%.  This line of credit matures in January 1998. There were
no outstanding  borrowings on this line of credit at March 31, 1997 and December
31,  1996.  This line of credit is secured  by  consumer  receivables  and other
secured loans.

      In January 1997,  the secured line of credit with the Bank of Scotland was
increased to $20,000,000. Interest is payable quarterly in arrears at the Bank's
prime interest rate plus 1%. The outstanding  borrowings  under this facility at
March  31,  1997  and  December  31,  1996  were   $13,400,000  and  $8,300,000,
respectively.  This  facility is secured by certain  retained  interests in loan
sales, cash collateral accounts and certain other loans and matures in September
1999. The outstanding balance at March 31, 1997 was paid in full in April 1997.

      On March 5, 1997, the Company  entered into a $25,000,000  secured line of
credit  with  Green  Tree  Financial  Servicing  Corporation.   The  outstanding
borrowings at March 31, 1997 were  $3,214,000.  The facility is secured by loans
to developers of VOI resorts for the  acquisition and development of VOI resorts
("Facility  A")  and  the  related  financing  of  consumer  purchases  of  VOIs
("Facility  B").  Interest is payable monthly in arrears at the thirty day LIBOR
rate plus  3.75% for  Facility  A and at the  thirty  day LIBOR rate plus 2% for
Facility B. Although the maximum amount that can be borrowed on each facility is
$15,000,000,  the aggregate  outstanding  borrowings cannot exceed  $25,000,000.
This facility expires in March 2000.

      On March 21, 1997, the Company  entered into a $3,000,000  secured line of
credit with an additional financial institution.  Interest is payable monthly in
arrears  at the  Bank's  base rate plus 1%.  This line of credit is  secured  by
consumer  receivables  and other secured loans and matures in March 1998.  There
were no outstanding borrowings at March 31, 1997.

      The Company is not required to maintain  compensating  balances or forward
sales commitments under the terms of these lines of credit.

      The Company also has a revolving  line of credit and sale facility as part
of  an  asset  backed   commercial   paper   facility   with   Holland   Limited
Securitization, Inc. ("HLS") a multi-seller commercial paper issuer sponsored by
Internationale Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October 1996
the Company  amended the HLS facility to increase the facility to  $100,000,000,
subject to certain  terms and  conditions,  reduce  certain  credit  enhancement
requirements  and expand  certain loan  eligibility  criteria.  The  outstanding
aggregate  balance of the loans  pledged and sold under the HLS  facility at any
time cannot exceed $100,000,000. The HLS facility expires in June 1998.

      In  connection  with the HLS facility,  the Company  formed a wholly owned
subsidiary,   Litchfield  Mortgage  Securities  Corporation  1994  ("LMSC"),  to
purchase  loans from the Company.  LMSC either  pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues  commercial  paper
or other  indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not  affiliated  with the Company or its  affiliates.  As of March 31, 1997, the
outstanding  balance of eligible loans sold under the facility was  $65,939,000.
Outstanding  borrowings  under the line of credit at March 31, 1997 and December
31, 1996 were $915,000 and $1,799,000,  respectively. Interest is payable on the
line of credit at an interest rate based on certain commercial paper rates.

      On March 21, 1997,  the Company  closed an  additional  revolving  line of
credit and sale  facility of  $25,000,000  with  BankBoston's  commercial  paper
conduit,  EagleFunding Capital Corporation  ("EFCC").  The EFCC facility,  which
expires  in March  2000,  is subject to  certain  terms and  conditions,  credit

                                       14
<PAGE>


                                                                       FORM 10-Q
  
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

enhancement   requirements  and  loan  eligibility  criteria.   The  outstanding
aggregate  balance of the loans  pledged and sold under the EFCC facility at any
time cannot exceed $25,000,000.

      In connection  with the EFCC  facility,  the Company formed a wholly owned
subsidiary,  Litchfield Capital Corporation 1995 ("LCC"), to purchase loans from
the Company.  LCC either pledges the loans on a revolving line of credit with or
sells the loans to EFCC. EFCC issues  commercial paper or other  indebtedness to
fund the purchase or pledge of loans from LCC. EFCC is not  affiliated  with the
Company or its affiliates.  As of March 31, 1997 the outstanding  balance of the
eligible loans previously sold under the facility was $10,700,000. There were no
amounts  borrowed  under the line of credit as of March 31,  1997.  Interest  is
payable on the line of credit at an  interest  rate based on certain  commercial
paper rates.

      During the first quarter of 1995, the Company  issued a 10.43%  promissory
note with an initial balance of $12,500,000 to an insurance  company.  Principal
is payable monthly based on collection of the underlying collateral. The note is
redeemable only with the approval of the noteholder.  The note is collateralized
by certain  of the  Company's  retained  interests  in loan sales and cash.  The
balance  outstanding on the note was $6,903,000 and $7,428,000 at March 31, 1997
and December 31, 1996, respectively.  As of March 31, 1997 the approximate value
of the underlying collateral was $12,776,000.

      In  April  1997,  the  Company  issued  unsecured  notes  with an  initial
principal balance of $20,000,000 to Teachers  Insurance and Annuity  Association
("TIAA").  Interest  is  payable  at 9.3%  semiannually  in  arrears.  The notes
requires principal reductions of $7,500,000, $6,000,000, $6,000,000 and $500,000
in March 2001,  2002,  2003 and 2004,  respectively.  The proceeds  were used to
repay the  outstanding  balance on the line of credit  with the Bank of Scotland
and a portion of the outstanding balance on the line of credit with BankBoston.

      The  Company  manages  its  exposure  to  changes  in  interest  rates  by
attempting  to match  its  proportion  of fixed  versus  variable  rate  assets,
liabilities  and loan sale  facilities.  The Company has further  mitigated  its
interest rate exposure due to interest  rate  declines by  instituting  interest
rate floors on certain of its adjustable rate loans.

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



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 possible  future losses on such
assets.  Past-due loans (loans 30 days or more past due which are not covered by
dealer/developer  reserves  and  guarantees)  as a  percentage  of the  Serviced
Portfolio  were 1.31% as of March 31, 1997  compared  with 1.34% at December 31,
1996 and 1.75% at March 31,  1996.  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.  A provision for loan losses is recorded in an amount deemed  sufficient

                                       15
<PAGE>


                                                                       FORM 10-Q
  
                        LITCHFIELD FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 $4,626,000 at March 31, 1997 compared to $4,528,000 at December 31,
1996. The allowance  ratio (the allowances for loan losses divided by the amount
of the Serviced  Portfolio) at March 31, 1997  decreased  slightly to 1.81% from
1.87% at December 31, 1996.

      As  part  of  the  Company's  financing  of  Land  Loans  and  VOI  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 Land Loan or a VOI 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
$10,631,000   and   $10,628,000  at  March  31,  1997  and  December  31,  1996,
respectively.   The  Company  generally  returns  any  excess  reserves  to  the
dealer/developer  on a  quarterly  basis as the  related  loans  are  repaid  by
borrowers.


Inflation

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

                                       16

<PAGE>

                                                                       FORM 10-Q
  
                
PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

           None

Item 2.  Changes in Securities

           None

Item 3.  Defaults Upon Senior Securities

           None

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

        At the Company's Annual Meeting of Stockholders  held on April 25, 1997,
        Richard  A.  Stratton  and James  Westra  each were  elected to serve as
        directors of the Company for a term expiring at the 2000 Annual  Meeting
        by a vote of 4,751,082  and 4,751,072  shares voting for their  election
        and 6,180 and 6,190 shares abstaining,  respectively.  In addition,  the
        stockholders  approved by a vote of 4,731,709  shares for, 11,163 shares
        against,  and  14,390  shares  abstaining,  Ernst  &  Young  LLP  as the
        Company's independent public accountants for 1997.

        The  Company  solicited  proxies  for the  Annual  Meeting  pursuant  to
        Regulation 14 under the  Securities  Exchange Act of 1934.  There was no
        solicitation in opposition to the Company's  nominees for director,  and
        all nominees were elected.

Item 5.  Other Information

           None

Item 6.    (a) Exhibits

           The following exhibits are filed herewith:

        10.152- Master  revolving  credit  promissory note dated as of March 21,
                1997 between Litchfield Financial  Corporation and Republic Bank
                in the principal amount of $3,000,000.

        10.153- Wholesale  warehouse loan and mortgage security  agreement dated
                as of March 21, 1997 between  Litchfield  Financial  Corporation
                and Republic Bank in the
                principal amount of $3,000,000.

        11.1  - Statement re: computation of earnings per share

        27.1  - Financial Data Schedule

        (b) Reports on Form 8-K

        None


                                       17
<PAGE>











                               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: May 12, 1997                /s/ Richard A.Stratton
                                  ----------------------

                                  RICHARD A. STRATTON
                                  Chief Executive Officer,
                                  President and Director





DATE: May 12, 1997                /s/ Ronald E.Rabidou
                                  --------------------

                                  RONALD E. RABIDOU
                                  Chief Financial Officer




                                       18