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 JUNE 30, 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 August 12, 1997,  5,623,326 shares of common stock of Litchfield Financial
Corporation were outstanding.


<PAGE>



                        LITCHFIELD FINANCIAL CORPORATION
                                     FORM 10-Q

                            QUARTER ENDED JUNE 30, 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                  12


PART II - OTHER INFORMATION

     Item 1.   Legal Proceedings                                              18

     Item 2.   Changes in Securities                                          18

     Item 3.   Defaults Upon Senior Securities                                18

     Item 4.   Submission of Matters to a Vote of Security Holders            18

     Item 5.   Other Information                                              18

     Item 6.   Exhibits and Reports on Form 8-K                               18


SIGNATURES                                                                    19




<PAGE>


                                                                       FORM 10-Q


                          PART I - FINANCIAL STATEMENTS
                          Item 1. Financial Statements

                        LITCHFIELD FINANCIAL CORPORATION
                            Consolidated Balance Sheets
                          (in 000's except share amounts)

                                                          June 30,  December 31,
                                                            1997        1996
                                                        ----------  ------------
                                                        (unaudited)
                                     ASSETS
Cash and cash equivalents................................. $ 7,061      $  5,557
Restricted cash ..........................................  21,364        18,923
Loans held for sale, net of allowance for loan losses of
   $1,406 in 1997 and $817 in 1996........................  20,475        12,260
Other loans, net of allowance for loan losses of
   $1,500 in 1997 and $1,200 in 1996......................  91,750        79,996
Retained interests in loan sales..........................  27,759        28,912
Other ....................................................   6,901         7,041
                                                          --------      --------
      Total assets........................................$175,310      $152,689
                                                          ========      ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Lines of credit........................................$ 34,287      $ 36,299
   Term note payable......................................   6,396         7,428
   Accounts payable and accrued liabilities...............   3,981         3,811
   Dealer/developer reserves..............................  10,626        10,628
   Deferred income taxes..................................   6,035         5,080
                                                          --------      --------
                                                            61,325        63,246
                                                          --------      --------

   9.3% Notes ............................................  20,000           ---
   10% Notes due 2002.....................................  12,785        12,785
   8 7/8 % Notes due 2003.................................  15,317        15,930
   10% Notes due 2004.....................................  18,280        18,280
                                                          --------      --------
                                                            66,382        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, 5,616,372 shares issued and outstanding in
      1997 and 5,444,399 shares issued and outstanding
      in 1996.............................................      56            54
   Additional paid in capital.............................  36,238        34,633
   Net unrealized gain on retained interests in loan sales     523           ---
   Retained earnings .....................................  10,786         7,761
                                                          --------      --------
      Total stockholders' equity..........................  47,603        42,448
                                                          --------      --------
      Total liabilities and stockholders' equity..........$175,310      $152,689
                                                          ========      ========





       See accompanying notes to unaudited consolidated financial statements.


<PAGE>

                                                                       FORM 10-Q

                        LITCHFIELD FINANCIAL CORPORATION
                         Consolidated Statements of Income
                   (in 000's except share and per share amounts)
                                     Unaudited


                                                     Three Months Ended June 30,
                                                     ---------------------------
                                                           1997            1996
                                                          ------          ------
Revenues:
   Interest and fees on loans..........................   $4,783          $3,348
   Gain on sale of loans...............................    2,563           2,474
   Servicing and other fee income......................      345             279
                                                          ------          ------
                                                           7,691           6,101
                                                          ------          ------
Expenses:
   Interest expense....................................    2,648           1,768
   Salaries and employee benefits......................      833             645
   Other operating expenses............................      853             618
   Provision for loan losses...........................     300              529
                                                          ------          ------
                                                           4,634           3,560
                                                          ------          ------

Income before income taxes.............................    3,057           2,541
Provision for income taxes.............................    1,177             977
                                                          ------          ------
Net income.............................................   $1,880          $1,564
                                                          ======          ======


Primary and fully-diluted net income per common share .   $  .32          $  .27
                                                          ======          ======

Fully-diluted weighted average number of shares........5,917,911       5,708,191











       See accompanying notes to unaudited consolidated financial statements.


<PAGE>
                                                                       FORM 10-Q

                        LITCHFIELD FINANCIAL CORPORATION
                         Consolidated Statements of Income
                   (in 000's except share and per share amounts)
                                     Unaudited


                                                       Six Months Ended June 30,
                                                       -------------------------
                                                             1997           1996
                                                            ------        ------
Revenues:
   Interest and fees on loans..........................     $9,329        $6,640
   Gain on sale of loans...............................      4,067         3,354
   Servicing and other fee income......................        702           757
                                                            ------        ------
                                                            14,098        10,751
                                                            ------        ------
Expenses:
   Interest expense....................................      5,042         3,297
   Salaries and employee benefits......................      1,646         1,382
   Other operating expenses............................      1,756         1,282
   Provision for loan losses...........................        735           954
                                                            ------        ------
                                                             9,179         6,915
                                                            ------        ------

Income before income taxes.............................      4,919         3,836
Provision for income taxes.............................      1,894         1,474
                                                           -------        ------
Net income.............................................     $3,025        $2,362
                                                           =======        ======


Primary and fully-diluted net income per common share .     $  .52        $  .41
                                                           =======        ======

Fully-diluted weighted average number of shares........  5,861,180     5,698,866



















       See accompanying notes to unaudited consolidated financial statements.



<PAGE>
                                                                       FORM 10-Q

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













                                                         Net
                                                      Unrealized
                                                       Gain on
                                                       Retained
                                          Additional  Interests
                                   Common   Paid In       in    Retained
                                    Stock  Capital   Loan Sales Earnings  Total
                                   ------  --------- ---------- -------- -------

Balance, December 31, 1996........   $54    $34,633    $  ---   $ 7,761  $42,448

   Issuance of  171,973 shares
     of common stock .............     2      1,605       ---       ---    1,607

   Net unrealized gain on retained
     interests in loan sales......   ---        ---       523       ---      523

   Net income.....................   ---        ---       ---     3,025    3,025
                                   -----    -------    ------   -------  -------

Balance, June 30, 1997.........      $56    $36,238      $523   $10,786  $47,603
                                   =====    =======    ======   =======  =======
















       See accompanying notes to unaudited consolidated financial statements.


<PAGE>


                        LITCHFIELD FINANCIAL CORPORATION
                       Consolidated Statements of Cash Flows
                                   (in 000's)
                                     Unaudited

                                                       Six Months Ended June 30,
                                                       -------------------------
                                                              1997         1996
                                                             ------      -------
Cash flows from operating activities:
    Net income...........................................    $3,025      $2,362
    Adjustments to reconcile net income to net cash used
    in operating activities:
       Gain on sale of loans.............................    (4,067)     (3,354)
       Amortization and depreciation.....................       332         296
       Amortization of retained interests in loan sales..     2,061       1,364
       Provision for loan losses.........................       735         954
       Deferred income taxes.............................       955         130
       Net changes in operating assets and liabilities:
          Restricted cash................................    (2,441)        133
          Loans held for sale............................    (8,300)      1,327
          Retained interests in loan sales...............       470      (3,071)
          Dealer/developer reserves......................        (2)       (414)
          Net change in other assets and liabilities.....       753      (2,891)
                                                             -------     -------
       Net cash used in operating activities.............    (6,479)     (3,164)
                                                             -------     -------

Cash flows from investing activities:
    Redemption of investments held to maturity...........        32          71
    Net originations and principal payments on other loans  (27,379)    (19,834)
    Other loans sold.....................................    15,325         ---
    Collections on retained interests in loan sales......     2,534         142
    Capital expenditures and other assets................      (479)        (72)
                                                             -------    --------
        Net cash used in investing activities............    (9,967)    (19,693)
                                                             -------    --------

Cash flows from financing activities:
    Net borrowings (payments) on lines of credit.........    (2,012)     11,145
    Proceeds from issuance of 9.3% Notes.................    20,000         ---
    Retirement  of  long-term  Notes.....................      (613)       (283)
    Payments on term note................................    (1,032)     (1,067)
    Net proceeds from issuance of common stock...........     1,607          42
                                                             -------     -------
       Net cash provided by financing activities.........    17,950       9,837
----                                                         -------     -------

Net increase (decrease) in cash and cash equivalents.....     1,504     (13,020)
Cash and cash equivalents, beginning of period...........     5,557      18,508
                                                             ------     --------
Cash and cash equivalents, end of period.................    $7,061      $5,488
                                                             ======     ========

Supplemental Schedule of Noncash Financing and Investing Activities:
    Exchange of loans for retained interests in loan sales . $  364      $2,785
                                                             ======      =======
    Transfers from loans to real estate acquired through     $  516      $  170
    foreclosure............................................. ======      =======

Supplemental Cash Flow Information:
    Interest paid........................................    $4,339      $3,059
                                                             ======      =======
    Income taxes paid....................................    $  937      $  840
                                                             ======      =======




       See accompanying notes to unaudited consolidated financial statements.

<PAGE>


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



A. Basis of Presentation

      The accompanying unaudited consolidated interim financial statements as of
June 30,  1997 and for the three and six month  periods  ended June 30, 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 and six month
periods  ended June 30,  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.  Primary  earnings  per share is replaced by
basic  earnings per share.  Under the new  requirements  for  calculating  basic
earnings per share, the dilutive effect of stock options will be excluded. Under
the new standard, basic earnings per share would have been $.02 per share higher
for each of the  quarters  ended  June  30,  1997 and 1996 and $.03 and $.02 per
share  higher for the six months  ended  June 30,  1997 and 1996,  respectively.
There was no impact on the  calculation of diluted  earnings per share for these
periods.

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

      As of January 1, 1997, 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. This standard had no effect on net income for the second quarter
or for the six months ended June 30, 1997. The Company has reclassified  certain
subordinated  pass-through  certificates,  interest  only  strips  and  recourse
obligations as retained interests in loan sales to conform with this standard.

      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.  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 be expected to use in their estimates of future
cash flows 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 assets 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  $288,952,000  of loans at face
value  ($249,451,000  through  December  31,  1996).  In June 1997,  the Company
completed its first  securitization of $15,325,000 of dealer hypothecation loans
in a private  placement  with a bank.  Dealer  hypothecation  loans are loans to
rural land dealers and VOI resort  developers  secured by consumer  receivables.
The principal  amount  remaining on the loans sold was  $138,771,000 at June 30,
1997 and  $129,619,000  at December 31, 1996.  In  connection  with certain loan
sales,  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.



<PAGE>

                                                                       FORM 10-Q

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

     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
$8,936,000  at June 30, 1997  ($8,780,000  at December  31,  1996).  The Company
repurchased $119,000 and $359,000 of loans under the recourse provisions of loan
sales during the three months  ended June 30, 1997 and 1996.  Loans  repurchased
during the six months ended June 30, 1997 and 1996 were  $454,000 and  $514,000,
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 June 30, 1997,
$20,136,000  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 43 and 50 states, respectively. The Serviced
Portfolio   consists  of  the  current   principal  balance  of  Land,  VOI  and
Dealer/Other  Loans  serviced by or on behalf of the Company.  At June 30, 1997,
15.4% of the  portfolio by collateral  location was located in Texas,  and 17.7%
and  12.4% of the  portfolio  by  borrower  location  was  located  in Texas and
Florida,  respectively. No other state accounted for more than 9.0% of the total
by either collateral or borrower location.

C. Allowance for loan losses

The total allowance for loan losses consists of the following:

                                                      June 30,      December 31,
                                                        1997             1996
                                                    ----------      ------------
     Allowance for losses on loans held for sale.   $1,406,000        $  817,000
     Allowance for losses on other loans.........    1,500,000         1,200,000
     Recourse obligation on retained interests in
         loan sales..............................    2,635,000         2,511,000
                                                    ----------      ------------
                                                    $5,541,000        $4,528,000
                                                    ==========      ============

<PAGE>
                                                                       FORM 10-Q

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

D.  Debt

      In May 1997,  a secured  line of credit was renewed and amended to include
an increase in the amount of the line from  $30,000,000  to  $50,000,000  and an
extension of the maturity to April 2000.  Outstanding  borrowings under the line
of credit were  $28,000,000  and  $26,200,000  at June 30, 1997 and December 31,
1996,  respectively.  This line of credit is secured by consumer receivables and
other secured loans.

      In January 1997, an additional  secured line of credit was increased  from
$5,000,000 to $8,000,000 with another financial institution. This line of credit
matures in January 1998.  There were no  outstanding  borrowings on this line of
credit at June 30, 1997 and December 31, 1996. This line of credit is secured by
consumer receivables and other secured loans.

      In January 1997, an additional  secured line of credit was increased  from
$15,000,000  to  $20,000,000.  There were no outstanding  borrowings  under this
facility at June 30, 1997. At December 31, 1996, the outstanding borrowings were
$8,300,000.  This  facility  is secured by certain  retained  interests  in loan
sales, cash collateral accounts and certain other loans and matures in September
1999.

      On March 5, 1997,  the  Company  entered  into an  additional  $25,000,000
secured  line of  credit.  The  outstanding  borrowings  at June 30,  1997  were
$6,058,000.  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").  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.  This line of credit is secured
by consumer receivables and other secured loans and matures in March 1998. There
were no outstanding borrowings at June 30, 1997.

      Interest  rates on the above lines of credit range from the  Eurodollar or
LIBOR rates plus 2% to the prime rate plus 1.25%. 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 a  multi-seller  commercial
paper issuer  ("Conduit A"). In October 1996 the Company amended the facility to
increase the facility from $75,000,000 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  facility  at  any  time  cannot   exceed
$100,000,000. The facility expires in June 1998.

      In  connection  with the  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 the  Conduit  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 June 30, 1997,  the  outstanding  balance of eligible loans sold under the
facility was  $83,200,000.  Outstanding  borrowings  under the line of credit at
June 30, 1997 and December 31, 1996 were $229,000 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 another  multi-seller of commercial
paper  conduit  ("Conduit  B"). The  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 facility at any time cannot exceed $25,000,000.

      In  connection  with the  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 Conduit
B with or sells the loans to Conduit  B.  Conduit B issues  commercial  paper or

<PAGE>
                                                                       FORM 10-Q

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


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 June 30, 1997, the
outstanding balance of the eligible loans previously sold under the facility was
$13,767,000. There were no outstanding borrowings under the line of credit as of
June 30,  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 $6,396,000 and $7,428,000 at June 30, 1997
and December 31, 1996,  respectively.  As of June 30, 1997 the approximate value
of the underlying collateral was $14,231,000.

      In  April  1997,  the  Company  issued  unsecured  notes  with an  initial
principal  balance of $20,000,000.  Interest is payable at 9.3%  semiannually in
arrears.  The 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.  The
proceeds were used to repay the outstanding  balance on certain of the Company's
the lines of credit.

      In June 1997,  the Company  entered  into  interest  rate swap  agreements
whereby it pays the counterparty interest at the prime rate on a notional amount
of $110,000,000 and it receives from the counterparty interest at the commercial
paper rate plus a spread on a notional amount of $80,000,000 and interest at the
LIBOR  rate  plus a  spread  on a  notional  amount  of  $30,000,000.  The  swap
agreements expire in June 2000.

<PAGE>

                                                                       FORM 10-Q

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  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.

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    Six months ended
                                         ------------------   ----------------
                                               June 30,             June 30,
                                          -----------------    ----------------
                                           1997        1996     1997       1996
                                          -----       -----    -----      -----
  Revenues:
         Interest and fees on loans.....   62.2%       54.9%    66.2%      61.8%
         Gain on sale of  loans.........   33.3        40.5     28.8       31.2
         Servicing and other fee income.    4.5         4.6      5.0        7.0
                                          -----       -----    -----      -----
                                          100.0       100.0    100.0      100.0
                                          -----       -----    -----      -----
     Expenses:
         Interest expense..............    34.4        29.0     35.8       30.7
         Salaries and employee benefits    10.9        10.6     11.7       12.8
         Other operating expenses......    11.1        10.1     12.4       11.9
         Provision for loan losses.....     3.9         8.7      5.2        8.9
                                          -----       -----    -----      -----
                                           60.3        58.4     65.1       64.3
                                          -----       -----    -----      -----

     Income before income taxes  ......    39.7        41.6     34.9       35.7
     Provision for income taxes........    15.3        16.0     13.4       13.7
                                          -----       -----    -----      -----
     Net income........................    24.4%       25.6%    21.5%      22.0%
                                          =====       =====    =====      =====





<PAGE>


                                                                       FORM 10-Q

      Revenues  increased  26.1% and 31.1% to $7,691,000 and $14,098,000 for the
three and six months ended June 30, 1997,  from  $6,101,000 and  $10,751,000 for
the same periods in 1996. Net income for the three and six months ended June 30,
1997  increased  20.2%  and  28.1% to  $1,880,000  and  $3,025,000  compared  to
$1,564,000 and $2,362,000 for the same periods in 1996. Loan  originations  grew
44.9% and 41.3% to  $47,249,000  and  $83,311,000  for the three and six  months
ended June 30, 1997 from  $32,602,000  and  $58,902,000  for the same periods in
1996. The Serviced  Portfolio  increased  39.7% to $281,965,000 at June 30, 1997
from $201,797,000 at June 30, 1996.

      Interest and fees on loans  increased  42.9% and 40.5% to  $4,783,000  and
$9,329,000 for the three and six months ended June 30, 1997 from  $3,348,000 and
$6,640,000 for the same periods in 1996, primarily as the result of the increase
in other loans and retained  interests in loan sales. The average rate earned on
loans owned and retained  interests in loan sales decreased to 12.4% at June 30,
1997 from 13.0% at June 30, 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  3.6% and  21.3% to  $2,563,000  and
$4,067,000 for the three and six months ended June 30, 1997 from  $2,474,000 and
$3,354,000 in the same periods in 1996. The volume of loans sold increased 10.5%
and 44.6% to $27,458,000 and $39,501,000 for the three and six months ended June
30, 1997 from $18,549,000 and $23,848,000  during the  corresponding  periods 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. In addition,  the yield on the  securitization of dealer
hypothecation  loans in the  second  quarter  was  significantly  less  than the
typical yield on sales of consumer receivables, primarily due to shorter average
maturities.

      Loans serviced for others  increased  22.8% to $138,771,000 as of June 30,
1997  from  $113,037,000  at June 30,  1996.  Servicing  and  other  fee  income
increased  23.7% to $345,000  for the three  months  ended June 30,  1997,  from
$279,000 for the same period in 1996.  Servicing and other fee income  decreased
7.3% to $702,000 for the six months ended June 30, 1997,  from  $757,000 for the
same period in 1996. For the three and six months ended June 30, 1997, servicing
income  decreased  despite the  increase in loans  serviced  for others due to a
decrease in the average  servicing fee per loan.  However,  for the three months
ended  June 30,  1997,  miscellaneous  fees more than  offset  the  decrease  in
servicing fees.

      Interest  expense  increased  49.8% and 52.9% to $2,648,000 and $5,042,000
during  the  three and six  months  ended  June 30,  1997  from  $1,768,000  and
$3,297,000  for the same  periods in 1996.  The  increase  in  interest  expense
primarily  reflects an increase in average  borrowings  which was only partially
offset by a slight  decrease in average  rates.  During the three and six months
ended June 30, 1997,  borrowings  averaged  $107,934,000  and $103,551,000 at an
average  rate of 9.0% and 9.1%,  respectively,  as compared to  $70,153,000  and
$63,733,000,  both at an average  rate of 9.3% during the same  periods in 1996.
Interest expense includes the amortization of deferred debt issuance costs.

      Salaries and employee  benefits  increased 29.1% and 19.1% to $833,000 and
$1,646,000  for the three and six months  ended June 30, 1997 from  $645,000 and
$1,382,000  for the same periods in 1996 because of an increase in the number of
employees in 1997 and, to a lesser extent,  an increase in salaries.  The number
of full time equivalents increased to 66 at June 30, 1997 compared to 53 at June
30, 1996.  Personnel  costs as a percentage  of revenues  increased  slightly to
10.8% for the three  months  ended June 30, 1997  compared to 10.6% for the same
period in 1996.  Personnel costs as a percentage of revenues  decreased to 11.7%
for the six months  ended June 30,  1997 from 12.8% for the same  period in 1996
primarily as a result of subcontracting of additional servicing to a third party
in April,  1996.  As a percentage  of the Serviced  Portfolio,  personnel  costs
decreased  to 0.30% and 0.58% for the three and six months  ended June 30,  1997
from 0.32% and 0.68% for the same periods in 1996.

<PAGE>
                                                                       FORM 10-Q

      Other  operating  expenses  increased  38.0%  and  37.0% to  $853,000  and
$1,756,000  for the three and six months  ended June 30, 1997 from  $618,000 and
$1,282,000   for  the  same   periods  in  1996   primarily  as  the  result  of
subcontracting  of  servicing  to a  third  party  and  growth  in the  Serviced
Portfolio.  As a percentage  of revenues,  other  operating  expenses  increased
slightly  to 11.1% and 12.4% for the three and six months  ended  June 30,  1997
compared  to 10.1%  and  11.9%  for the  corresponding  periods  in  1996.  As a
percentage of the Serviced  Portfolio,  other  operating  expenses  decreased to
0.30% and 0.62% for the three and six months  ended June 30, 1997 from 0.31% and
0.64% for the same periods in 1996.

      During the three and six months ended June 30, 1997, the Company decreased
its  provision  for loan losses 43.3% and 23.0% to $300,000  and  $735,000  from
$529,000  and  $954,000 for the same  periods 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 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  $8,936,000 of loans at June 30, 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  $119,000 and $454,000 as compared to $359,000
and  $514,000 of such loans under the recourse  provisions  of loan sales during
the three and six months ended June 30, 1997 and 1996, respectively.  As of June
30, 1997, $20,136,000 of the Company's cash was restricted as credit enhancement
for 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.  In May 1997, a
secured  line of credit was  renewed  and  amended to include an increase in the
amount of the line from  $30,000,000  to  $50,000,000  and an  extension  of the
maturity to April  2000.  Outstanding  borrowings  under the line of credit were
$28,000,000   and   $26,200,000   at  June  30,  1997  and  December  31,  1996,
respectively.  This line of credit is secured by consumer  receivables and other
secured loans.

      In January 1997, an additional  secured line of credit was increased  from
$5,000,000 to $8,000,000 with another financial institution. This line of credit
matures in January 1998.  There were no  outstanding  borrowings on this line of
credit at June 30, 1997 and December 31, 1996. This line of credit is secured by
consumer receivables and other secured loans.

<PAGE>
                                                                       FORM 10-Q

      In January 1997, an additional  secured line of credit was increased  from
$15,000,000  to  $20,000,000.  There were no outstanding  borrowings  under this
facility at June 30, 1997. At December 31, 1996, the outstanding borrowings were
$8,300,000.  This  facility  is secured by certain  retained  interests  in loan
sales, cash collateral accounts and certain other loans and matures in September
1999.

      On March 5, 1997,  the  Company  entered  into an  additional  $25,000,000
secured  line of  credit.  The  outstanding  borrowings  at June 30,  1997  were
$6,058,000.  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").  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.  This line of credit is secured
by consumer receivables and other secured loans and matures in March 1998. There
were no outstanding borrowings at June 30, 1997.

      Interest  rates on the above lines of credit range from the  Eurodollar or
LIBOR rate plus 2% to the prime rate plus 1.25%.  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 a  multi-seller  commercial
paper issuer  ("Conduit A"). In October 1996 the Company amended the facility to
increase the facility from $75,000,000 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  facility  at  any  time  cannot   exceed
$100,000,000. The facility expires in June 1998.

      In  connection  with the  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  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
June 30, 1997, the outstanding balance of eligible loans sold under the facility
was  $83,200,000.  Outstanding  borrowings  under the line of credit at June 30,
1997 and December 31, 1996 were $229,000 and $1,799,000,  respectively. Interest
is payable on the line of credit at an interest rate based on certain commercial
paper rates.

<PAGE>
                                                                       FORM 10-Q

      On March 21, 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  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 facility at any time cannot exceed $25,000,000.

      In  connection  with the  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
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 June 30, 1997 the
outstanding balance of the eligible loans previously sold under the facility was
$13,767,000. There were no outstanding borrowings under the line of credit as of
June 30,  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 $6,396,000 and $7,428,000 at June 30, 1997
and December 31, 1996,  respectively.  As of June 30, 1997 the approximate value
of the underlying collateral was $14,231,000.

      In  April  1997,  the  Company  issued  unsecured  notes  with an  initial
principal  balance of $20,000,000.  Interest is payable at 9.3%  semiannually in
arrears.  The 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.  The
proceeds were used to repay the outstanding  balance on certain of the Company's
the lines of credit.

      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.  The  Company  has also
mitigated  its  interest  rate  exposure  due  to  basis  risk  attributable  to
differences  between the prime rate and the commercial  paper and LIBOR rates by
entering into interest rate swap agreements.

      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 .99% as of June 30, 1997 compared with 1.34% at December 31, 1996
and 1.74% at June 30, 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  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  $5,541,000 at June 30, 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 June 30, 1997  increased  slightly to 1.97% from
1.87% at December 31, 1996.

<PAGE>
                                                                       FORM 10-Q

      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
$10,626,000   and   $10,628,000   at  June  30,  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.

<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

         See Item 4 of Litchfield Financial Corporation quarterly report on Form
         10-Q for the quarter ended March 31, 1997.

Item 5.  Other Information

         See Litchfield Financial  Corporation  quarterly report on Form 10-Qfor
         the quarter ended March 31, 1997.

Item 6.  (a) Exhibits

         The following exhibits are filed herewith:

         10.154  Loan  and  security  agreement  dated  March  6,  1997  between
                 Litchfield  Financial  Corporation  and  Green  Tree  Financial
                 Servicing Corporation in the principal amount of $25,000,000.

         10.155  Second amended and restated loan and security  agreement  among
                 Litchfield Financial Corporation,  BankBoston,  N.A., and Fleet
                 Bank-NH in the principal amount of $50,000,000.

         10.156  9.3%  Note  purchase  agreement  dated  April 7,  1997  between
                 Litchfield  Financial  Corporation  and Teachers  Insurance and
                 Annuity Association of America in the principal amount of
                 $20,000,000.

         11.1    Statement re: computation of earnings per share

         27.1    Financial Data Schedule

         (b) Reports on Form 8-K

         None


<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: August 12, 1997                  /s/ Richard A. Stratton
                                       -----------------------
                                       RICHARD A. STRATTON
                                       Chief Executive Officer,
                                       President and Director





DATE: August 12, 1997                  /s/ Ronald E. Rabidou
                                       ---------------------
                                       RONALD E. RABIDOU
                                       Chief Financial Officer