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, 1999

                       Commission File Number: 0-19822


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


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


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


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


                         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  9,  1999,  there  were  6,984,166  shares  of  common  stock  of
Litchfield Financial Corporation outstanding.


                                                               FORM 10-Q
<TABLE>


                       LITCHFIELD FINANCIAL CORPORATION
                                   FORM 10-Q

                          QUARTER ENDED JUNE 30, 1999

<CAPTION>                          INDEX

<S>                                                              <C>

PART I - FINANCIAL INFORMATION                                    PAGE

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

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations........ 15

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


PART II - OTHER INFORMATION

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

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

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

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

     Item 5. Other Information.................................... 24

     Item 6. Exhibits and Reports on Form 8-K..................... 38


SIGNATURES........................................................ 40

</TABLE>

<TABLE>

                       PART I - FINANCIAL INFORMATION
                         Item 1. Financial Statements

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

  <CAPTION>                                        June 30,    December 31,
                                                      1999            1998
                                                     --------    ----------
                                                    (unaudited)
                   ASSETS
<S>                                                <C>          <C>
Cash and cash equivalents......................    $  21,983    $ 10,537
Restricted cash................................       27,598      27,898
Loans held for sale, net ......................       13,351      19,750
Other loans, net ..............................      219,944     191,292
Retained interests in loan sales, net .........       32,603      28,883
Other..........................................       25,110      15,522
                                                    --------    --------
      Total assets.............................     $340,589    $293,882
                                                    ========    ========

   LIABILITIES, COMMITMENTS AND STOCKHOLDERS' EQUITY
Liabilities:
   Lines of credit.............................    $  62,012    $ 49,021
   Accounts payable and other liabilities......        8,741       9,812
   Dealer/developer reserves...................        9,365       9,979
   Deferred income taxes.......................        9,086       8,388
   Long-term notes.............................      133,897     134,588
                                                    --------    --------
      Total liabilities........................      223,101     211,788
                                                    --------    --------

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

Stockholders' equity:
   Preferred stock, $.01 par value; authorized
     1,000,000 shares, none issued and
     outstanding...............................          ---         ---
   Common stock, $.01 par value; authorized
     12,000,000 shares, 6,983,366 shares issued
     and outstanding in 1999 and 6,886,329
     shares issued and outstanding in 1998.....           70          69
   Additional paid in capital..................       59,644      58,040
   Accumulated other comprehensive income......        3,352       1,250
   Retained earnings...........................       28,222      22,735
                                                    --------    --------
      Total stockholders' equity...............       91,288      82,094
                                                    --------    --------
      Total liabilities, commitments and
      stockholders' equity.....................     $340,589    $293,882
                                                    ========    ========


</TABLE>





    See accompanying notes to unaudited consolidated financial statements


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


 <CAPTION>                                      Three Months Ended June 30,
                                                      1999         1998
                                                   --------       ------
<S>                                                  <C>         <C>
Revenues:
   Interest and fees on loans...................     $8,477      $6,055
   Gain on sale of loans........................      4,262       3,452
   Servicing and other income...................        533         466
                                                     ------      ------
                                                     13,272       9,973
                                                     ------      ------

Expenses:
   Interest expense.............................      4,724       3,695
   Salaries and employee benefits...............      1,438       1,147
   Other operating expenses.....................      1,061         916
   Provision for loan losses....................        500         460
                                                     ------      ------
                                                      7,723       6,218
                                                     ------      ------

Income before income taxes and distributions on       5,549       3,755
preferred securities............................
Provision for income taxes......................      2,137       1,446
Distributions on preferred securities (net of tax       205        ---
benefit of $128)................................     ------      ------
Net income......................................     $3,207      $2,309
                                                     ======      ======


Earnings per common share amounts:
   Basic .......................................     $  .46      $  .40
   Diluted .....................................     $  .45      $  .38

Weighted average number of shares:
   Basic .......................................  6,908,145   5,754,018
   Diluted .....................................  7,186,471   6,117,832


</TABLE>


    See accompanying notes to unaudited consolidated financial statements.


<TABLE>

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


<CAPTION>                                       Six Months Ended June 30,
                                                      1999        1998
<S>                                                 <C>
Revenues:
   Interest and fees on loans...................    $16,364     $11,288
   Gain on sale of loans........................      6,879       5,679
   Servicing and other income...................      1,104         959
                                                    -------     -------
                                                     24,347      17,926
                                                    -------     -------

Expenses:
   Interest expense.............................      9,352       6,692
   Salaries and employee benefits...............      2,704       2,280
   Other operating expenses.....................      2,039       1,869
   Provision for loan losses....................      1,000         810
                                                    -------     -------
                                                     15,095      11,651
                                                    -------     -------

Income before income taxes and distributions on
   preferred securities.........................      9,252       6,275
Provision for income taxes......................      3,562       2,416
Distributions on preferred securities (net of
   tax benefit of $128).........................        205         ---
                                                     ------      ------
Net income......................................     $5,485      $3,859
                                                     ======      ======


Earnings per common share amounts:
   Basic .......................................     $  .80      $  .68
   Diluted .....................................     $  .76      $  .64

Weighted average number of shares:
   Basic .......................................  6,897,411   5,706,887
   Diluted .....................................  7,189,488   6,069,164

</TABLE>


    See accompanying notes to unaudited consolidated financial statements.


<TABLE>

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


<CAPTION>                                        Accumulated
                                     Additional     Other
                             Common    Paid In   Comprehensive Retained
                              Stock    Capital      Income     Earnings  Total
                              -----    -------      ------     --------  -----
<S>                            <C>     <C>          <C>        <C>      <C>
Balance, December 31,1998....  $69     $58,040      $1,250     $22,735  $82,094

  Issuance of 101,583
   shares of common stock....    1       1,681         ---         ---    1,682

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

  Other comprehensive
    income, net of tax.......   ---        ---       2,102         ---    2,102

  Tax benefit from stock
    options exercised........   ---        ---         ---           2        2

  Net income.................   ---        ---         ---       5,485    5,485
                               -----   -------      ------     -------  --------
Balance, June 30, 1999.        $70     $59,644      $3,352     $28,222  $91,288
                               =====   =======      ======     =======  ========


</TABLE>

    See accompanying notes to unaudited consolidated financial statements.


<TABLE>

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

<CAPTION>                                          Three Months Ended June 30,
                                                       1999       1998
                                                       ----       ----
<S>                                                    <C>       <C>
Net income.........................................    $3,207    $2,309
Unrealized  gain  on  retained interests in loan
  sales, net of tax expense of $299 and $128 for
  1999 and 1998, respectively......................       477       204
                                                       ------    ------
Comprehensive income...............................    $3,684    $2,513
                                                       ======    ======

</TABLE>

<TABLE>
<CAPTION>                                            Six Months Ended June 30,
                                                        1999      1998
                                                        ----      ----
<S>                                                    <C>       <C>
Net income.........................................    $5,485    $3,859
Unrealized  gain  on  retained interests in loan
  sales, net of tax expense of $1,316 and $113 for
  1999 and 1998, respectively......................     2,102       180
                                                       ------    ------
Comprehensive income...............................    $7,587    $4,039
                                                       ======    ======

</TABLE>



    See accompanying notes to unaudited consolidated financial statements.
>

<TABLE>


                        LITCHFIELD FINANCIAL CORPORATION
                     Consolidated Statements of Cash Flows
                                (In thousands)
                                   Unaudited


<CAPTION>                                           Six Months Ended June 30,
                                                       1999         1998
                                                       ----         ----
<S>                                                 <C>           <C>
Cash flows from operating activities:
    Net income...................................   $  5,485      $ 3,859
    Adjustments to reconcile net income to net
    cash provided by operating activities:
       Gain on sale of loans.....................     (6,879)      (5,679)
       Amortization and depreciation.............        677          484
       Amortization of retained interests in loan
          sales..................................      3,605        2,905
       Provision for loan losses.................      1,000          810
       Deferred income taxes.....................        698        1,327
       Net changes in operating assets and
          liabilities:
          Restricted cash........................        300       (3,976)
          Loans held for sale....................      4,757        3,879
          Retained interests in loan sales.......     (4,063)        (872)
          Dealer/developer reserves..............       (614)        (211)
          Net change in other assets and
             liabilities.........................      (1605)       1,723
                                                    --------      -------
       Net cash provided by operating activities.       3,361       4,249
                                                    --------      -------

Cash flows from investing activities:
    Net originations, purchases and principal
        payments on other loans..................    (60,524)     (73,114)
    Other loans sold.............................     31,609       25,159
    Collections on retained interests in loan
        sales....................................      4,182        1,866
    Capital expenditures and other assets........     (1,669)      (1,157)
    Investments in affiliates....................     (5,618)        (235)
                                                     -------       -------
       Net cash used in investing activities.....    (32,020)     (47,481)
                                                     -------       -------

Cash flows from financing activities:
    Net borrowings on lines of credit............     12,991       22,424
    Payments on term note........................        ---       (1,493)
    Retirement of long-term notes................       (691)        (291)
    Proceeds from issuance of preferred
       securities................................     26,200          ---
    Purchase and retirement of treasury stock....        (77)         ---
    Net proceeds from issuance of common stock...      1,682       17,865
                                                     -------      -------
       Net cash provided by financing activities.     40,105       38,505
                                                     -------      -------

Net increase (decrease) in cash and cash
        equivalents..............................     11,446       (4,727)
Cash and cash equivalents, beginning of period...     10,537       19,295
                                                     -------      -------
Cash and cash equivalents, end of period.........    $21,983      $14,568
                                                     =======      =======

Supplemental Schedule on Noncash Financing and
        Investing Activities:
     Exchange of loans for retained interests in
        loan sales...............................    $ 1,717      $   529
     Transfers from loans to real estate acquired
        through foreclosure......................    $ 2,616      $ 1,005

Supplemental Cash Flow Information:
    Interest paid................................    $ 9,061      $ 6,053
    Income taxes paid............................    $ 3,038      $   239


</TABLE>

    See accompanying notes to unaudited consolidated financial statements.


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

A. Basis of Presentation

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

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

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


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

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


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

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

     The Company  estimates  fair value using  discounted  cash flow  analysis,
since quoted market prices are not readily  available.  The Company's  analysis
incorporates  estimates  that market  participants  would be expected to use in
their  estimates of future cash flows,  including  assumptions  about  interest
rates,  defaults  and  prepayment  rates.  Estimates  made are based on,  among
other things,  the Company's  past  experience  with similar types of financial
assets.  The  interest  rates paid to  investors  range from 6.5% to 9.0%.  The
prepayment  rates  were  17.5%  for Land  Loan  sales  and  18.0%  for VOI Loan
sales.  For  the  Hypothecation  Loan  sales,  the  prepayment  rates  for  the
underlying  collateral  used  were  17.5%  for Land  Loans  and  18.0%  for VOI
Loans. The Company  estimates  default rates to be 1.9% on Land Loans,  3.0% on
VOI  Loans  and  0.5%  on   Hypothecation   Loans.   In  valuing  its  retained
interests in loan sales, the Company selects discount rates  commensurate  with
the duration and risks embedded in the  particular  assets.  Specifically,  the
Company uses discount rates ranging from the investor  pass-through  rates (for
restricted  cash) to the Baa  corporate  bond rate plus 325 basis  points  (for
interest  only strips and  retained  principal  certificates)  to estimate  the
fair value of its retained interests.

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

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

     Since its inception,  the Company has sold  $613,426,000  of loans at face
value   ($492,960,000   through   December  31,  1998).  The  principal  amount
remaining   on  the  loans  sold  was   $275,388,000   at  June  30,  1999  and
$238,132,000   at  December  31,   1998.   The  Company   guarantees,   through
replacement  or  repayment,  loans in default up to a specified  percentage  of
loans sold.  Dealer/developer  guaranteed  loans are secured by  repurchase  or
replacement  guarantees  in addition  to, in most  instances,  dealer/developer
reserves.

     The   Company's   exposure   to  loss  on  loans  sold  in  the  event  of
non-performance by the consumer,  the  dealer/developer  on its guarantee,  and
the  determination  that the collateral is of no value was  $18,553,000 at June
30, 1999  ($12,750,000  at  December  31,  1998).  Such  amounts  have not been
discounted.  The Company  repurchased  $211,000  and $26,000 of loans under the
recourse  provisions  of loan sales during the three months ended June 30, 1999
and 1998,  respectively.  Loans  repurchased  during the six months  ended June
30,  1999 and 1998 were  $403,000  and  $144,000,  respectively,  and  $491,000
during the year ended  December 31, 1998.  In addition,  when the Company sells
loans through  securitization  programs,  the Company commits either to replace
or  repurchase  any loans that do not  conform to the  requirements  thereof in
the operative  loan sale  documents.  As of June 30, 1999,  $25,547,000  of the
Company's  cash was  restricted  as  credit  enhancements  in  connection  with
certain  securitization   programs.  To  date,  the  Company  has  participated
$17,055,000 of A&D and Other Loans ($10,505,000 through December 31, 1998).


     The  Company's  Serviced  Portfolio  is  geographically  diversified  with
collateral  and  consumers  located  in 48 and  50  states,  respectively.  The
Serviced  Portfolio  consists of the principal  amount of loans  serviced by or
on behalf of the Company,  except loans  participated  without  recourse to the
Company.  At June 30,  1999,  14.5%  and  11.2% of the  Serviced  Portfolio  by
collateral location was located in Texas and Florida,  respectively,  and 16.0%
and 14.2% of the  Serviced  Portfolio  by  borrower  location  were  located in
Florida and Texas,  respectively.  At December 31, 1998,  14.7%,  10.3%,  10.2%
of the  Serviced  Portfolio  by  collateral  location  were  located  in Texas,
Florida  and  California,  respectively,  and 16.1%  and 14.4% of the  Serviced
Portfolio   by   borrower   location   were   located  in  Florida  and  Texas,
respectively.  At June 30, 1999,  no other state  accounted for more than 10.0%
of the total by either collateral or borrower location.


C. Allowance for Loan Losses and Estimated Recourse Obligations


     An  analysis  of the total  allowances  for all loan  losses and  recourse
obligations follows:

<TABLE>
<CAPTION>                                            June 30,   December 31,
                                                        1999         1998
                                                     --------    ----------
<S>                                                   <C>           <C>
    Allowance for losses on loans held for sale... $  178,000    $  549,000
    Allowance for losses on other loans...........  2,740,000     2,477,000
    Estimated recourse obligations on retained
      interests in loan sales.....................  4,627,000     3,681,000
                                                   ----------    ----------
                                                   $7,545,000    $6,707,000
                                                   ==========    ==========

</TABLE>

D.  Debt

     The Company  finances a portion of its liquidity  needs with secured lines
of  credit  with  eight  participating  institutions.  Interest  rates  on  the
lines of credit  range  from the  Eurodollar  or LIBOR  rates plus 2.00% to the
prime rate plus  1.00%.  The Company is not  required to maintain  compensating
balances  or  forward  sales  commitments  under  the  terms of these  lines of
credit.


     The lines of credit mature as follows:

<TABLE>
<CAPTION>                  Date             Amount
                         ----------      -----------
<S>                     <C>             <C>
                        October 1999    $ 40,000,000
                        March 2000        25,000,000
                        April 2000        65,000,000
                        May 2001           5,000,000
                                        ------------
                                        $135,000,000
                                        ============
</TABLE>



Financial  data  relating to the Company's secured  lines of credit is as
follows:

<TABLE>

<CAPTION>                                June 30,      December 31,
(Dollars in thousands)                     1999           1998
                                         --------       ----------
 <S>                                       <C>            <C>
   Lines of credit available ..........    $135,000       $116,000
  Borrowings outstanding at end
    of period .........................    $ 62,012       $ 49,021
  Weighted average interest rate
    at end of period...................       7.2%           7.6%
  Maximum borrowings outstanding
    at any month end...................    $ 83,500       $ 73,666
  Average amount outstanding
    during the period..................     $36,344       $ 37,485
  Weighted average interest rate
    during the period (determined by
    dividing interest expense by
    average borrowings)................       7.2            7.9%

</TABLE>

     In July  1999,  the  Company  renewed  and  amended  a line of  credit  to
increase the line from  $60,000,000  to  $70,000,000  and extended the maturity
to April 2002.

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

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

     In  connection  with the  facility,  the  Company  formed  a  wholly-owned
subsidiary,  Litchfield  Mortgage  Securities  Corporation  1994,  to  purchase
loans  from the  Company.  In  October  1998,  Litchfield  Mortgage  Securities
Corporation  1994  was  merged  with and into  Litchfield  Mortgage  Securities
Company  1994,  LLC  ("LMSC").  LMSC  either  pledges  the loans on a revolving
line of  credit  with  Conduit A or sells the  loans to  Conduit  A.  Conduit A
issues  commercial  paper or other  indebtedness to fund the purchase or pledge
of loans  from  LMSC.  Conduit  A is not  affiliated  with the  Company  or its
affiliates.  As of June  30,  1999  and  December  31,  1998,  the  outstanding
balance of the sold or pledged loans  securing  this facility was  $138,040,000
and $137,532,000,  respectively.  Outstanding  borrowings at June 30, 1999 were
$66,000.  There  were no  outstanding  borrowings  under  the line of credit at
December  31,  1998.  Interest  is payable on the line of credit at an interest
rate based on certain commercial paper rates.

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



     In  connection  with the  facility,  the  Company  formed  a  wholly-owned
subsidiary,  Litchfield  Capital  Corporation  1996, to purchase loans from the
Company.  In October 1998,  Litchfield  Capital  Corporation  1996,  was merged
with  and into  Litchfield  Capital  Company  1996,  LLC  ("LCC").  LCC  either
pledges  the loans on a revolving  line of credit  with  Conduit B or sells the
loans to Conduit B.  Conduit B issues  commercial  paper or other  indebtedness
to  fund  the  purchase  or  pledge  of  loans  from  LCC.  Conduit  B  is  not
affiliated  with  the  Company  or its  affiliates.  As of June  30,  1999  and
December  31,  1998,  the  outstanding  aggregate  balance of the loans sold or
pledged  under the  facility was  $14,603,000  and  $10,632,000,  respectively.
There were no  outstanding  borrowings  under the line of credit as of June 30,
1999 or  December  31,  1998.  Interest  is payable on the line of credit at an
interest rate based on certain commercial paper rates.

     The  Company  also  finances  a portion  of its  liquidity  with  long-term
debt. The following  table shows the total  long-term  debt  outstanding at June
30, 1999 and December 31, 1998:


<TABLE>
<CAPTION>                          June 30,   December 31,
                                      1999         1998
        <S>                        <C>         <C>
        (Dollars in thousands)
        9.3% Notes...............  $ 20,000    $ 20,000
        8.45% Notes due 2002.....    51,247      51,282
        8.875% Notes due 2003....    14,460      15,066
        8.25% Notes due 2003.....    10,000      10,000
        9.25% Notes due 2003.....    20,000      20,000
        10% Notes due 2004.......    18,190      18,240
                                   --------    --------
                                   $133,897    $134,588
                                   ========    ========
</TABLE>

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

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

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


E.    Commitments

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


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

F.  Derivative Financial Instruments Held for Purposes Other than Trading

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

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

     The Company  entered  into an interest  rate cap  agreement  with a bank in
order to manage its  exposure  to  certain  increases  in  interest  rates.  The
interest  rate  cap  entitles  the  Company  to  receive  payments,  based on an
amortizing  notional  amount,  when  commercial  paper  rates  exceed  8.0%.  If
payments  were to be  received as a result of the cap  agreement,  they would be
accrued as a reduction  of interest  expense.  The notional  amount  outstanding
at June 30, 1999 was $3,371,000. This agreement expires in July 2005.

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


                                                                    FORM 10-Q
Item 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS

Forward-looking Statements

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


Overview

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

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

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

     The  Company  also  purchases  Land  Loans and VOI  Loans.  Land Loans are
typically  secured  by one  to  twenty  acre  rural  parcels.  Land  Loans  are
secured  by  property  located  in 40  states,  predominantly  in the  southern
United States.  VOI Loans  typically  finance  consumer  purchases of ownership
interests  in fully  furnished  vacation  properties.  VOI Loans are secured by
property  located in 18 states,  predominantly  in California and Florida.  The
Company  requires  most  dealers  or  developers  from  whom it buys  loans  to
guarantee  repayment or  replacement  of any loan in default.  Ordinarily,  the
Company  retains a  percentage  of the  purchase  price as a reserve  until the
loan is repaid.
    The Company  also makes A&D Loans to land  dealers  and resort  developers
for the  acquisition  and  development  of rural land and timeshare  resorts in
order to finance  additional  receivables  generated  by the A&D Loans.  At the
time the Company makes A&D Loans,  it typically  receives an exclusive right to
purchase or finance the related consumer  receivables  generated by the sale of
the subdivided  land or timeshare  interests.  A&D Loans typically have loan to
value  ratios  of 60% to 80% and  variable  interest  rates  based on the prime
rate plus 2% to 4%.

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


Results of Operations

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

<TABLE>
<CAPTION>                            Three Months Ended     Six Months Ended
                                          June 30,             June 30,
                                        1999      1998      1999      1998
                                        ----      ----      ----      ----
   <S>                                  <C>       <C>       <C>       <C>
   Revenues
       Interest and fees on loans.....  63.9%     60.7%     67.2%     63.0%
       Gain on sale of loans..........  32.1      34.6      28.3      31.7
       Servicing and other income.....   4.0       4.7       4.5       5.3
                                       -----     -----     -----     -----
                                       100.0     100.0     100.0     100.0
   Expenses
       Interest expense...............  35.6      37.0      38.4      37.4
       Salaries and employee benefits.  10.8      11.5      11.1      12.7
       Other operating expenses.......   8.0       9.2       8.4      10.4
       Provision for loan losses......   3.8       4.6       4.1       4.5
                                       -----     -----      -----    -----
                                        58.2      62.3      62.0      65.0

   Income before income taxes.........  41.8      37.7      38.0      35.0
   Provision for income taxes.........  16.1      14.5      14.6      13.5
   Distributions on preferred
    securities, net...................   1.5       ---       0.9       ---
                                       -----     -----     -----     -----

   Net income.........................  24.2%     23.2%     22.5%     21.5%
                                       =====     =====     =====     =====
</TABLE>


     Revenues  increased 33.1% and 35.8% to $13,272,000 and $24,347,000 for the
three and six months ended June 30, 1999,  from  $9,973,000 and $17,926,000 for
the same  periods in 1998.  Net income for the three and six months  ended June
30, 1999 increased  38.9% and 42.1% to $3,207,000  and  $5,485,000  compared to
$2,309,000  and  $3,859,000  for the same  periods  in 1998.  Net  income  as a
percentage  of revenues  was 24.2% and 22.5% for the three and six months ended
June 30, 1999  compared  to 23.2% and 21.5% for the three and six months  ended
June 30,  1998.  Loan  purchases  and  originations  grew  24.5%  and  33.0% to
$118,973,000  and  $216,964,000  for the three and six  months  ended  June 30,
1999 from  $95,585,000  and  $163,078,000  for the same  periods  in 1998.  The
average  Serviced  Portfolio  increased  45.7% to $498,853,000 at June 30, 1999
from $342,422,000 at June 30, 1998.


     Interest  and fees on loans  increased  40.0% and 45.0% to  $8,477,000  and
$16,364,000 for the three and six months ended June 30, 1999 from $6,055,000 and
$11,288,000 for the same periods in 1998,  primarily as the result of the higher
average balance of other loans during the 1999 period,  which was only partially
offset by a  decrease  in the  average  rate.  The  average  rate  earned on the
Serviced  Portfolio  decreased  to 11.3% at June 30, 1999 from 12.2% at June 30,
1998,  primarily  due to the  reduction  in the prime rate and the effect of the
growth in  Hypothecation  Loans as a percentage of the portfolio.  Hypothecation
Loan yields are usually  less than Land Loan or VOI Loan yields,  but  servicing
costs and loan losses are generally less as well.

     Gain on the sale of loans  increased  23.5% and 21.1% to $4,262,000 and
$6,879,000  for the three and six months  ended June 30,  1999 from  $3,452,000
and  $5,679,000  in the  same  periods  in  1998.  The  volume  of  loans  sold
increased  34.2% and 74.9% to $67,595,000  and  $120,466,000  for the three and
six months  ended June 30, 1999 from  $50,380,000  and  $68,882,000  during the
three and six months  ended June 30,  1998.  The  increase  in the gain on sale
of loans was not  proportionate  to the  increase  in the  volume of loans sold
primarily  due  to  variations  in  the  mix  of  loans  sold.   The  yield  on
Hypothecation  and Other loan sales is  generally  lower than the yield on Land
and VOI loan sales.  Land and VOI loan sales were  $34,494,000  and $50,682,000
for the three and six months ended June 30, 1998  compared to  $14,665,000  and
$33,167,000  for the same periods in 1998.  Hypothecation  and Other loans sold
were  $33,101,000  and  $69,784,000 for the three and six months ended June 30,
1999  compared  to  $35,715,000  for the three and six  months  ended  June 30,
1998.  Approximately  $17,508,000  of loan sales in the three months ended June
30, 1999  consisted of loans that were  repurchased  from other  facilities due
to  clean  up  calls  and  other  factors  which  made  it more  economical  to
repurchase  and  resell  loans.  As a  result  of  the  repurchase,  there  was
recapture of  unamortized  gain,  which reduced the overall yield on these loan
sales.

     Servicing  and other  income  increased  14.4% and 15.1% to  $533,000  and
$1,104,000  for the three and six months  ended June 30,  1999,  from  $466,000
and  $959,000  for the same  periods in 1998 largely due to the increase in the
other fee income and prepayment  penalties from Hypothecation  Loans.  Although
loans serviced for others  increased  25.3% to $275,388,000 as of June 30, 1999
from  $219,809,000  at June 30,  1998,  servicing  income  remained  relatively
constant due to an increase in  Hypothecation  Loans  serviced for others and a
decrease in the average servicing fee per loan.

     Interest  expense  increased  27.8% and 39.7% to $4,724,000 and $9,352,000
during  the three and six  months  ended  June 30,  1999  from  $3,695,000  and
$6,692,000  for the same  periods in 1998.  The  increase in  interest  expense
primarily  reflects an increase in average  borrowings which was only partially
offset by lower  rates.  During the three and six months  ended June 30,  1999,
borrowings  averaged  $212,032,000  and $210,169,000 at an average rate of 8.3%
and 8.3%  respectively,  as compared to  $158,531,000  and  $139,503,000  at an
average  rate of 8.7%  and  8.8%  during  the same  periods  in 1998.  Interest
expense includes the amortization of deferred debt issuance costs.

     Salaries and employee benefits  increased 25.4% and 18.6% to $1,438,000
and  $2,704,000  for  the  three  and six  months  ended  June  30,  1999  from
$1,147,000  and  $2,280,000 for the same periods in 1998 because of an increase
in the number of  employees  in 1999,  primarily  related to bringing  customer
service  and  collections  in house,  and to a lesser  extent,  an  increase in
salaries.  Personnel  costs as a percentage of revenues  decreased to 10.8% and
11.1% for the three and six months  ended June 30,  1999  compared to 11.5% and
12.7% for the same  periods in 1998.  Also,  as a  percentage  of the  Serviced
Portfolio,  personnel costs remained  relatively  constant at 1.2% and 1.1% for
the three and six months  ended  June 30,  1999  compared  to 1.2% for the same
periods in 1998.  Total  salaries and employee  benefits  plus other  operating
expenses  as a  percentage  of  revenues  decreased  to 18.8% and 19.5% for the
three and six  months  ended  June 30,  1999 from  20.7% and 23.1% for the same
periods in 1998.


     Other  operating  expenses  increased  15.8%  and 9.1% to  $1,061,000  and
$2,039,000  for the three and six months ended June 30, 1999 from  $916,000 and
$1,869,000 for the same periods in 1998.  Other  operating  expenses  increased
due to the growth in the Serviced  Portfolio that was only partially  offset by
the decrease in third party  servicing  expenses  related to bringing  customer
service  and  collections  in-house.   As  a  percentage  of  revenues,   other
operating  expenses  decreased  to 8.0% and 8.4% for the three  and six  months
ended June 30, 1999  compared to 9.2% and 10.4% for the  corresponding  periods
in 1998. As a percentage of the Serviced  Portfolio,  other operating  expenses
decreased  to 0.9% and 0.8% for the three and six months  ended  June 30,  1999
from 1.0% and 1.1% for the same periods in 1998.

     During the three and six months ended June 30,  1999,  the  provision  for
loan losses  increased 8.7% and 23.5% to $500,000 and $1,000,000  from $460,000
and $810,000 for the same  periods in 1998  primarily  due to the growth of the
Serviced Portfolio.

 Liquidity and Capital Resources

     The Company's  business  requires  continued access to short and long-term
sources of debt  financing and equity  capital.  The Company's  principal  cash
requirements  arise from loan  originations,  repayment of debt on maturity and
payments of operating  and interest  expenses.  The Company's  primary  sources
of liquidity  are loan sales,  short-term  borrowings  under  secured  lines of
credit and long-term debt and equity offerings.

     Since its inception,  the Company has sold  $613,426,000  of loans at face
value   ($492,960,000   through   December  31,  1998).  The  principal  amount
remaining   on  the  loans  sold  was   $275,388,000   at  June  30,  1999  and
$238,132,000  at December  31,  1998.  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  $18,553,000
of loans at June 30,  1999 which the Company  could be  required to  repurchase
in the future  should such loans  become 90 days or more past due.  The Company
repurchased  $211,000  and $403,000 as compared to $26,000 and $144,000 of such
loans  under the  recourse  provisions  of loan sales  during the three and six
months  ended  June  30,  1999 and  1998,  respectively.  As of June 30,  1999,
$25,547,000  of the Company's  cash was  restricted as credit  enhancement  for
certain  securitization   programs.  To  date,  the  Company  has  participated
$17,055,000 of A&D and Other Loans ($10,505,000 through December 31, 1998).

     The  Company  funds  its loan  purchases  in part  with  borrowings  under
various  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.
These lines of credit totaled  $135,000,000  and  $116,000,000 at June 30, 1999
and December  31, 1998,  respectively.  Outstanding  borrowings  on these lines
of credit were  $62,012,000  at June 30,  1999.  Interest  rates on these lines
of credit  range  from the  Eurodollar  or LIBOR  rate plus  2.00% to the prime
rate  plus  1.00%.  The  Company  is  not  required  to  maintain  compensating
balances  or  forward  sales  commitments  under  the  terms of these  lines of
credit.  In July 1999,  the  Company  renewed  and  amended a line of credit to
increase the line from  $60,000,000 to  $70,000,000  and extend the maturity to
April 2002.

     The Company also finances its loan  purchases  with two revolving  line of
credit  and  sale  facilities  as  part  of  asset  backed   commercial   paper
facilities  with  multi-seller   commercial  paper  issuers.   Such  facilities
totaled  $175,000,000  at June 30, 1999 and December  31,  1998,  respectively.
As of June 30, 1999 and December 31, 1998,  the  outstanding  balances of loans
sold or pledged under these  facilities  were  $152,643,000  and  $148,164,000,
respectively.  Outstanding  borrowings  under  these  lines of  credit  at June
30, 1999 were $66,000.  There were no outstanding  borrowings  under these line
of  credit  at  December  31,  1998.  Interest  is  payable  on these  lines of
credit based on certain commercial paper rates.


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

     In June 1998, the Company issued  1,000,000  shares of common stock at $19
per share.  The net proceeds of the  offering  were  $17,717,000  and were used
to pay down  certain  lines of credit.  In  connection  with the  underwriters'
option to  purchase  additional  shares to cover  over-allotments,  the Company
issued  an  additional  166,500  shares in July  1998.  Net  proceeds  of these
shares  totaled  $2,990,000  and were  also used to pay down  certain  lines of
credit.

     The  Company  also  finances  its  liquidity  needs with  long-term  debt.
Long-term  debt  totaled  $133,897,000  at June 30,  1999 and  $134,588,000  at
December 31, 1998.

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

     The Company  entered into an interest  rate cap  agreement  with a bank in
order to manage its  exposure  to certain  increases  in  interest  rates.  The
interest  rate cap  entitles  the  Company to  receive  an amount,  based on an
amortizing  notional  amount,  which at June  30,  1999  was  $3,371,000,  when
commercial paper rates exceed 8%.  This agreement expires in July 2005.

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

Acquisitions

     In the third  quarter of 1998,  the Company  acquired  25% of Land  Finance
Company ("Land Finance"), a broker specializing in the land business, located in
Atlanta,  Georgia.  At the time of the  transaction,  the Company  received the
right to acquire  additional shares of Land Finance at future dates. On April 1,
1999,  the Company  acquired  the  remaining  75% of Land  Finance.  All of Land
Finance's employees became employees of the Company as of that date. The Company
has accounted for this  acquisition by the purchase  method.  The total purchase
price was  $275,000,  consisting of the issuance of 9,092 shares of common stock
with a fair value of $155,000 and $120,000 of expenses and assumed  liabilities.
The goodwill of $225,000,  resulting from the purchase,  is being amortized on a
straight line basis over a period of 10 years.  The results of operation of Land
Finance have been included in the Company's income statement  beginning April 1,
1999.



     On June 17, 1999, the Company acquired 100% of Ironwood Acceptance Company,
L.L.C.,   ("Ironwood  LLC"),  located  in  Scottsdale,   Arizona.  Ironwood  LLC
purchases,  services and  liquidates  tax lien  certificates.  During the fiscal
years 1997 and 1998, the Company provided Ironwood LLC with a Hypothecation Loan
for the  purchase  of tax lien  certificates.  All of Ironwood  LLC's  employees
became  employees  of the Company  following  the  acquisition.  The Company has
accounted for this acquisition by the purchase method.  The total purchase price
was  $15,833,000,  consisting  of the issuance of 91,665  shares of common stock
with a fair  value  of  $1,519,000  and  $13,523,000  of  expenses  and  assumed
liabilities.  The goodwill of $2,938,000,  resulting from the purchase, is being
amortized  on a straight  line basis over a period of 20 years.  The  results of
operations of Ironwood have been included in the Company's income statement from
June 17, 1999.

Credit Quality and Allowances for Loan Losses

     The Company maintains  allowances for loan losses and recourse obligations
on  retained  interests  in loan  sales at  levels  which,  in the  opinion  of
management,  provide  adequately  for current and  estimated  future  losses on
such  assets.  Past-due  loans  (loans  31 days or more  past due which are not
covered by  dealer/developer  reserves or  guarantees)  as a percentage  of the
Serviced  Portfolio  as of June  30,  1999,  increased  to 1.04%  from  .95% at
December 31, 1998.  Management  evaluates  the adequacy of the  allowances on a
quarterly basis by examining  current  delinquencies,  the  characteristics  of
the accounts,  the value of the  underlying  collateral,  and general  economic
conditions  and  trends.   Management   also  evaluates  the  extent  to  which
dealer/developer  reserves  and  guarantees  can be  expected  to  absorb  loan
losses.  When  the  Company  does not  receive  guarantees  on loan  portfolios
purchased,  it adjusts its  purchase  price to reflect  anticipated  losses and
its required  yield.  This  purchase  adjustment  is recorded as an increase in
the  allowance for loan losses and is used only for the  respective  portfolio.
A  provision  for loan losses is recorded  in an amount  deemed  sufficient  by
management to maintain the  allowances  at adequate  levels.  Total  allowances
for loan losses and recourse  obligations  on retained  interests in loan sales
increased to  $7,545,000  at June 30, 1999  compared to  $6,707,000 at December
31, 1998.  The allowance  ratio (the  allowances for loan losses divided by the
amount  of the  Serviced  Portfolio)  at  June  30,  1999  remained  relatively
constant at 1.43% as compared to 1.44% at December 31, 1998.

     As part of the Company's  financing of Purchased  Loans,  arrangements are
entered  into  with  dealers  and  resort  developers,   whereby  reserves  are
established to protect the Company from potential  losses  associated with such
loans.  As  part  of the  Company's  agreement  with  the  dealers  and  resort
developers,  a  portion  of the  amount  payable  to  each  dealer  and  resort
developer  for a Purchased  Loan is retained by the Company and is available to
the  Company to absorb  loan losses for those  loans.  The  Company  negotiates
the amount of the reserves with the dealers and  developers  based upon various
criteria,  two of which are the  financial  strength of the dealer or developer
and credit risk  associated  with the loans being  purchased.  Dealer/developer
reserves  amounted to $9,365,000  and  $9,979,000 at June 30, 1999 and December
31, 1998,  respectively.  The Company  generally returns any excess reserves to
the  dealer/developer  on a quarterly  basis as the related loans are repaid by
borrowers.


Year 2000 Compliance

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

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

      The Company has tested all  computing  equipment and deemed it to be Year
2000 ready.  All  non-computing  equipment and computer systems are deemed Year
2000 ready based on  manufacturer's  warranty.  The Company  uses a third party
servicer  to  perform  some  functions,  such as  receipt  and  posting of loan
payments  and other  loan  related  activity.  The  third  party  servicer  has
represented to the Company that its systems are year 2000 compliant.

      In  addition,  the Company  relies  upon  various  vendors,  governmental
agencies,  utility companies,  telecommunication  service  companies,  delivery
service   companies  and  other  service  providers  who  are  outside  of  its
control.  There is no  assurance  that such parties will not suffer a year 2000
business  disruption,  which  could  have  a  material  adverse  effect  on the
Company's  financial  condition  and  results of  operations.  The  Company has
inquired as to the Year 2000  readiness of vendors and customers  with whom the
company  has  material  relationships.  We have  requested  that  our  business
partners  address  significant  risks by July 1, 1999,  and plan to replace any
material non-compliant business partners by October 1, 1999.

     Costs.  To date,  the Company has not incurred  any material  expenditures
in connection  with  identifying  or evaluating  year 2000  compliance  issues.
Most of its  expenses  have  related to the  opportunity  cost of time spent by
employees of the Company  evaluating  year 2000 compliance  matters  generally.
The Company  believes that internally  generated funds or available cash should
be sufficient to cover the projected costs  associated  with any  modifications
to existing  software to make it year 2000  compliant.  However,  no assurances
can be  given  that  such  modifications  can be  made  in a  timely  and  cost
effective  manner.  Failure  to make  timely  modifications  could,  in a worse
case  scenario,  result in the inability to process loans and loan related data
and could have a material  adverse  effect on the  Company.  At this time,  the
Company  does  not  possess  all the  information  necessary  to  estimate  the
potential  impact  of  year  2000  compliance  issues  relating  to  its  other
IT-Systems,  non-IT  Systems,  its vendors,  its customers  and other  parties.
Such impact,  including  the effect of a year 2000 business  disruption,  could
have a  material  adverse  effect  on the  Company's  financial  condition  and
results of operations.

     Contingency   Plan.  The  Company  is  in  the  process  of  developing  a
comprehensive  disaster  recovery plan,  which will be activated  should a Year
2000 issue arise.


Inflation

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




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Exposure to Market Risk

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

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

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

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

        Interest rate changes (in basis points)              100         (100)
        Impact on earnings per share                      ($0.01)       $0.05
        Impact on interest income and pre-tax earnings ($111,000)    $635,000




PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

        None


Item 2.  Changes in Securities and Use of Proceeds

        None


Item 3.  Defaults Upon Senior Securities

        None


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

        None




Item 5.  Other Information


                        SUMMARY CONSOLIDATED FINANCIAL INFORMATION
                             (Dollars in thousands, except per share data)
<TABLE>

                                                                                                      Six Months Ended
                                                              Year Ended December 31,                      June 30,
Statement of Income Data (1):                 1998      1997       1996         1995        1994      1999        1998
                                              ------     ------     ------       ------      ------    ------      ------
<S>                                        <C>        <C>         <C>        <C>         <C>         <C>          <C>

Revenues:
  Interest and fees on loans.............  $   25,736  $ 19,374    $14,789    $  11,392   $  5,669    $16,364     $11,288
  Gain on sale of loans..................      10,691     8,564      7,331        5,161      4,847      6,879       5,679
  Servicing and other income.............       2,379     1,753      1,576          908        459      1,104         959
                                               ------    ------     ------        ------     -----     ------       -----
    Total revenues.......................      38,806    29,691     23,696        17,461    10,975     24,347      17,926
                                               ------    ------     ------        ------     -----     ------      ------
Expenses:
  Interest expense.......................      14,265    10,675      7,197         6,138     3,158      9,352       6,692
  Salaries and employee benefits.........       4,806     3,399      2,824         2,798     1,776      2,704       2,280
  Other operating expenses...............       3,834     3,480      3,147         2,120     1,164      2,039       1,869
  Provision for loan losses..............       1,532     1,400      1,954           890       559      1,000         810
                                               ------    ------     ------        ------    ------     ------      ------
    Total expenses.......................      24,437    18,954     15,122        11,946     6,657     15,095      11,651
                                               ------    ------     ------        ------    ------     ------      ------
Income before income taxes and
  distributions on preferred securities....    14,369    10,737      8,574         5,515     4,318      9,252       6,275
Provision for income taxes................      5,537     4,134      3,301         2,066     1,619      3,562       2,416
Distributions on preferred securities,net.        ---       ---        ---           ---       ---        205         ---
                                               ------    ------      -----        ------    ------     ------      ------
Income before extraordinary item..........      8,832     6,603      5,273         3,449     2,699      5,485       3,859
Extraordinary item (2)....................        (77)     (220)       ---           ---      (126)       ---         ---
                                               ------    ------     ------        ------    ------     ------      ------
    Net income............................ $    8,755    $6,383     $5,273        $3,449    $2,573     $5,485      $3,859
                                               ======    ======     ======        ======    ======     ======      ======
Basic per common share amounts:
  Income before extraordinary item........ $     1.41    $ 1.19      $  .97       $  .80    $  .66     $  .80      $  .68
  Extraordinary item......................       (.01)    (.04)         ---          ---      (.03)       ---         ---
                                                ------   ------       ------       ------    ------     ------      ------
 Net income per share..................... $     1.40    $ 1.15      $  .97       $  .80    $  .63     $  .80      $  .68
                                                ======   ======       ======       ======    ======     ======      ======
Basic weighted average number of shares
  outstanding.............................  6,273,638  5,572,465   5,441,636    4,315,469 4,116,684  6,897,411  5,706,887
Diluted per common share amounts:
  Income before extraordinary item........ $     1.34    $ 1.12      $  .93       $  .76    $   .63     $ .76      $  .64
  Extraordinary item......................       (.01)     (.04)        ---          ---       (.03)      ---         ---
                                                ------    ------      ------       ------     ------    ------      ------
  Net income per share.................... $     1.33    $ 1.08      $  .93       $  .76    $   .60     $ .76      $  .64
                                                ======    ======      ======       ======     ======    ======      ======
Diluted weighted average number of shares
  outstanding.............................  6,604,367  5,909,432   5,682,152    4,524,607  4,282,884 7,189,488  6,069,164
Cash dividends declared per
  Common share............................ $      .07     $  .06      $  .05        $  .04    $  .03      $ ---      $ ---

Other Statement of Income Data:
Income before extraordinary item as
 a percentage of revenues.................      22.8%      22.2%      22.3%        19.8%      24.6%     22.5%      21.5%
Ratio of EBITDA to interest expense (3)...       2.13       2.17       2.38         2.05       2.64      2.10       2.13
Ratio of earnings to fixed charges (4)....       2.01       2.01       2.19         1.90       2.37      2.02       1.94
Return on average assets (5)..............       3.7%       3.8%       4.0%         3.7%       4.6%      3.4%       3.6%
Return on average equity (5)..............      13.2%      14.1%      13.3%        16.6%      17.2%     12.9%      13.8%
__________
</TABLE>

(1)  Certain amounts in the 1994  through  1996 financial information  have been
restated to conform to the 1997 through 1999 presentation.
(2)  Reflects  loss on early extinguishment of a portion  of the 1992  Notes (as
defined  herein), net of applicable tax benefit of $76,000,  for 1994,  of the
remainder  of the 1992  Notes, net of applicable  tax benefit of  $138,000,  for
1997, and of the term note payable, net applicable  tax benefit of $48,000,  for
1998.
(3)  The ratio of EBITDA to interest expense is required to be  calculated  for
the twelve month period immediately preceding each calculation date, pursuant to
the terms of the  indentures  to which the Company is subject. EBITDA is defined
as earnings before deduction of taxes, depreciation, amortization of debt costs,
and interest expense (but after deduction for any extraordinary item).
(4)  For purposes  of  calculating  the  ratio of  earnings  to  fixed  charges,
earnings consist of income before income taxes and extraordinary items and fixed
charges.  Fixed charges consist of interest charges and the amortization of debt
expense.
(5)   Calculations are based on income before extraordinary item.



<TABLE>

           SUMMARY CONSOLIDATED FINANCIAL INFORMATION - (Continued)
                 (Dollars in thousands, except per share data)

<CAPTION>                               December 31,                   June. 30,
Balance Sheet Data (6):  1998      1997      1996      1995      1994     1999
                         ----      ----      ----      ----      ----     ----
<S>                    <C>        <C>       <C>       <C>       <C>      <C>
Total assets..........$293,882   186,790   152,689   112,459    63,487  $340,589
Loans held for sale(7)  19,750    16,366    12,260    14,380    11,094    13,351
Other loans (7)....... 191,292    86,307    79,996    33,613    15,790   219,944
Retained interests in
loan sales (7)........  28,883    30,299    28,912    22,594    11,996    32,603
Secured debt..........  49,021     5,387    43,727     9,836     5,823    62,012
Unsecured debt........ 134,588  105,347     46,995    47,401    29,896   133,897
Stockholders' equity..  82,094   52,071     42,448    37,396    16,610    91,288
</TABLE>

<TABLE>
                                                                      Six Months
                                                                        Ended
<CAPTION>                        Year Ended December 31,               June 30,
Other Financial Data:    1998      1997      1996      1995      1994     1999
                         ----      ----      ----      ----      ----     ----
<S>                   <C>       <C>       <C>       <C>       <C>      <C>
Loans purchased and
 originated (8).......$375,292  $184,660  $133,750  $121,046  $ 59,798 $216,964
Loans sold (8)........ 144,762    98,747    54,936    65,115    40,116  120,466
Loans participated (8)   3,569     6,936       ---       ---       ---    6,550
Serviced Portfolio (9) 466,912   304,102   242,445   176,650   105,013  529,198
Loans serviced for
 others............... 238,132   179,790   129,619   111,117    72,731  275,388
Dealer/developer
 reserves.............   9,979    10,655    10,628     9,644     6,575    9,365
Allowance for loan
 losses (10)..........   6,707     5,877     4,528     3,715     1,264    7,545
Allowance ratio (11)..    1.44%     1.93%     1.87%     2.10%     1.20%    1.43%
Delinquency ratio(12).    0.95%     1.20%     1.34%     1.73%      .93%    1.04%
Net charge-off ratio
 (8)(13)..............     .58%      .74%      .94%      .67%      .38%     .46%
Non-performing asset
ratio (14)............     .84%     1.03%     1.57%     1.35%     1.02%    1.07%
</TABLE>
--------------------------------------------------------------------------





(6) In 1997 the Company  adopted  Statement of Financial  Accounting  Standards
    No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets and
    Extinguishments of Liabilities." Consequently,  certain amounts included in
    the 1994  through  1996  financial  statements  have been  reclassified  to
    conform  with the  1997  through  1999  presentations:  "Subordinated  pass
    through  certificates  held to  maturity,"  "Excess  servicing  asset"  and
    "Allowance for loans sold" have been  reclassified  as "Retained  interests
    in loan  sales."  In  addition,  "Loans  held  for  investment"  have  been
    reclassified as "Other loans."
(7) Amount indicated is net of allowance for losses and recourse  obligation on
    retained interests in loan sales.
(8) During the relevant period.
(9) The Serviced  Portfolio  consists of the principal amount of loans serviced
    by or on behalf of the Company,  except loans participated without recourse
    to the Company.
(10)  The allowance for loan losses  includes  estimated  recourse  obligations
    for loans sold.   See Note C to financial statements.
(11)  The  allowance  ratio is the  allowances  for loan losses  divided by the
    amount of the Serviced Portfolio.
(12)  The  delinquency  ratio is the amount of delinquent  loans divided by the
    amount of the Serviced  Portfolio.  Delinquent loans are those which are 31
    days or more past due which are not  covered by  dealer/developer  reserves
    or guarantees and not included in other real estate owned.
(13)  The net  charge-off  ratio is  determined  by dividing  the amount of net
    charge-offs  for the  period  by the  average  Serviced  Portfolio  for the
    period. The June 30, 1999 amount is calculated on an annualized basis.
(14)  The  non-performing  asset ratio is determined by dividing the sum of the
    amount of those  loans  which  are 91 days or more past due and other  real
    estate owned by the amount of the Serviced Portfolio.
<PAGE>

                              BUSINESS


Overview


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

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

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



Characteristics of the Serviced Portfolio, Loan Purchases and Originations


    The  following  table  shows the growth in the  diversity  of the  Serviced
Portfolio  from  primarily  Purchased  Loans  to  a  mix  of  Purchased  Loans,
Hypothecation Loans, A&D Loans and Other Loans:

<TABLE>

<CAPTION>                              December 31,                June 30,
                            1998    1997    1996    1995   1994     1999
                            ----    ----    ----    ----   ----     ----
<S>                         <C>     <C>     <C>     <C>    <C>      <C>
Purchased Loans............  38.4%   56.6%   67.1%   81.6%  85.3%    35.8%
Hypothecation Loans........  35.2    26.9    20.7    12.5    9.0     36.4
A&D Loans..................  11.2    13.7     8.7     3.1    3.3     12.2
Other Loans................  15.2     2.8     3.5     2.8    2.4     15.6
                            -----   -----   -----   -----  -----    -----
          Total............ 100.0%  100.0%  100.0%  100.0% 100.0%   100.0%
                            =====   =====   =====   =====  =====    =====
</TABLE>




     The  following  table shows the growth in the  diversity of the  Company's
originations  from  primarily  Purchased  Loans  to a mix of  Purchased  Loans,
Hypothecation Loans, A&D Loans and Other Loans:

<TABLE>

<CAPTION>                  Year Ended December 31,     Six Months Ended
                                                            June 30,
                      1998   1997   1996   1995   1994    1999    1998
                      ----   ----   ----   ----   ----    ----    ----
<S>                   <C>    <C>    <C>    <C>    <C>     <C>    <C>

Purchased Loans.....  14.9%  30.3%  49.9%  71.4%  67.6%   13.6%   19.8%
Hypothecation Loans.  48.6   37.1   29.6   20.9   22.2    54.1    40.7
A&D Loans...........  10.2   24.0   14.4    3.1    6.0    13.4    13.2
Other Loans.........  26.3    8.6    6.1    4.6    4.2    18.9    26.3
                     -----  -----  -----  -----  -----   -----   -----
     Total.......... 100.0% 100.0% 100.0% 100.0% 100.0%  100.0%  100.0%
                     =====  =====  =====  =====  =====   =====   =====
</TABLE>


   (1) Purchased Loans

    The  Company  provides  indirect  financing  to  consumers  through a large
number  of  experienced  land  dealers  and  resort  developers  from  which it
regularly   purchases  Land  and  VOI  Loans.   The  land  dealers  and  resort
developers  make loans to  consumers.  The Company  then  purchases  such loans
from the land dealers and resort  developers on an individually  approved basis
in accordance with its credit guidelines.


    Each land  dealer  and resort  developer  from whom the  Company  purchases
loans is  interviewed  by the  Company and  approved  by its credit  committee.
Management  evaluates  each land  dealer's and resort  developer's  experience,
financial  statements and credit references and inspects a substantial  portion
of the land  dealer's  and resort  developer's  inventory of land or VOIs prior
to approval of loan purchases.


    In order to  enhance  the  creditworthiness  of loans  purchased  from land
dealers and resort  developers,  the Company  typically  requires  land dealers
and resort  developers to guarantee  payment of the loans and typically retains
a portion of the amount  payable by the  Company to each land dealer and resort
developer  on purchase  of the loan.  The  retained  portion,  or  reserve,  is
released to the land dealer or resort developer as the related loan is repaid.


    Prior to  purchasing  Land or VOI Loans,  the Company  evaluates the credit
and  payment  history of each  borrower  in  accordance  with its  underwriting
guidelines,  performs  borrower  interviews  on a sample of loans,  reviews the
documentation   supporting   the  loans  for   completeness   and   obtains  an
appropriate  opinion  from local  legal  counsel.  The Company  purchases  only
those loans which meet its credit standards.


    The Company also  purchases  portfolios of seasoned  loans  primarily  from
land  dealers  and resort  developers.  The land  dealers or resort  developers
generally  guarantee  the loans  sold and the  Company  generally  withholds  a
reserve  as  described   above.   Management   believes   that  the   portfolio
acquisition  program  is  attractive  to land  dealers  and  resort  developers
because it  provides  them with  liquidity  to purchase  additional  inventory.
The  Company  also  purchases  portfolios  of  seasoned  loans  from  financial
institutions  and others.  Sellers  generally do not guarantee such loans,  but
estimated loan losses are considered in establishing the purchase price.



    In evaluating  such seasoned  portfolios,  the Company  conducts its normal
review  of  the  borrower's  documentation,   payment  history  and  underlying
collateral.  However,  the Company may not always be able to reject  individual
loans.

    The Company's  portfolio of Purchased Loans is secured by property  located
in 41 states.

<TABLE>
<CAPTION>                      Principal Amount of Loans
                                     December 31              June 30,
                            1998   1997   1996   1995   1994    1999
                            ----   ----   ----   ----   ----    ----
  <S>                        <C>    <C>   <C>    <C>    <C>     <C>

  Southwest................  32%     30%   26%    16%    19%     35%
  South....................  30      31    31     31     37      29
  West.....................  19      17    20     20      3      18
  Mid-Atlantic.............   8      10    10     16     16       8
  Northeast................  11      12    13     17     25      10
                            ----    ----  ----   ----   ----    ----
       Total............... 100%    100%  100%   100%   100%    100%
                            ====    ====  ====   ====   ====    ====
</TABLE>

      a. Land Loans

    Dealers  from  whom  the  Company   purchases   Land  Loans  are  typically
closely-held  firms with  annual  revenues of less than $3.0  million.  Dealers
generally  purchase  large  rural  tracts  (generally  100 or more  acres) from
farmers or other  owners and  subdivide  the  property  into one to twenty acre
parcels  for resale to  consumers.  Generally  the  subdivided  property is not
developed  significantly  beyond  the  provision  of graded  access  roads.  In
recreational  areas,  sales are made  primarily to urban  consumers who wish to
use  the  property  for a  vacation  or  retirement  home  or for  recreational
purposes such as fishing,  hunting or camping.  In other rural areas, sales are
more  commonly  made to  persons  who will  locate a  manufactured  home on the
parcel.  During  the six months  ended  June 30,  1999,  the  Company  acquired
approximately  $31.7 million of Land Loans.  The aggregate  principal amount of
Land Loans purchased from  individual  dealers during the six months ended June
30, 1999 varied from a low of  approximately  $6,300 to a high of approximately
$1.4  million.  As of June 30, 1999 and  December  31,  1998,  the five largest
dealers  accounted  for  approximately  17.7% and 20.6%,  respectively,  of the
principal  amount  of the  Land  Loans in the  Serviced  Portfolio.  No  single
dealer  accounted  for more than 4.7% and 5.4% at June 30, 1999 and at December
31, 1998, respectively.

    As of June 30, 1999 and December 31, 1998,  32.8% and 34.3%,  respectively,
of the  Serviced  Portfolio  consisted  of Land Loans.  The  average  principal
balance of such Land Loans were  approximately  $13,500 and $13,100 at June 30,
1999 and December 31, 1998,  respectively.  The  following  table sets forth as
of June 30, 1999,  the  distribution  of Land Loans in the  Company's  Serviced
Portfolio:

<TABLE>


<CAPTION>                 Percentage of             Percentage of
                            Principal    Principal    Number of      Number of
Principal Balance             Amount      Amount       Loans          Loans
-----------------        ------------    ---------  -----------      ---------
<S>                      <C>             <C>          <C>            <C>

                                                                                                                      Loans
Less than $10,000........$ 29,948,000     17.3%        5,720          44.6%

$10,000-$19,999..........  62,478,000     36.0         4,374          34.1

$20,000 and greater......  80,848,000     46.7         2,737          21.3
                         ------------    ------       ------         -----

     Total...............$173,274,000    100.0%       12,831         100.0%
                         ============    =====        ======         =====

</TABLE>

<PAGE>

    As of June 30, 1999 and December 31, 1998,  the weighted  average  interest
rate of the  Land  Loans  included  in the  Company's  Serviced  Portfolio  was
12.0%.  The  weighted  average  remaining  maturity  was 12.3 and 12.0 years at
June 30, 1999 and December 31, 1998,  respectively.  The  following  table sets
forth as of June 30, 1999,  the  distribution  of interest rates payable on the
Land Loans:

<TABLE>
                                                        Percentage of
<CAPTION>                                Principal         Principal
Interest Rate                              Amount            Amount
-------------                             ---------       -------------
<S>                                     <C>                   <C>

Less than 12.0%........................ $ 63,398,000            36.6%
12.0%-13.9%............................   87,458,000            50.5
14.0% and greater......................   22,418,000            12.9
                                        ------------           -----
     Total............................. $173,274,000           100.0%
                                        ============           =====
</TABLE>


    As of June 30,  1999  and  December  31,  1998,  the  Company's  Land  Loan
borrowers  resided in 50 states,  the District of Columbia and nine territories
or foreign countries.


      b. VOI Loans

    The  Company  purchases  VOI Loans  from  various  resort  developers.  The
Company   generally  targets  small  to  medium  size  resorts  with  completed
amenities  and  established   property  owners   associations.   These  resorts
participate  in programs  that  permit  purchasers  of VOIs to  exchange  their
timeshare  intervals  for  timeshare  intervals  in other  resorts  around  the
world.  During  the six  months  ended  June 30,  1999,  the  Company  acquired
approximately  $1,606,000  of VOI Loans.  As of June 30, 1999 and  December 31,
1998,  the five  largest  developers  accounted  for  approximately  32.6%  and
35.1%,  respectively,  of the principal amount of the VOI Loans in the Serviced
Portfolio.  No single  developer  accounted for more than 9.1% and 9.4% at June
30, 1999 and December 31, 1998, respectively.

    As of June 30, 1999 and December 31, 1998, 3.0% and 4.1%, respectively,  of
the Serviced  Portfolio  consisted of VOI Loans. The average  principal balance
of such VOI Loans was  approximately  $3,300 and  $3,400,  at June 30, 1999 and
December  31, 1998,  respectively.  The  following  table sets forth as of June
30, 1999, the distribution of VOI Loans:

<TABLE>

<CAPTION>                Principal    Percentage of   Number of    Percentage of
                          Amount    Principal Amount   Loans     Number of Loans
                        ---------   ----------------  --------   ---------------
<S>                    <C>             <C>             <C>          <C>

Less than $4,000...... $ 6,691,000       41.7%          3,290         67.1%
$4,000-$5,999.........   5,387,000       33.5           1,101         22.4
$6,000 and greater....   3,979,000       24.8             515         10.5
                       -----------      -----           -----        -----
     Total............ $16,057,000      100.0%          4,906        100.0%
                       ===========      =====           =====        =====

</TABLE>




    As of June 30, 1999 and December 31, 1998,  the weighted  average  interest
rate of the VOI Loans  included in the Company's  Serviced  Portfolio was 14.5%
and 14.6%,  respectively,  and the weighted average remaining  maturity was 3.6
and 3.7  years,  respectively.  The  following  table sets forth as of June 30,
1999, the distribution of interest rates payable on the VOI Loans:

<TABLE>
<CAPTION>                                                 Percentage of
                                                             Principal
Interest Rate                                Principal         Amount
-------------                                ---------         ------
<S>                                        <C>                 <C>

Less than 14.0%...........................  $ 7,153,000         44.5%
14.0%-15.9%...............................    3,542,000         22.1
16.0% and greater.........................    5,362,000         33.4
                                            -----------        -----
     Total................................  $16,057,000        100.0%
                                            ===========        =====
</TABLE>


      As of June 30, 1999,  the Company's  VOI borrowers  resided in 50 states,
the  District of Columbia  and four  territories  or foreign  countries.  As of
December  31, 1998,  the  Company's  VOI  borrowers  resided in 50 states,  the
District of Columbia and three territories or foreign countries.


   (2) Hypothecation Loans

    The  Company  extends  Hypothecation  Loans  to  land  dealers  and  resort
developers  and other  businesses  secured  by  receivables.  The  Company  has
expanded  its  marketing  of  Hypothecation  Loans  to  include  loans to other
finance  companies  secured by other  types of  collateral.  These loans may be
larger  than the  Company's  average  Hypothecation  Loans and may  provide the
Company  with an option  to take an equity  position  in the  borrower.  During
the  six  months  ended  June  30,  1999,  the  Company  extended  or  acquired
approximately  $113.8 million of  Hypothecation  Loans, of which $20.6 million,
or 18.1%,  were secured by Land Loans,  $69.0 million,  or 60.6%,  were secured
by VOI Loans and  $24.2  million,  or 21.3%,  were  secured  by other  types of
collateral such as tax lien certificates, accounts receivable and mortgages.

    The Company  generally extends  Hypothecation  Loans based on advance rates
of 75% to 90% of the  eligible  receivables  which  serve  as  collateral.  The
Company's  Hypothecation  Loans are generally  made at variable  rates based on
the prime rate of interest  plus 1.5% to 4%. As of June 30,  1999 and  December
31, 1998, the Company had $192.7  million and $164.5  million of  Hypothecation
Loans  outstanding,  none of which  were 31 days or more past due.  During  the
three  months  ended  March 31,  1998,  the  Company  acquired a $17.0  million
participation   interest  in  a  Hypothecation   Loan  from  another  financial
institution.   As  planned,   in  May  of  1998,  the  Company   purchased  the
underlying  receivables,  which the Company has  reclassified  as Other  Loans.
The  proceeds  of  the  receivables  purchased  were  applied  to pay  off  the
Company's  participation  interest.  At  June  30,  1999,  Hypothecation  Loans
ranged in size from $2,900 to $25.5 million with an average  principal  balance
of $2,095,000.  At December 31, 1998,  Hypothecation  Loans ranged in size from
less than $500 to $21.5  million  with an average  balance of  $1,678,000.  The
five largest  Hypothecation  Loans  represented 14.8% and 15.5% of the Serviced
Portfolio at June 30, 1999 and December 31, 1998, respectively.


  (3) A&D Loans

    The  Company  also  makes  A&D  Loans to  dealers  and  developers  for the
acquisition  and  development  of  rural  and  timeshare  resorts  in  order to
finance  additional  receivables  generated  by the A&D  Loans.  During the six
months  ended June 30,  1999,  the Company  made $33.0  million of A&D Loans to
land  dealers  and resort  developers,  of which $2.7  million,  or 8.2%,  were
secured by land and $30.3  million,  or 91.8%,  were  secured by resorts  under
development.


    The  Company   generally  makes  A&D  Loans  to  land  dealers  and  resort
developers  based  on loan to  value  ratios  of 60% to 80% at  variable  rates
based on the prime  rate plus 2% to 4%. As of June 30,  1999 and  December  31,
1998,  the Company had $64.6 million and $52.3  million,  respectively,  of A&D
Loans  outstanding,  none of which  were 31 days or more past due.  At June 30,
1999 and  December  31,  1998,  A&D Loans  were  secured  by  timeshare  resort
developments  and rural land  subdivisions  in 19 states and one  territory and
16  states  and one  territory,  respectively.  A&D  Loans  ranged in size from
$3,500 to $11.8 million with an average  principal  balance of $979,000 at June
30,  1999.  A&D  Loans  ranged  in size from  $1,700  to $9.5  million  with an
average  principal  balance of $780,000 at December 31, 1998.  The five largest
A&D Loans  represented  5.4% and 4.7%,  of the  Serviced  Portfolio at June 30,
1999 and December 31, 1998, respectively.

  (4) Other Loans

    At June 30, 1999, Other Loans consisted  primarily of consumer home equity,
mortgage and construction  loans,  other secured  commercial loans and tax lien
certificates.  Historically,  the Company has made or  acquired  certain  other
secured  and  unsecured   loans  as  it  has  identified   additional   lending
opportunities  or lines of business  for  possible  future  expansion as it did
with  VOI  Loans  and  Hypothecation   Loans.  In  May  of  1998,  the  Company
purchased 232 builder  construction  loans totaling $32.7 million, a portion of
which had previously  been collateral for the  Hypothecation  Loan in which the
Company  owned a  participation  interest.  At June 30, 1999 and  December  31,
1998,  the Company had 162 and 176 of the builder  construction  loans totaling
$37.4 million and $33.9  million,  respectively.  In October 1998,  the Company
began  purchasing  tax lien  certificates.  At June 30, 1999 and  December  31,
1998 the Company held $33.5 million and $21.2  million,  respectively,  of such
certificates.  The  Company  had  $82.5  million  and  $71.0  million  of Other
Loans,  1.60%  and  1.33%  of which  were 91 days or more  past due at June 30,
1999 and  December  31,  1998,  respectively.  At June 30,  1999,  Other  Loans
ranged in size from less than  $500 to  $1,101,000  with an  average  principal
balance of  $11,900.  At December  31,  1998,  Other Loans  ranged in size from
less than $500 to $875,000 with an average  principal  balance of $23,200.  The
five largest Other Loans  represent 0.8% of the Serviced  Portfolio at June 30,
1999 and December 31, 1998.

Loan Underwriting

    The Company has  established  loan  underwriting  criteria  and  procedures
designed  to  reduce  credit  losses  on  its  Serviced  Portfolio.   The  loan
underwriting  process  includes  reviewing each borrower's  credit history.  In
addition,   the  Company's  underwriting  staff  routinely  conducts  telephone
interviews  with a sample of  borrowers.  The  primary  focus of the  Company's
underwriting  is to assess  the  likelihood  that the  borrower  will repay the
loan as agreed by  examining  the  borrower's  credit  history  through  credit
reporting bureaus.

    The Company's  loan policy is to purchase Land and VOI Loans from $3,000 to
$50,000.  On a case by case basis,  the Company will also  consider  purchasing
such loans in excess of  $50,000.  As of June 30,  1999,  the  Company  had 163
Land Loans exceeding  $50,000  representing 1.3% of the number of such loans in
the Serviced Portfolio,  for a total of $11.3 million.  There were no VOI Loans
exceeding   $50,000  as  of  June  30,  1999.   The  Company   will   originate
Hypothecation  Loans up to $15  million and A&D Loans up to $10  million.  From
time  to  time,  the  Company  may  have an  opportunity  to  originate  larger
Hypothecation  Loans or A&D  Loans in which  case  the  Company  would  seek to
participate  such  loans  with  other  financial  institutions.  As of June 30,
1999,  the  Company's  five  largest   Hypothecation   Loan  relationships  had
aggregate  loan  balances  ranging from $9.9  million to $25.5  million and its
largest  A&D  Loan   relationship  had  an  aggregate  loan  balance  of  $11.8
million.   Construction  Loans  greater  than  $200,000  and  any  other  loans
greater  than  $100,000  must be  approved  by the  Credit  Committee  which is
comprised of the Chief  Executive  Officer,  four Executive Vice Presidents and
a Senior Vice President.



Collections and Delinquencies

    Management  believes  that  the  relatively  low  delinquency  rate for the
Serviced  Portfolio  is  attributable  primarily  to  the  application  of  its
underwriting  criteria,  as well as to dealer  guarantees and reserves withheld
from dealers and developers.  No assurance can be given that these  delinquency
rates can be maintained in the future.

    Collection  efforts are managed and delinquency  information is analyzed at
the   Company's   headquarters.   Unless   circumstances   otherwise   dictate,
collections  are  generally  made by mail  and  telephone.  Collection  efforts
begin when an account is seven days past due, at which time the  Company  sends
out a late  notice.  When an  account  is fifteen  days past due,  the  Company
attempts to contact the  borrower to determine  the reason for the  delinquency
and to attempt to cause the  account  to become  current.  If the status of the
account  continues to  deteriorate,  an analysis of the account is performed by
the collection  manager to determine the appropriate  action.  When the loan is
90 days past due in  accordance  with its original  terms and it is  determined
that the amounts  cannot be collected  from the dealer or developer  guarantees
or  reserves,  the loan is  generally  placed on a  non-accrual  status and the
collection  manager  determines the action to be taken.  The  determination  of
how to work out a delinquent  loan is based upon many  factors,  including  the
borrower's  payment  history and the reason for the current  inability  to make
timely  payments.  When a  guaranteed  loan  becomes  60 days  (90 days in some
cases)  past due,  in  addition to the  Company's  collection  procedures,  the
Company  generally  obtains  the  assistance  of the  dealer  or  developer  in
collecting the loan.

    The Company  extends a limited  number of its loans for reasons the Company
considers  acceptable such as temporary loss of employment or serious  illness.
In order to qualify  for a one to three  month  extension,  the  customer  must
make three timely  payments  without any  intervention  from the  Company.  For
extensions  of four to six months,  the  customer  must make four to six timely
payments,  respectively,   without  any  intervention  from  the  Company.  The
Company  will not  extend a loan  more  than two  times  for an  aggregate  six
months over the life of the loan. The Company has extended  approximately  0.8%
of its loans through June 30, 1999.  The Company does not generally  modify any
other loan terms such as interest rates or payment amounts.

    Regulations and practices  regarding the rights of the mortgagor in default
vary greatly from state to state.  To the extent  permitted by applicable  law,
the Company  collects  late  charges and  return-check  fees and records  these
items as additional  revenue.  Only if a delinquency  cannot otherwise be cured
will the Company decide that  foreclosure is the appropriate  course of action.
If the Company  determines that purchasing a property  securing a mortgage loan
will minimize the loss  associated  with such  defaulted  loan, the Company may
accept a deed in lieu of  foreclosure,  take  legal  action to  collect  on the
underlying note or bid at the foreclosure sale for such property.
<PAGE>



  Serviced Portfolio


    The  following  table shows the  Company's  delinquencies  and  delinquency
rates,  net of  dealer/developer  reserves  and  guarantees,  for the  Serviced
Portfolio:


<TABLE>
                                                                              Six Months Ended
<CAPTION>                         Year Ended December 31,                          June 30,
                    1998         1997         1996         1995         1994         1999
                 -----------  ----------- ------------  ----------- ------------  -----------
<S>              <C>           <C>          <C>         <C>          <C>          <C>

Serviced
 Portfolio...... $466,912,000 $304,102,000 $242,445,000 $176,650,000 $105,013,000 $529,198,000
Delinquent
 loans (1)......    4,456,000    3,642,000    3,255,000    3,062,000      981,000    5,486,000
Delinquency
 as a Percentage
 of Serviced
 Portfolio......         .95%        1.20%        1.34%        1.73%         .93%        1.04%
</TABLE>

_____

(1)   Delinquent  loans are those  which are 31 days or more past due which are
   not covered by  dealer/developer  reserves or guarantees and not included in
   other real estate owned.



Land Loans


    The  following  table shows the  Company's  delinquencies  and  delinquency
rates, net of dealer/developer  reserves and guarantees,  for Land Loans in the
Serviced Portfolio:


<TABLE>

                                                                                       Six Months Ended
<CAPTION>                                Year Ended December 31,                            June 30,
                           1998          1997         1996          1995         1994         1999
                       ------------  ------------  ------------  ----------   ----------  ------------
<S>                    <C>           <C>           <C>           <C>          <C>         <C>

Land Loans in
 Serviced Portfolio... $160,098,000  $142,828,000  $119,370,000  $97,266,000  $90,502,000 $173,274,000
Delinquent Land
 Loans (1)............    2,728,000     2,453,000     1,920,000    1,059,000      981,000    3,092,000
Delinquency as
 a Percentage of
 Land Loans in
 Serviced Portfolio...         1.70%         1.72%        1.61%        1.09%        1.08%        1.78%
</TABLE>

__________

(1)   Delinquent  loans are those  which are 31 days or more past due which are
   not covered by  dealer/developer  reserves or guarantees and not included in
   other real estate owned.



VOI Loans

    The  following  table shows the  Company's  delinquencies  and  delinquency
rates, net of  dealer/developer  reserves and guarantees,  for VOI Loans in the
Serviced Portfolio:
<TABLE>
                                                                                          Six Months Ended
                                              Year Ended December 31,                          June 30,
                            1998         1997          1996          1995         1994          1999
                       -----------   -----------    -----------   -----------   ----------   -----------
<S>                     <C>           <C>           <C>            <C>          <C>           <C>
VOI Loans in
 Serviced Portfolio...  $19,119,000   $29,232,000   $43,284,000   $46,700,000   $2,851,000   $16,057,000
Delinquent VOI
  Loans (1)...........      350,000      739,000      1,316,000     1,958,000          ---       421,000
Delinquency as a
  Percentage of
  VOI Loans in
  Serviced Portfolio..       1.83%        2.53%         3.04%          4.19%           --          2.62%
__________
</TABLE>

(1)   Delinquent loans are those which are 31 days or more past due which are
   not covered by dealer/developer reserves or guarantees and not included in
   other real estate owned.

   Hypothecation, A&D and Other Loans

    The Company did not have any  delinquent  Hypothecation  Loans or A&D Loans
for the years ended  December  31, 1994  through  December  31, 1998 or for the
six months ended June 30, 1999.  The Company did not have  significant  amounts
of  delinquent  Other  Loans for the years  ended  December  31,  1994  through
December 31, 1997.  At December  31,  1998,  there were $71.0  million of Other
Loans  of  which  $1,378,000  or  1.94%  were 31 days or more  past due and not
covered by  dealer/developer  reserves or guarantees  and not included in other
real estate  owned.  At June 30, 1999,  there were $82.5 million of Other Loans
of which  $1,973,000  or 2.39% were 31 days or more past due and not covered by
dealer/developer  reserves or guarantees  and not included in other real estate
owned.


Allowance for Loan Losses and Estimated Recourse  Obligations,  Net Charge-offs
and Dealer Reserves

    The following is an analysis of the total allowances for all loan losses:
<TABLE>

                                                                                            Six Months
                                                                                              Ended
                                                      Year Ended December 31,                June 30,
                                   1998        1997        1996        1995        1994        1999
<S>                             <C>          <C>         <C>         <C>        <C>          <C>

Allowance,
beginning of Period...........  $5,877,000  $4,528,000  $3,715,000  $1,264,000  $1,064,000  $6,707,000
Net charge-offs of
  uncollectible accounts.....   (2,239,000  (2,010,000  (1,965,000)   (946,000)   (359,000) (1,157,000)
Provision for
loan losses..................    1,532,000   1,400,000   1,954,000     890,000     559,000   1,000,000
Allocation of
purchase adjustment (1)......    1,537,000   1,959,000     824,000   2,507,000         ---     995,000
                                ----------   ---------    --------   ----------   ---------  ---------
Allowance, end of
period.......................   $6,707,000  $5,877,000  $4,528,000  $3,715,000   $1,264,000 $7,545,000
                                ==========   =========   =========   =========   ==========  ==========
</TABLE>
__________

(1)   Represents allocation of purchase adjustment related to the purchase of
   certain nonguaranteed loans.





    The  following  is an  analysis  of  net  charge-offs  by  major  loan  and
collateral types experienced by the Company:
<TABLE>

                                                                             Six Months
                                                                                Ended
                                        Year Ended December 31,                June 30,
                           1998         1997      1996       1995       1994      1999
<S>                     <C>          <C>        <C>        <C>        <C>        <C>

Land Loans............  $1,358,000  $ 986,000  $ 669,000  $ 546,000 $ 359,000  $ 784,000
VOI Loans.............     556,000    939,000  1,284,000     45,000       ---    124,000
Hypothecation Loans...         ---        ---        ---        ---       ---        ---
A&D Loans.............         ---     (2,000)    (8,000)   352,000       ---        ---
Other Loans...........     325,000     87,000     20,000      3,000       ---     249,000
                         ---------    --------  ---------  ----------  --------  --------
Total net charge-offs.  $2,239,000 $2,010,000 $1,965,000    $946,000  $359,000 $1,157,000
                         =========   =========  =========  ==========  ========  ========
Net charge-offs as a
percentage of the average
Serviced Portfolio....       .58%       .74%       .94%       .67%       .38%        .46%

</TABLE>


    As part of the  Company's  financing  of Land and VOI  Loans,  the  Company
enters into arrangements  with most land dealers and resort developers  whereby
the  Company  retains  a  portion  of  the  amount  payable  to a  dealer  when
purchasing  a Land or VOI Loan to protect the  Company  from  potential  losses
associated  with  such  loans  and uses the  amount  retained  to  absorb  loan
losses.  The  Company  negotiates  the  amount  of the  reserves  with the land
dealers and resort  developers  based upon various  criteria,  two of which are
the  financial  strength of the land dealer or resort  developer and the credit
risk  associated  with the loans  being  purchased.  Dealer  reserves  for Land
Loans were  $8,219,000,  $8,321,000 and  $7,555,000 at December 31, 1998,  1997
and 1996,  respectively,  and $8,749,000 at June 30, 1999.  Developer  reserves
for VOI Loans were  $1,760,000,  $2,299,000  and  $3,072,000  at  December  31,
1998,  1997 and 1996,  respectively,  and  $1,284,000  at June 30,  1999.  Most
dealers  and  developers   provide  personal  and,  when  relevant,   corporate
guarantees to further protect the Company from loss.


Loan Servicing and Sales

    The  Company  retains the right to service  all the loans it  purchases  or
originates.  Servicing includes collecting  payments from borrowers,  remitting
payments to investors who have  purchased the loans,  accounting  for principal
and interest,  contacting delinquent borrowers and supervising  foreclosure and
bankruptcies in the event of unremedied  defaults.  Substantially all servicing
results from the  origination  and  purchase of loans by the  Company,  and the
Company  has  not  historically  purchased  loan  servicing  rights  except  in
connection with the purchase of loans.  Servicing  rates generally  approximate
 .5% to 2% of the principal balance of a loan.

    Historically,  the Company  subcontracted  the servicing of its loans to an
unaffiliated  third party. In July 1998, the Company  resumed certain  customer
service and collection  functions.  The unaffiliated  third party will continue
to provide  certain  data  processing  and payment  processing  functions.  The
Company retains responsibility for servicing all loans as a master servicer.

    In 1990,  the  Company  began  privately  placing  issues  of  pass-through
certificates  evidencing an undivided  beneficial  ownership  interest in pools
of mortgage loans which have been  transferred  to trusts.  The principal and a
portion part of the  interest  payments on the loans  transferred  to the trust
are  collected  by the Company as the  servicer  of the loans,  remitted to the
trust for the benefit of the  investors,  and then  distributed by the trust to
the investors in the pass-through certificates.


    As of June  30,  1999,  the  Company  had  sold or  securitized  a total of
approximately  $613.4  million  in  loans  at face  value.  In  certain  of the
Company's  issues  of  pass-through   certificates,   credit   enhancement  was
achieved  by  dividing  the issue into a senior  portion  which was sold to the
investors  and a  subordinated  portion  which was retained by the Company.  In
certain other of the  Company's  private  placements,  credit  enhancement  was
achieved through cash collateral.

    If  borrowers  default in the payment of principal or interest on the loans
underlying  these  issues  of  pass-through   certificates,   losses  would  be
absorbed  first  by  the  subordinated   portion  or  cash  collateral  account
retained by the Company and might,  therefore,  have to be charged  against the
estimated  recourse  obligations  to the extent dealer  guarantees  and reserves
are not available.

    The Company  also has a $150.0  million  revolving  line of credit and sale
facility  for its  Land  Loans  as part of an  asset  backed  commercial  paper
facility with a multi-seller  commercial  paper conduit.  The facility  expires
in June  2001.  As of June 30,  1999,  the  outstanding  balance of the sold or
pledged loans  securing this  facility was $138.0  million.  The Company has an
additional  revolving  line of credit  and sale  facility  for its VOI Loans of
$25.0  million  with  another   multi-seller   commercial  paper  conduit.  The
facility  expires  in  March  2000.  As  of  June  30,  1999,  the  outstanding
aggregate balance of the sold loans under the facility was $14.6 million.

Marketing and Advertising

    The  Company   markets  its  program  to  rural  land  dealers  and  resort
developers through brokers, referrals,  dealer and developer solicitation,  and
targeted direct mail. The Company employs three marketing  executives  based in
Lakewood,   Colorado,   five  marketing   executives   based  in  Williamstown,
Massachusetts,  two  marketing  executives  based  in  Hoover,  Alabama,  three
marketing  executives based in Scottsdale,  Arizona and one marketing executive
based in  Atlanta,  Georgia.  In the last five  years the  Company  has  closed
loans with over 350 different dealers and developers.

    Management  believes that the Company  benefits from name  recognition as a
result of its referral,  advertising  and other  marketing  efforts.  Referrals
have  been  the  strongest  source  of new  business  for the  Company  and are
generated  in the states in which the Company  operates  by  dealers,  brokers,
attorneys    and    financial    institutions.    Management    and   marketing
representatives   also   attend   trade   shows  to   improve   awareness   and
understanding of the Company's programs.

Regulation

    The Company is licensed as a lender,  mortgage banker or mortgage broker in
20 of the states in which it operates,  and in those states its  operations are
subject  to  supervision  by state  authorities  (typically  state  banking  or
consumer  credit  authorities).  Expansion  into other  states may be dependent
upon a finding  of  financial  responsibility,  character  and  fitness  of the
Company and various other  matters.  The Company is generally  subject to state
regulations,   examination  and  reporting   requirements,   and  licenses  are
revocable  for cause.  The Company is subject to state usury laws in all of the
states in which it operates.

    The consumer loans  purchased or financed by the Company are subject to the
Truth-in-Lending    Act.   The   Truth-in-Lending   Act   contains   disclosure
requirements  designed  to  provide  consumers  with  uniform,   understandable
information  with  respect  to the terms  and  conditions  of loans and  credit
transactions  in order to give  them  the  ability  to  compare  credit  terms.
Failure to comply with the  requirements of the  Truth-in-Lending  Act may give
rise  to a  limited  right  of  rescission  on the  part of the  borrower.  The
Company  believes that its purchase or financing  activities are in substantial
compliance in all material respects with the Truth-in-Lending Act.

    Origination  of the loans also  requires  compliance  with the Equal Credit
Opportunity Act of 1974, as amended  ("ECOA"),  which prohibits  creditors from
discriminating  against  applicants  on the basis of race,  color,  sex, age or
marital status.  Regulation B promulgated  under ECOA restricts  creditors from
obtaining  certain types of information from loan applicants.  It also requires
certain  disclosures  by the lender  regarding  consumer  rights  and  requires
lenders  to  advise  applicants  of the  reasons  for  any  credit  denial.  In
instances  where the  applicant is denied  credit or the interest  rate charged
increases as a result of  information  obtained from a consumer  credit agency,
another statute,  the Fair Credit  Reporting Act of 1970, as amended,  requires
the lenders to supply the  applicant  with a name and address of the  reporting
agency.

Competition

    The finance  business is highly  competitive,  with  competition  occurring
primarily on the basis of customer  service and the term and  interest  rate of
the loans.  Traditional  competitors in the finance business include commercial
banks, credit unions,  thrift institutions,  industrial banks and other finance
companies,  many of which have considerably  greater  financial,  technical and
marketing  resources  than the  Company.  There  can be no  assurance  that the
Company will not face  increased  competition  from  existing or new  financial
institutions  or finance  companies.  In  addition,  the  Company may enter new
lines of  business  that may be  highly  competitive  and may have  competitors
with greater financial resources than the Company.

    The  Company   believes   that  it  competes  on  the  basis  of  providing
competitive  rates  and  prompt,   efficient  and  complete  service,   and  by
emphasizing  customer  service  on a timely  basis to attract  borrowers  whose
needs are not met by traditional financial institutions.

Employees

    As of June 30, 1999,  the Company had 125 full-time  equivalent  employees.
None  of  the  Company's  employees  is  covered  by  a  collective  bargaining
agreement. The Company considers its relations with its employees to be good.

Facilities

    The Company owns a leasehold  interest in approximately  26,000 square feet
of  office  space  in  Williamstown,   Massachusetts,  which  is  used  as  the
Company's  headquarters.  The initial  ten year lease term  expires in May 2007
and  is  renewable  at  the  Company's  option  for  two  additional  ten  year
periods.  The  initial  land lease  provides  for an annual  rental of $20,000.
The Company also  occupies an aggregate of  approximately  5,100 square feet of
office space in  Lakewood,  Colorado,  pursuant to a lease  expiring in January
2001,  with an option to renew until 2004,  providing  for an annual  rental of
approximately   $56,000,   including   utilities   and   exterior   maintenance
expenses.  A subsidiary of the Company  occupies an aggregate of  approximately
2,710 square feet of office space in Scottsdale,  Arizona,  pursuant to a lease
expiring  September  2000,  providing  for an annual  rental  of  approximately
$46,000.  A subsidiary  of the Company  occupies an aggregate of  approximately
6,100  square  feet of office  space in Hoover,  Alabama,  pursuant  to a lease
expiring in December  1999,  providing  for an annual  rental of  approximately
$88,000.  A subsidiary  of the Company  occupies an aggregate of  approximately
1,001  square  feet of office  space in Atlanta,  Georgia,  pursuant to a lease
expiring in December  2000,  providing  for an annual  rental of  approximately
$14,500.





Item 6.   Exhibits and Reports on Form 8-K

     The following exhibits are filed herewith:

1.1       Underwriting Agreement dated May 13, 1999 between the Company, Tucker
          Anthony Cleary Gull and Ferris, Baker Watts Incorporated.

2.1       Agreement and Plan of Merger dated June 16, 1999 among Litchfield
          Financial Corporation, Stamford Asset Recovery Corporation, Ironwood
          Acceptance Company, LLC and the members of the Company.

2.2       Agreement and Plan of Merger dated April 1, 1999 among Litchfield
          Financial Corporation, Stamford Business Credit Corporation and Land
          Finance Corporation.

4.12      Junior Subordinated Indenture dated as of May 19,1999 between the
          Company and The Bank of New York.

4.13      Supplemental Indenture No. 1 dated as of May 19, 1999 between the
          Company and The Bank of New York.

4.14      Amended and Restated Declaration of Trust of Litchfield Capital Trust
          I dated as of May 19, 1999 by and between John J. Malloy, Heather A.
          Sica, Ronald E. Rabidou, The Bank of New York, The Bank of New York
          (Delaware), the Company and the holders, from time to time, of
          undivided beneficial interests in the assets of Litchfield Capital
          Trust I.

4.15      Amendment No. 1 to the Amended and Restated  Declaration  of Trust
          of Litchfield  Capital  Trust I  dated  as of May 19,  1999 by an
          between  John J. Malloy,  Heather A. Sica,  Ronald E. Rabidou,
          The Bank of New York, The Bank of New York  (Delaware),  the  Company
          and the  holders,  from  time to  time,  of undivided beneficial
          interests in the assets of Litchfield Capital Trust I.

4.16      Guarantee Agreement dated as of May 19, 1999 between the Company and
          The Bank of New York.

4.17      Guarantee Agreement dated as of June 8, 1999 between the Company and
          The Bank of New York.


10.193     Amendment  No.  1 to the  Indenture  of  Trust  dated as of March 1,
           1999, between Litchfield Hypothecation  Corporation 1997-B and
           The Chase Manhattan Bank.

10.194     Amendment  No. 2 to the Indenture of Trust dated as of June 1, 1999,
           between  Litchfield  Hypothecation  Corporation 1997-B and The
           Chase Manhattan Bank.

10.195     Amendment  No.  3 to the  Indenture  of  Trust  dated as of March 1,
           1999, between Litchfield Hypothecation  Corporation 1998-A and
           The Chase Manhattan Bank.

10.196     Amendment  No. 4 to the Indenture of Trust dated as of June 1, 1999,
           between  Litchfield  Hypothecation  Corporation 1998-A and The
           Chase Manhattan Bank.

10.197     Loan and Security  Agreement  dated as of May 28, 1999,  between the
           Company and MetroWest Bank.

10.198     Note  Purchase  Agreement  dated  as of June  28,  1999,  among  the
           Company,  Litchfield Hypothecation  Corporation 97-B and Union
           Bank.

10.199     Limited Guarantee dated as of June 1, 1999,  between the Company and
           Union Bank.

10.200     Note  Purchase  Agreement  dated  as of June  28,  1999,  among  the
           Company,   Litchfield   Hypothecation   Corporation  98-A  and
           BankBoston.

10.201     Limited Guarantee dated as of June 1, 1999,  between the Company and
           BankBoston.

10.202     Receivables  Purchase  Agreement dated as of June 30, 1999,  between
           the Company and First Massachusetts Bank.

10.203     Collateral  Agent  Agreement  dated as of June 30,  1999,  among The
           Chase  Manhattan  Bank,  First   Massachusetts  Bank  and  the
           Company.

11.1       Statement re: computation of earnings per share

27.1       Financial Data Schedule

Reports on Form 8-K

           Form 8-K filed June 25,  1999  regarding  the  acquisition  of
           Ironwood Acceptance Company.










                                  SIGNATURES

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


                                  LITCHFIELD FINANCIAL CORPORATION




DATE: August 13, 1999                  /s/ Richard A. Stratton

                                  RICHARD A. STRATTON
                                  Chief Executive Officer,
                                  President and Director





DATE:  August 13, 1999                 /s/ Ronald E. Rabidou
                                  RONALD E. RABIDOU
                                  Chief Financial Officer, Executive
                                  Vice President and Treasurer