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

                                   FORM 10-QSB


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

         For the quarterly period ended September 30, 1996

                                       OR

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

         For the transition period from          to         
                                        --------    --------
                         Commission File Number 0-27156

                         WESTERN FIDELITY FUNDING, INC.
        (Exact name of small business issuer as specified in its charter)

             Colorado                                     84-1148454
  (State or other jurisdiction of               (I.R.S. Employer Identification
   incorporation or organization)                Number)

    4704 Harlan Street, Suite 260
          Denver, Colorado                                  80212
(Address of principal executive offices)                 (Zip Code)

                                 (303) 477-8404
                           (Issuer's telephone number)

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

                  Yes [X]   No  [ ]

     State the number of shares  outstanding of each of the issuer's  classes of
common equity,  as of the latest  practical date: As of November 12, 1996, there
were 2,637,500 outstanding shares of common stock, par value $0.001 per share.

     Transitional/Small Business Issuer     Yes [X] No [ ]





<PAGE>




                         WESTERN FIDELITY FUNDING, INC.

                                   FORM 10-QSB

                                      INDEX

                                                                           Page
PART I.   Financial Information:                                     No.

         Consolidated Balance Sheets - September 30, 1996
            and December 31, 1995.......................................1

         Consolidated Statements of Operations - three and nine months
            ended September 30, 1996 and 1995 ..........................2

         Consolidated Statements of Cash Flows - nine months
            ended September 30, 1996 and 1995...........................3

         Notes to Financial Statements..................................4

         Management's Discussion and Analysis or Plan of
            Operation...................................................5

PART II.  Other Information:

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

         Signature .....................................................9



<PAGE>

<TABLE>
<CAPTION>

                                            WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARY

                                                     Consolidated Balance Sheets


                                                                           September 30,    December 31,
                                                                               1996            1995
                                                                            ------------   -------------
                                                                            [Unaudited]
                               Assets

<S>                                                                        <C>             <C>         

Cash ...................................................................   $  2,686,289    $    480,838
Restricted cash ........................................................      1,248,428         891,065
Finance receivables - net ..............................................     18,712,237      21,319,223
Vehicles held for sale .................................................      5,484,405         982,156
Other assets ...........................................................      2,669,975       1,440,601
                                                                           ------------    ------------
                                                                           $ 30,801,334    $ 25,113,883
                                                                           ============    ============

                Liabilities and Stockholders' Equity

Accounts payable .......................................................        276,462    $  3,147,430
Accrued liabilities ....................................................        560,470         445,572
Revolving Facilities ...................................................      4,311,180
Note payable - related party ...........................................         11,000          11,000
Notes payable - insurance companies ....................................      9,452,599      10,769,160
Master notes ...........................................................      2,978,075       4,157,993
Notes payable ..........................................................           --         1,772,946
Subordinated Debt ......................................................     10,000,000
                                                                           ------------    ------------
                                                                             27,589,786      20,304,101
                                                                           ------------    ------------



                     Stockholders' Equity

Perferred stock;  2,000,000 shares authorized
   Series A, 10% convertible, $.0001 par value; 400,000
shares designated, 328,540 shares issued and
   outstanding (liquidation preference of $1,642,700) ..................             33              33
Common Stock, $.0001 par value; 10,000,000 shares
   authorized, 2,637,500 shares issued and outstanding .................            264             264
Additional paid-in capital .............................................      5,983,119       5,983,119
Accumulated deficit ....................................................     (2,771,868)     (1,173,634)
                                                                              3,211,548       4,809,782
                                                                           ------------    ------------
                                                                           $ 30,801,334    $ 25,113,883
                                                                           ============    ============

</TABLE>


                                     1

<PAGE>

<TABLE>
<CAPTION>

                                            WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARY

                                                Consolidated Statements of Operations
                                                             (Unaudited)

                                                                        Three months ended                  Nine months ended
                                                                           September 30,                       September 30,
                                                                      -----------------------              ---------------------
                                                                      1996               1996              1995             1995
                                                                      ----               ----              ----             ----
<S>                                                               <C>               <C>               <C>               <C>        
Revenue
  Interest and fee income ..................................      $ 1,249,923       $   465,716       $ 3,200,251       $ 1,398,404
  Gain on sales of retail contracts ........................         (164,423)          978,576           674,492         1,839,350
  Other income .............................................          286,986             1,107           529,571            30,113
                                                                  -----------       -----------       -----------       -----------
    Total revenues .........................................        1,372,486         1,445,399         4,404,314         3,267,867
                                                                  -----------       -----------       -----------       -----------

Expenses
  Interest and loan commission expense .....................        1,055,088           470,161         2,211,060         1,286,750
  Provision for credit losses ..............................           12,440            50,000           418,639           164,408
  Salaries and employee benefits ...........................          562,497           332,002         1,527,870           780,301
  Other expenses ...........................................          802,023           236,891         1,721,776           684,324
                                                                  -----------       -----------       -----------       -----------
    Total expenses .........................................        2,432,048         1,089,054         5,879,345         2,915,783
                                                                  -----------       -----------       -----------       -----------

Net income (loss) ..........................................       (1,059,562)          356,345        (1,475,031)          352,084

Preferred stock dividends ..................................          (41,068)          (13,700)         (123,203)          (13,700)
                                                                  -----------       -----------       -----------       -----------

Net income (loss) applicable to common shareholders ........      ($1,100,630)      $   342,645       ($1,598,234)      $   338,384
                                                                  ===========       ===========       ===========       ===========

Net income (loss) per common share .........................      ($     0.42)      $      0.20       ($     0.61)      $      0.19
                                                                  ===========       ===========       ===========       ===========

Weighted average common shares outstanding .................        2,637,500         1,750,000         2,637,500         1,750,000
                                                                  ===========       ===========       ===========       ===========
</TABLE>



                                        2

<PAGE>

<TABLE>
<CAPTION>

                                            WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARY
                                                Consolidated Statements of Cash Flows
                                                             (Unaudited)

                                                                                                       Nine months ended
                                                                                             --------------------------------------
                                                                                                          September 30,
                                                                                             --------------------------------------
                                                                                                 1996                       1995
                                                                                                 ----                       ----
<S>                                                                                          <C>                       <C>         
Cash flows from operating activities
  Net income (loss) ............................................................             ($ 1,598,234)             $    338,384
                                                                                             ------------              ------------
  Adjustments to reconcile net income (loss) to
      net cash provided (used)
       Depreciation and amortization ...........................................                  379,160                    86,226
       Provision for credit losses .............................................                  418,639                   164,408
       Interest Receivable on Portfolio sales ..................................                     --                  (1,054,228)
       Vehicles held for sale ..................................................               (4,502,249)                 (552.919)
       Restricted cash .........................................................                 (363,745)                 (340,482)
       Prepaid expenses ........................................................                  (77,184)                    9,951
       Other assets ............................................................                 (209,393)                 (111,867)
       Accounts payable ........................................................               (2,870,968)                1,905,282
       Accrued liabilities .....................................................                  114,892                    59,713
                                                                                             ------------              ------------
                                                                                               (7,110,848)                  166,084
                                                                                             ------------              ------------
 Net cash (used) provided by operating activities ..............................               (8,709,082)                  504,468
                                                                                             ------------              ------------
Cash flows from investing activities ...........................................               (5,915,518)               (6,663,204)
   Contracts originated or purchased
   Cashflows from Investing Activities
   Contracts originated or purchased ...........................................              (10,707,304)              (14,973,989)
   Contracts repaid ............................................................                4,667,010                 1,091,458
   Contracts sold ..............................................................                8,219,070                 7,689,071
   Purchases of fixed assets ...................................................                 (167,567)                  (29,645)
                                                                                             ------------              ------------
                                                                                                2,011,209                (6,223,105)
                                                                                             ------------              ------------
Cash flows from financing activities
   Expenditures for loan acquisition fees ......................................               (1,138,431)                 (305,445)
   Proceeds from notes payable - insurance companies ...........................                1,101,765                 7,441,218
   Payments on notes payable - insurance companies .............................               (2,418,327)                 (585,178)
   Payments on notes payable - related parties .................................                     --                         165
   Proceeds from issuance of master notes ......................................                     --                   2,172,215
   Payments on master notes ....................................................               (1,179,917)               (1,151,744)
   Issuance of Series A perferred stock ........................................                     --                      35,000
   Proceeds from costs related to the issuance of
     Series A preferred stock ..................................................                     --                    (107,135)
   Proceeds from notes payable .................................................                     --                     587,657
   Payments on notes payable ...................................................               (1,772,946)                 (191,296)
   Proceeds from issuance of subordinated debt .................................               10,000,000                      --
   Proceeds from revolving facilities, net .....................................                4,311,180                      --
   Distributions to Affiliates .................................................                                            (75,703)
                                                                                             ------------              ------------
                                                                                                8,903,324                 7,819,754
                                                                                             ------------              ------------

Increase (decrease) in cash for the period .....................................                2,205,451                 2,101,117
Beginning cash balance .........................................................                  480,838                    46,120
                                                                                             ------------              ------------
Ending cash balance ............................................................             $  2,686,289              $  2,147,237
                                                                                             ============               ===========
</TABLE>



                                        3

<PAGE>


                  WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

Note 1 - General

The interim  financial  statements  included  herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial   reporting  and   Securities  and  Exchange   Commission   rules  and
regulations.  Certain information and footnote  disclosures normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  In the opinion of  management,  the interim  financial  statements
reflect  all  adjustments  (all of which are of a normal and  recurring  nature)
which  are  necessary  in order to make the  interim  financial  statements  not
misleading.  These financial  statements  should be read in conjunction with the
annual report of Western Fidelity  Funding,  Inc. ("the Company") on Form 10-KSB
for the year ended December 31, 1995 (the "1995 Form  10-KSB").  The results for
the  three  and nine  months  ended  September  30,  1996,  are not  necessarily
indicative  of the results that may be expected for the year ended  December 31,
1996.

Note 2 - Debt

In the first quarter of 1996, the Company entered into note arrangements with an
insurance company. The principal amount borrowed of $1,023,223 bears interest at
9.85% per annum and is repayable in monthly installments over approximately four
years.

In  June,  1996,  the  Company  entered  into  an  agreement  with  a  financial
institution for a $20,000,000  secured credit  facility.  Under the terms of the
facility,  monthly  interest is paid at a floating rate equivalent to LIBOR plus
3.25% or a specified bank alternative base rate plus 1%. The facility is secured
by  automobile  retail  installment  contracts and will mature on June 23, 1997.
Borrowings under the facility were initiated in July 1996.

In August, 1996, the Company obtained a $10,000,000 unsecured  subordinated loan
from a financial institution. Under the terms of the loan, interest only is paid
quarterly  during the first two years at a rate of 12% per annum, and thereafter
principal and interest are payable  quarterly  until  maturity on July 31, 2001.
After  payment of  commissions  and fees,  the  Company  realized  approximately
$9,400,000  of net  proceeds  from the loan.  The Company  also issued five year
warrants to purchase  263,750  shares of common  stock at $3.93 per share to the
placement agent in connection with the loan.

Also in August,  1996,  the  Company  entered  into an  agreement  with  another
financial  institution for a $5,000,000  secured credit  facility.  The facility
bears  interest  at the prime  rate plus  3.75%.  The  facility  is  secured  by
automobile retail installment contracts and will mature on August 12, 1997.



                                        4

<PAGE>


            Management's Discussion and Analysis or Plan of Operation


Liquidity and Capital Resources

     The components of the Company's cash flow are summarized below:

                                                         Nine months ended
                                                           September 30,
                                                        --------------------
                                                        1996            1995
                                                        ----            ----
Cash (Used) Provided by Operating Activities ...    $(8,709,082)    $   504,468
Cash Provided (Used) by Investing Activities ...      2,011,209      (6,223,105)
Cash Provided by Financing Activities ..........      8,903,324       7,819,754
                                                    -----------     -----------
Net Increase in Cash ...........................    $ 2,205,451     $ 2,101,117
                                                    ===========     ===========

Total cash used by operating  activities  was  $(8,709,082)  for the nine months
ended  September  30, 1996 as compared to cash provided of $504,468 for the nine
months  ended  September  30,  1995.  The  decreased  cash flows from  operating
activities resulted primarily from net losses from operations in 1996 as opposed
to net income in 1995,  a  decrease  in  accounts  payable  related to  Contract
purchases  in 1996 as opposed to 1995 and an increase in vehicles  held for sale
in 1996.

Total cash provided by investing  activities  was $2,011,209 for the nine months
ended  September 30, 1996 as opposed to cash used of  $(6,223,105)  for the same
period in 1995.  The increase was due to decreased  originations  and  increased
Contract principal retirements in 1996.

Total cash provided by financing  activities  was $8,903,324 for the nine months
ended  September  30,  1996.  Cash  of  $7,819,754  was  provided  by  financing
activities  in the same period in 1995.  The variance is due primarily to higher
amounts  of debt  originations  offset  by  larger  principal  payments  made in
accordance with terms of outstanding debt arrangements in 1996.

As  disclosed  in  Item  6,  Management's  Discussion  and  Analysis  or Plan of
Operation in the Company's 1995 Form 10-KSB, the Company  anticipated  arranging
the  availability of a $20 million credit facility with a financial  institution
by year end,  1995.  Because this credit  facility was not obtained by year end,
the Company  substantially  decreased  its  Contract  purchases in the first and
second quarters of 1996.

In  June,  1996,  the  Company  entered  into  an  agreement  with  a  financial
institution for a $20,000,000  secured credit  facility.  Under the terms of the
facility,  monthly  interest is paid at a floating rate equivalent to LIBOR plus
3.25% or a specified bank alternative base rate plus 1%. The facility is secured
by  automobile  retail  installment  contracts and will mature on June 23, 1997.
Borrowings under the facility were initiated in July, 1996.

In August, 1996, the Company obtained a $10,000,000 unsecured  subordinated loan
from a financial institution. Under the terms of the loan, interest only is paid
quarterly  during the first two years at a rate of 12% per annum, and thereafter
principal and interest are payable  quarterly  until  maturity on July 31, 2001.
After  payment of  commissions  and fees,  the  Company  realized  approximately
$9,400,000  of net  proceeds  from the loan.  The Company  also issued five year
warrants to purchase  263,750  shares of common  stock at $3.93 per share to the
placement agent in connection with the loan.


                                        5

<PAGE>



Also in August,  1996,  the  Company  entered  into an  agreement  with  another
financial  institution for a $5,000,000  secured credit  facility.  The facility
bears  interest at the prime rate plus 3.75%.  When used,  the facility is to be
secured by automobile retail installment contracts and will mature on August 12,
1997.

As a result of obtaining  these financing  agreements,  the Company has returned
and surpassed to the Contract  purchase  levels it experienced in late 1995, and
is expanding into additional  geographic markets as well as pursuing  additional
dealer relationships in existing markets.

The  Company has begun  preparing  to sell  interests  in  securitized  pools of
Contracts  owned by the Company.  Although there are no assurances  that it will
occur,  management currently plans the initial securitization will occur in late
1996 or early 1997.  In February,  1996,  the Company  entered into an agreement
with a financial  institution  giving the institution the first right of refusal
to  purchase  any  Contracts  offered  for sale by the  Company up to a total of
$50,000,000.  Through  November  12,  1996,  the Company has sold  approximately
$7,300,000 of Contracts under this agreement.

The Company continues to pursue additional  sources of funds,  including but not
limited  to  various  forms of debt and  equity.  Failure  to obtain  additional
funding  sources  will  materially   restrict  the  Company's   future  business
activities.

Results of Operations

Net loss applicable to common  shareholders  for the nine months ended September
30, 1996 was  $(1,598,234)  as  compared to net income of $338,384  for the same
period in 1995. Primary factors contributing to the variance were:

Interest  Income.  Interest income for the nine months ended September 30, 1996,
increased by $1,801,847 to $3,200,251  from $1,398,404 for the same period ended
in 1995.  This  increase  is a result  of a larger  average  Contract  portfolio
balances held by the Company in 1996 as opposed to 1995.

Interest  and Loan  Commission  Expense.  Interest and loan  commission  expense
increased  from  $1,286,780  during the nine months ended  September 30, 1995 to
$2,211,060 during the same period in 1996. Interest expense consists of interest
on capital  and  operating  loans.  This  increase  resulted  primarily  from an
increase in borrowings.  Such increased  borrowings were used to fund the growth
of the Company's Contract portfolio and the Company's operations.

Provision for Credit Losses.  The provision for credit losses increased $254,234
from  $164,408 for the nine months ended  September  30, 1995 to $418,639 in the
same period in 1996.  The Company  determines  the amount of the  allowance  for
credit losses based on the average loss per repossession and the default rate of
the  Contracts.  During the  quarter  ended  September  30,  1996,  management's
estimate  of the  allowance  for  credit  losses  decreased  due to a change  in
estimating  the amount of the average loss  recognized  by year over the average
term of the  Contracts.  This change is reflected as a change in estimate in the
allowance for credit losses  during the quarter  ended  September 30, 1996.  The
increase for the nine months ended  September  30, 1996,  as opposed to the same
period in 1995 is attributable to a larger average portfolio balance in 1996 and
a $200,000  charge to operations for a reassessment of the  collectibility  of a
participation receivable related to Contracts sold in 1995.




                                        6

<PAGE>



Gain on Sale. The gain on sale of Contracts decreased $1,164,958 from $1,839,350
in the nine months  ended  September  30, 1995 to $674,492 in the same period in
1996. The Company sold approximately  $9,500,000 of Contracts in the nine months
ended  September 30, 1996 at 88 to 90% of the  principal  balance at the date of
sale. In the same period in 1995, the Company sold about $9,000,000 of Contracts
at 96% of their principal balance,  plus interest over the life of the loans. In
the third quarter of 1996, the Company repurchased $1,900,000 of Contracts which
were  sold in the  first  and  second  quarters  of 1996.  The  gain  previously
recognized  on the  sale of  these  Contracts  was  reversed  upon  purchase  in
accordance with FAS 77.

Employee  Compensation.  Employee  compensation  and related  costs and benefits
increased for the nine months ended September 30, 1996 by $747,569 to $1,527,870
from $780,301 for the nine months ended  September  30, 1995.  This increase was
primarily due to an increase in sales and operations  staff  necessary to handle
growth and anticipated future growth of the Company's operations.

Other Expenses.  Other expenses increased  $1,037,452 from $684,324 for the nine
months  ended  September  30,  1995 to  $1,721,776  for the  nine  months  ended
September 30, 1996. The Company has invested  significant  resources in the nine
months ended September 30, 1996 in preparation for anticipated  growth.  Primary
contributors   to  the  increase  were  office  and  sales  facility  cost  and,
advertising, consulting, and operating costs relating to the credit decision and
collection processes.

Preferred  Stock  Dividends.   Dividends  in  the  amount  of  $123,203  on  the
outstanding  Series A Preferred Stock have been accrued in the nine months ended
September  30,  1996 as  opposed  to  $13,700  in the same  period in 1995.  The
increase  was due to the fact that the Series A  Preferred  Stock was not issued
until July and August, 1995.

The foregoing discussion contains certain forward-looking  statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
are intended to be covered by the safe harbors created thereby. These statements
include the plans and objectives of management for future operations,  including
plans and  objectives  relating  to the  Contract  purchase  levels  and  market
expansion  anticipated  and  the  general  development  of the  business  of the
Company.  The  forward-looking  statements  included herein are based on current
expectations that involve numerous risks and uncertainties. Assumptions relating
to the foregoing involve  judgments with respect to, among other things,  future
economic,  competitive and market conditions and future business decisions,  all
of which are difficult or impossible to predict accurately and many of which are
beyond the  control of the  Company.  Although  the  Company  believes  that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and,  therefore,  there can be no assurance that
the forward-looking  statements included in this Quarterly Report on Form 10-QSB
will prove to be accurate. In light of the significant uncertainties inherent in
the   forward-looking   statements   included  herein,  the  inclusion  of  such
information  should not be  regarded as a  representation  by the Company or any
other person that the objectives and plans of the Company will be achieved.








                                        7

<PAGE>





PART II - OTHER INFORMATION

Item 6.  Exhibits and reports on Form 8-K,

         (a)  Exhibits
                  None
         (b)  Reports on Form 8-K,

On July 2, 1996,  the Company filed a Current Report on Form 8-K, dated June 24,
1996,  reporting  under  Item 5 thereof  that the  Company  had  entered  into a
Revolving Credit and Security Agreement ("Credit  Agreement") with BNY Financial
Corporation. The Credit Agreement was filed as an exhibit under Item 7.

On August 7, 1996,  the Company filed a Current Report on Form 8-K, dated August
2, 1996,  reporting  under Item 5 thereof  that the Company had obtained the net
proceeds  of  a  $10  million  unsecured  subordinated  loan  from  a  financial
institution.  The  documents  pertaining  to the loan and the warrant  issued in
connection therewith were filed as exhibits under Item 7.





















                                        8

<PAGE>

                                    SIGNATURE


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.




                                    WESTERN FIDELITY FUNDING, INC.


Date:  November 14, 1996                By: /s/ Gene E. Osborn
                                           -----------------------------------
                                         Gene E. Osborn, President,
                                         Chief Executive Officer and Director




Date:  November 14, 1996                By: /s/ Philip J. Bogema
                                           ----------------------------------
                                         Philip J. Bogema
                                         Chief Financial Officer














                                        9