##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
 Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2009oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File
    No. 1-14771
 MicroFinancial
    Incorporated
 (Exact name of Registrant as
    Specified in its Charter)
  Massachusetts(State or other jurisdiction
    of
    incorporation or organization)

04-2962824(I.R.S. Employer
    Identification No.)10M Commerce Way, 
    Woburn, MA(Address of Principal
    Executive Offices)

01801(Zip Code)   Registrants telephone number, Including Area Code:
 (781) 994-4800
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Shares, $0.01 par value per share

The Nasdaq Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
    o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company þ   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





Table of
    Contents
   
  PageDescription



NumberPART IItem 1.


Business


2Item 1A.


Risk Factors


6Item 2.


Properties


11Item 3.


Legal Proceedings


11Item 4.


(Removed and Reserved)


11PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


12Item 6.


Selected Financial Data


14Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations, Including
    Selected Quarterly Financial Data (Unaudited)


16Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


29Item 8.


Financial Statements and Supplementary Data


29Item 9.


Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


29Item 9A.


Controls and Procedures


30Item 9B.


Other Information


30PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


31Item 11.


Executive Compensation


31Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


31Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


32Item 14.


Principal Accountant Fees and Services


32PART IVItem 15.


Exhibits and Financial Statement Schedules


33SIGNATURES


36EX-10.6.6EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   1




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PART I  Item 1.
    Business  General
    start-up
    90-day
    90-day
  Leasing,
    Servicing and Financing Programs
   2




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##### Table of Contents



Year EndedDecember 31,

California

Florida

New York

Texas2007


13
%


13
%


7
%


8
%2008


12
%


13
%


7
%


8
%2009


12
%


13
%


7
%


8
%   Terms
    of Equipment Leases
          Residual
    Interests in Underlying Equipment
  month-to-month
  Dealers
   3




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Use
    of Technology
    ® e-mail,
    Underwriting
       4




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Service
    Contracts
    Bulk
    and Portfolio Acquisitions
    Servicing
    and Collections
      Competition
    Employees
   5




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##### Table of Contents



Executive
    Officers
  Name and Age of Executive Officers

TitleRichard F. Latour, 56

Director, President, Chief Executive Officer, Treasurer, Clerk
    and SecretaryJames R. Jackson, Jr., 48

Vice President and Chief Financial OfficerSteven J. LaCreta, 50

Vice President, Lessee Relations and LegalStephen J. Constantino, 44

Vice President, Human Resources   Backgrounds
    of Executive Officers
          Availability
    of Information
  http://www.microfinancial.com. Form 10-K, Form 10-Q, Form 8-K Form 10-K. http://www.sec.gov.
  Item 1A.
    Risk
    Factors   6




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We depend
    on external financing to fund leases and contracts, and adequate
    financing may not be available to us in amounts that are
    sufficient, together with our cash flow, to originate new
    leases.
          A
    protracted economic downturn may cause an increase in defaults
    under our leases and lower demand for the commercial equipment
    we lease.
     7




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We
    experience a significant rate of default under our leases, and a
    higher than expected default rate would have an adverse effect
    on our cash flow and earnings.
      Our
    allowance for credit losses may prove to be inadequate to cover
    future credit losses.
    We are
    vulnerable to changes in the demand for the types of equipment
    we lease or price reductions in such equipment.
      We may
    face adverse consequences of litigation, including consequences
    of using litigation as part of our collection policy.
   8




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Increased
    interest rates may make our leases or contracts less
    profitable.
    We may
    not be able to realize our entire investment in the residual
    interests in the equipment covered by our leases.
    We face
    intense competition, which could cause us to lower our lease
    rates, hurt our origination volume and strategic position and
    adversely affect our financial results.
   9




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Government
    regulation could restrict our business.
    We may
    face risks in acquiring other portfolios and companies,
    including risks relating to how we finance any such acquisition
    or how we are able to assimilate any portfolios or operations we
    acquire.
      If we
    were to lose key personnel, our operating results may suffer or
    it may cause a default under our debt facilities.
    Certain
    provisions of our articles and bylaws may have the effect of
    discouraging a change in control or acquisition of the
    company.
   10




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Our stock
    price may be volatile, which could limit our access to the
    equity markets and could cause you to incur losses on your
    investment.
    There is
    no assurance that we will continue to pay dividends on our
    common stock in the future.
    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    (Removed
    and Reserved) 11




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PART II  Item 5.
    Market
    For Registrants Common Equity, Related Stockholder Matters
    And Issuer Purchases Of Equity Securities  Market Information
    2009

2008First

Second

Third

Fourth

First

Second

Third

FourthQuarter

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

QuarterStock PriceHigh

$
2.80


$
3.98


$
3.75


$
3.47


$
6.25


$
5.15


$
4.93


$
4.00Low

$
1.55


$
1.72


$
2.85


$
2.49


$
4.60


$
3.00


$
3.30


$
1.50   Holders
    Dividends
                    Repurchases
   12




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Performance Graph
    Comparison
    of 5 Year Cumulative Total Return
    Assumes Initial Investment of $100
    December 2009
  
   13




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Year Ended December 31,2009


2008


2007


2006


2005(Amounts in thousands, except share and per share data)Income Statement Data:Revenues:Income on financing leases

$
29,415


$
23,095


$
12,302


$
3,917


$
4,140Rental income


8,584



9,829



13,612



20,897



25,359Income on service contracts


676



925



1,271



1,870



3,467Other income(1)


7,490



5,676



4,486



5,758



6,318Total revenues


46,165



39,525



31,671



32,442



39,284Expenses:Selling, general and administrative


13,371



13,060



12,824



14,499



20,884Provision for credit losses


22,039



15,313



7,855



6,985



10,468Depreciation and amortization


1,628



976



1,344



5,326



9,497Interest


2,769



1,020



143



162



1,148Total expenses


39,807



30,369



22,166



26,972



41,997Income (loss) before provision (benefit) for income taxes


6,358



9,156



9,505



5,470



(2,713
)Provision (benefit) for income taxes


2,231



3,206



3,303



1,555



(1,053
)Net income (loss)

$
4,127


$
5,950


$
6,202


$
3,915


$
(1,660
)Net income (loss) per common share:Basic

$
0.29


$
0.42


$
0.45


$
0.28


$
(0.12
)Diluted


0.29



0.42



0.44



0.28



(0.12
)Weighted-average shares:Basic


14,147,436



14,002,045



13,922,974



13,791,403



13,567,640Diluted


14,261,644



14,204,105



14,149,634



13,958,759



13,567,640Dividends declared per common share

$
0.15


$
0.20


$
0.20


$
0.20


$
0.50   14




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December 31,2009


2008


2007


2006


2005(Dollars in thousands)Balance Sheet Data:Cash and cash equivalents

$
391


$
5,047


$
7,080


$
28,737


$
32,926Restricted cash


834



528



561







Gross investment in leases(2)


194,629



158,138



102,128



44,314



33,004Unearned income


(55,821
)


(49,384
)


(35,369
)


(13,682
)


(3,658
)Allowance for credit losses


(13,856
)


(11,722
)


(5,722
)


(5,223
)


(8,714
)Investment in service contracts, net






32



203



613



1,626Investment in rental contracts, net


379



240



106



313



3,025Total assets


127,097



104,850



70,982



59,721



65,188Revolving line of credit


51,906



33,325



6,531



5



161Subordinated notes payable


















2,602Total liabilities


60,332



40,512



10,154



3,585



10,501Total stockholders equity


66,765



64,338



60,828



56,136



54,687   December 31,2009


2008


2007


2006


2005(Dollars in thousands, except statistical data)Other Data:Operating Data:Value of leases originated(3)

$
113,987


$
104,529


$
83,698


$
33,343


$
7,296Value of rental contracts originated


















1,731Dealer funding(4)


76,306



68,007



54,035



21,498



6,364Average yield on leases(5)


27.7
%


28.5
%


29.0
%


30.0
%


30.6
%Cash Flows From (Used In):Operating activities

$
57,897


$
43,310


$
30,440


$
26,870


$
35,228Investing activities


(77,969
)


(69,523
)


(55,203
)


(22,114
)


(6,978
)Financing activities


15,416



24,180



3,106



(8,945
)


(5,033
)Net change in cash and cash equivalents

$
(4,656
)

$
(2,033
)

$
(21,657
)

$
(4,189
)

$
(23,217
)Selected Ratios:Return on average assets


3.56
%


6.77
%


9.49
%


6.27
%


(2.43
)%Return on average stockholders equity


6.30



9.51



10.60



7.07



(2.84
)Operating margin(6)


61.51



61.91



54.81



38.39



19.74Credit Quality Statistics:Net charge-offs

$
19,906


$
9,313


$
7,356


$
10,476


$
16,717Net charge-offs as a percentage of average gross investment(7)


11.28
%


7.15
%


9.99
%


26.34
%


30.79
%Provision for credit losses as a percentage of average gross
    investment(7)


12.49



11.76



10.67



17.56



19.28Allowance for credit losses as a percentage of gross
    investment(8)


7.12



7.41



5.59



11.63



25.16     (1)
    
    Includes loss and damage waiver fees, service fees, interest
    income, and miscellaneous revenue.(2)
    
    Consists of receivables due in installments and estimated
    residual value.(3)
    
    Represents the amount paid to dealers upon funding of leases
    plus the associated unearned income. 15




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(4)
    
    Represents the net amount paid to dealers upon funding of leases
    and contracts.(5)
    
    Represents the aggregate of the implied interest rate on each
    lease originated during the period weighted by the amount funded.(6)
    
    Represents income before provision (benefit) for income taxes
    and provision for credit losses as a percentage of total
    revenues.(7)
    
    Represents a percentage of average gross investment in leases
    and net investment in service contracts.(8)
    
    Represents allowance for credit losses as a percentage of gross
    investment in leases and net investment in service contracts.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations, Including Selected Quarterly Financial Data
    (Unaudited)    
    the demand for the equipment types we finance;
    our significant capital requirements;
    our ability or inability to obtain the financing we need, or to
    use internally generated funds, in order to continue originating
    contracts;
    the risks of defaults on our leases;
    our provision for credit losses;
    our residual interests in underlying equipment;
    possible adverse consequences associated with our collection
    policy;
    the effect of higher interest rates on our portfolio;
    increasing competition;
    increased governmental regulation of the rates and methods we
    use in financing and collecting on our leases and contracts;
    acquiring other portfolios or companies;
    dependence on key personnel;
    adverse results in litigation and regulatory matters, or
    promulgation of new or enhanced legislation or
    regulations; and
    general economic and business conditions.   16




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Overview
  point-of-sale
        90-day
       17




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Critical
    Accounting Policies
    Revenue
    Recognition
  month-to-month
    Allowance
    for Credit Losses
     18




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Income
    Taxes
      Share-Based
    Compensation
   19




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##### Table of Contents



Results
    of Operations
  Revenues
  2009


Change


2008


Change


2007(In thousands)Income on financing leases

$
29,415



27.4
%

$
23,095



87.7
%

$
12,302Rental income


8,584



(12.7
)


9,829



(27.8
)


13,612Income on service contracts


676



(26.9
)


925



(27.2
)


1,271Loss and damage waiver fees


4,136



27.8



3,236



59.2



2,033Service fees and other


3,340



45.2



2,300



45.9



1,576Interest income


14



(90.0
)


140



(84.0
)


877Total revenues

$
46,165



16.8
%

$
39,525



24.8
%

$
31,671         Selling,
    General and Administrative
  2009


Change


2008


Change


2007(Dollars in thousands)Selling, general and administrative

$
13,371



2.4
%

$
13,060



1.8
%

$
12,824As a percent of revenue


29.0
%






33.0
%






40.5
%    20




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##### Table of Contents



Provision
    for Credit Losses
  2009


Change


2008


Change


2007(Dollars in thousands)Provision for credit losses

$
22,039



43.9
%

$
15,313



94.9
%

$
7,855As a percent of revenue


47.7
%






38.7
%






24.8
%       Depreciation
    and Amortization
  2009


Change


2008


Change


2007(Dollars in thousands)Depreciation  fixed assets

$
429



12.0
%

$
383



36.8
%

$
280Depreciation  rental equipment


1,170



181.9



415



(40.3
)


695Amortization  service contracts


29



(83.7
)


178



(51.8
)


369Total depreciation and amortization

$
1,628



66.8
%

$
976



(27.4
)%

$
1,344As a percent of revenue


3.5
%






2.5
%






4.2
%   month-to-month
   21




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##### Table of Contents



Interest
    Expense
  2009


Change


2008


Change


2007(Dollars in thousands)Interest

$
2,769



171.5
%

$
1,020



613.3
%

$
143As a percent of revenue


6.0
%






2.6
%






0.5
%       Provision
    for Income Taxes
  2009


Change


2008


Change


2007(In thousands)Provision for income taxes

$
2,231



(30.4
)%

$
3,206



(2.9
)%

$
3,303As a percent of revenue


4.8
%






8.1
%






10.4
%    22




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Other
    Operating Data
     23




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##### Table of Contents



Selected
    Quarterly Data
  Form 10-K.
  2009


2008First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter(Unaudited)Revenues:Income on leases

$
6,789


$
7,098


$
7,635


$
7,893


$
4,940


$
5,596


$
6,030


$
6,529Rental income


2,209



2,138



2,124



2,113



2,752



2,484



2,330



2,263Income on service contracts


189



175



162



150



259



240



221



205Loss and damage waiver fees


986



1,018



1,048



1,084



688



768



849



931Service fees and other


671



699



1,001



969



549



532



632



587Interest income


13



1











60



27



23



30Total revenues


10,857



11,129



11,970



12,209



9,248



9,647



10,085



10,545Expenses:Selling, general and administrative


3,572



3,492



3,349



2,958



3,239



3,198



3,260



3,363Provision for credit losses


5,453



4,993



5,437



6,156



3,357



3,060



3,782



5,114Depreciation and amortization


335



383



440



470



230



230



245



271Interest


516



661



751



841



152



234



310



324Total expenses


9,876



9,529



9,977



10,425



6,978



6,722



7,597



9,072Income before provision for income taxes


981



1,600



1,993



1,784



2,270



2,925



2,488



1,473Provision for income taxes


378



616



767



470



713



1,053



905



535Net income

$
603


$
984


$
1,226


$
1,314


$
1,557


$
1,872


$
1,583


$
938Net income per common share  basic

$
0.04


$
0.07


$
0.09


$
0.09


$
0.11


$
0.13


$
0.11


$
0.07Net income per common share  diluted


0.04



0.07



0.09



0.09



0.11



0.13



0.11



0.07Dividends declared per common share






0.05



0.05



0.05







0.05



0.05



0.10  24




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##### Table of Contents



Exposure
    to Credit Losses
    December 31, 2009


December 31, 2008


December 31, 2007(Dollars in thousands)Current

$
140,000



79.7
%

$
110,423



77.3
%

$
75,528



81.8
%31-60 days
    past due


6,233



3.6



6,941



4.8



4,565



5.061-90 days
    past due


5,336



3.0



5,079



3.6



3,016



3.2Over 90 days past due


24,046



13.7



20,438



14.3



9,205



10.0Receivables due in installments

$
175,615



100.0
%

$
142,881



100.0
%

$
92,314



100.0
%   Liquidity
    and Capital Resources
  General
           25




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##### Table of Contents



Borrowings
    December 31, 2009


December 31, 2008Maximum











MaximumAmounts


Interest


Unused


Facility


Amounts


Interest


Unused


FacilityOutstanding


Rate


Capacity


Amount


Outstanding


Rate


Capacity


Amount(Dollars in 000)Revolving credit facility(1)

$
51,906



5.00
%

$
33,094


$
85,000


$
33,325



3.25
%

$
26,675


$
60,000     (1)
    
    The unused capacity is subject to limitations based on lease
    eligibility and the borrowing base formula.  90-day
  90-day 90-day
  Financial
    Covenants
   26




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##### Table of Contents



Contractual
    Obligations and Lease Commitments
    Payments Due


Payments


Payments


PaymentsLess than


Due


Due


Due AfterContractual Obligations

Total


1 Year


1-3 Years


4-5 Years


5 YearsRevolving line of credit

$
51,906


$
51,906


$



$



$
Operating lease obligations


237



237











Capital lease obligations


96



70



26







Total

$
52,239


$
52,213


$
26


$
0


$
0   Contractual
    Obligations
    Lease
    Commitments
    Market
    Risk and Financial Instruments
           27




---



##### Table of Contents



Recently
    Issued Accounting Pronouncements
  105-10-65.
  03-6-1,Determining (EITF 03-6-1)
  EITF 07-05,
  FAS 107-1 28-1, Form 10-K 10-Qs.
  FSP 157-4,
 28




---



##### Table of Contents



FAS 115-2 FAS 124-2 Other-than-Temporary other-than-temporary other-than-temporary
  2009-5,
    No. 2010-06, 820-10 2010-06
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   29




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##### Table of Contents



Item 9A.
    Controls
    and Procedures  Disclosure
    controls and procedures
  Rule 13a-15
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
      Change in
    Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   30




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters      Equity
    Compensation Plan Information
  Number ofSecuritiesto be Issued


Weighted-Average


Future IssuanceUpon Exercise


Exercise Price of


Under Equityof Outstanding


Outstanding


Compensation PlansOptions,


Options,


(Excluding SecuritiesWarrants


Warrants and


Reflected inPlan Category

and Rights


Rights(2)


Column (a))(a)


(b)


(c)Equity compensation plans approved by security holders(1)


1,258,028


$
6.38



579,479Equity compensation plans not approved by security holders










Total


1,258,028


$
6.38



579,479     (1)
    
    Includes our 1998 Equity Incentive Plan (which was approved by
    stockholders at the 2001 special meeting of stockholders in lieu
    of annual meeting) and our 2008 Equity Incentive Plan (which was
    approved by our stockholders at the 2008 special meeting of
    stockholders in lieu of annual meeting). The number of
    securities available for future issuance will be reduced by
    three for each share of restricted stock or other full
    share award made to an employee of the Company, and by one
    for any option granted or for any award made to non-employee
    directors, under the terms of our 2008 Equity Incentive Plan.(2)
    
    Weighted average exercise price of outstanding options; excludes
    restricted stock. 31




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   32




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##### Table of Contents



PART IV  Item 15.
    Exhibits and
    Financial Statement Schedules  (a) (1)
    Financial Statements  Form 10-K
      ExhibitNumber

Description3
.1

Restated Articles of Organization, as amended. Incorporated by
    reference to the Exhibit with the same exhibit number in the
    Registrants Registration Statement on
    Form S-1
    (Registration Statement
    No. 333-56639)
    filed with the Securities and Exchange Commission on
    June 9, 1998.3
.2

Restated Bylaws, as amended. Incorporated by reference to
    Exhibit 3.2 in the Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 28, 2007.10
.1

Warrant Purchase Agreement dated April 14, 2003 among the
    Company, Fleet National Bank, as agent, and the other Lenders
    named therein. Incorporated by reference to Exhibit 10.2 in
    the Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    May 15, 2003.10
.2

Form of Warrants to purchase Common Stock of the Company issued
    April 14, 2003. Incorporated by reference to
    Exhibit 10.3 in the Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    May 15, 2003.10
.3

Co-Sale Agreement dated April 14, 2003 among the Company,
    Peter R. Bleyleben, Torrence C. Harder, Brian E. Boyle, Richard
    F. Latour, Alan J. Zakon, and James R. Jackson, Jr., and the
    Lenders named therein. Incorporated by reference to
    Exhibit 10.4 in the Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    May 15, 2003.10
.4

Registration Rights Agreement dated April 14, 2003 among
    the Company and the Lenders named therein. Incorporated by
    reference to Exhibit 10.5 in the Registrants
    Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    May 15, 2003.10
.5.1

Commercial Lease, dated November 3, 1998, between Cummings
    Properties Management, Inc. and MicroFinancial Incorporated.
    Incorporated by reference to Exhibit 10.25 in the
    Registrants Amendment No. 2 to Registration Statement
    on
    Form S-1
    (Registration Statement
    No. 333-56639)
    filed with the Securities and Exchange Commission on
    January 11, 1999.10
.5.2

Amendment to Lease #1, dated November 3, 1998, between
    Cummings Properties Management, Inc. and MicroFinancial
    Incorporated. Incorporated by reference to Exhibit 10.26 in
    the Registrants Amendment No. 2 to Registration
    Statement on
    Form S-1
    (Registration Statement
    No. 333-56639)
    filed with the Securities and Exchange Commission on
    January 11, 1999.10
.5.3

Lease Extension for the facility at 10-M Commerce Way, Woburn,
    MA dated September 16, 2003 among MicroFinancial
    Incorporated and Cummings Properties, LLC. Incorporated by
    reference to Exhibit 10.1 in the Registrants
    Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    November 14, 2003.10
.5.4

Lease Extension #2 for the facility at 10-M Commerce Way,
    Woburn, MA dated July 15, 2005 among MicroFinancial
    Incorporated and Cummings Properties, LLC. Incorporated by
    reference to Exhibit 10.1 in the Registrants
    Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 12, 2005.10
.6.1*

1998 Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.12 in the Registrants Amendment No. 2
    to Registration Statement on
    Form S-1
    (Registration Statement
    No. 333-56639)
    filed with the Securities and Exchange Commission on
    January 11, 1999.10
.6.2*

Form of Restricted Stock Agreement grant under 1998 Equity
    Incentive Plan. Incorporated by reference to Exhibit 10.27
    in the Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 30, 2004. 33




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##### Table of Contents



ExhibitNumber

Description10
.6.3*

Form of incentive stock option agreement under 1998 Equity
    Incentive Plan. Incorporated by reference to Exhibit 10.6.3
    in the Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 28, 2007.10
.6.4*

Form of non-qualified stock option agreement under 1998 Equity
    Incentive Plan. Incorporated by reference to Exhibit 10.6.4
    in the Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 28, 2007.10
.6.5*

MicroFinancial Incorporated 2008 Equity Incentive Plan.
    Incorporated by reference to Exhibit 10.1 in the
    Registrants
    Form 8-K
    filed with the Securities and Exchange Commission on
    May 16, 2008.10
.6.6

Form of restricted stock unit (RSU) agreement under the
    MicroFinancial Incorporated 2008 Equity Incentive Plan.10
.7*

Compensatory Arrangements for Non-Employee Directors.
    Incorporated by reference to Exhibit 10.15 in the
    Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.8.1*

Amended and Restated Employment Agreement between the Company
    and Richard F. Latour dated March 15, 2004. Incorporated by
    reference to Exhibit 10.8 in the Registrants Annual
    Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 28, 2007.10
.8.2*

Amendment to Employment Agreement between the Company and
    Richard F. Latour dated December 24, 2008. Incorporated by
    reference to Exhibit 10.8.2 in the Registrants Annual
    Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.9.1*

Employment Agreement between the Company and James R. Jackson,
    Jr. dated May 4, 2005. Incorporated by reference to
    Exhibit 10.3 in the Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 12, 2005.10
.9.2*

Amendment to Employment Agreement between the Company and James
    R. Jackson dated December 24, 2008. Incorporated by
    reference to Exhibit 10.9.2 in the Registrants Annual
    Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.10.1*

Employment Agreement between the Company and Stephen Constantino
    dated May 4, 2005. Incorporated by reference to
    Exhibit 10.4 in the Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 12, 2005.10
.10.2*

Amendment to Employment Agreement between the Company and
    Stephen Constantino dated December 24, 2008. Incorporated
    by reference to Exhibit 10.10.2 in the Registrants
    Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.11.1*

Employment Agreement between the Company and Steven LaCreta
    dated May 4, 2005. Incorporated by reference to
    Exhibit 10.5 in the Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 12, 2005.10
.11.2*

Amendment to Employment Agreement between the Company and Steven
    LaCreta dated December 24, 2008. Incorporated by reference
    to Exhibit 10.11.2 in the Registrants Annual Report
    on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.12

Registration Rights Agreement dated June 10, 2004 by and
    among MicroFinancial Incorporated, Acorn Capital Group, LLC and
    Ampac Capital Solutions, LLC. Incorporated by reference to
    Exhibit 10.12 in the Registrants
    Form 8-K
    filed on June 15, 2004.10
.13

Registration Rights Agreement dated as of September 29,
    2004, by and between MicroFinancial Incorporated and The CIT
    Group/Commercial Services, Inc., as Holder. Incorporated by
    reference to Exhibit 10.10 in the Registrants
    Form 8-K
    filed on October 4, 2004.10
.14.1

Credit Agreement dated August 2, 2007. Incorporated by
    reference to Exhibit 10.1 in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.2

Unlimited Guaranty of Registrant dated August 2, 2007.
    Incorporated by reference to Exhibit 10.2 in the
    Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.3

Unlimited Guaranty of Leasecomm dated August 2, 2007.
    Incorporated by reference to Exhibit 10.3 in the
    Registrants
    Form 8-K
    filed on August 8, 2007. 34




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##### Table of Contents



ExhibitNumber

Description10
.14.4

Security Agreement between Borrower and Agent dated
    August 2, 2007. Incorporated by reference to
    Exhibit 10.4 in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.5

Security Agreement between Registrant and Agent dated
    August 2, 2007. Incorporated by reference to
    Exhibit 10.5 in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.6

Security Agreement between Leasecomm and Agent dated
    August 2, 2007. Incorporated by reference to
    Exhibit 10.6 in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.7

Trademark Security Agreement and License dated August 2,
    2007 by Borrower. Incorporated by reference to Exhibit 10.7
    in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.8

Trademark Security Agreement and License dated August 2,
    2007 by Registrant. Incorporated by reference to
    Exhibit 10.8 in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.9

Trademark Security Agreement and License dated August 2,
    2007 by Leasecomm. Incorporated by reference to
    Exhibit 10.9 in the Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.10

Pledge Agreement of Registrant dated August 2, 2007.
    Incorporated by reference to Exhibit 10.10 in the
    Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.11

Amended and Restated Credit Agreement dated July 9, 2008.
    Incorporated by reference to Exhibit 10.10 in the
    Registrants
    Form 8-K
    filed on July 15, 2008.10
.14.12

Agreement and Amendment No. 1 to Amended and Restated
    Credit Agreement dated February 10, 2009. Incorporated by
    reference to Exhibit 10.1 in the Registrants
    Form 8-K
    filed on February 17, 2009)10
.14.13

Additional Lender Supplement dated February 10, 2009.
    Incorporated by reference to Exhibit 10.2 in the
    Registrants
    Form 8-K
    filed on February 17, 2009.10
.14.14

Commitment Increase Supplement dated February 10, 2009.
    Incorporated by reference to Exhibit 10.3 in the
    Registrants
    Form 8-K
    filed on February 17, 2009.10
.14.15

Sovereign Note dated July 9, 2008. Incorporated by
    reference to Exhibit 10.14 in the Registrants Annual
    Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.14.16

TD Banknorth Note dated July 9, 2008. Incorporated by
    reference to Exhibit 10.14 in the Registrants Annual
    Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.14.17

Commerce Bank & Trust Company Note dated
    February 10, 2009. Incorporated by reference to
    Exhibit 10.14 in the Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.14.18

Danversbank Note dated February 10, 2009. Incorporated by
    reference to Exhibit 10.14 in the Registrants Annual
    Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.10
.14.19

Wells Fargo Bank Note dated February 10, 2009. Incorporated
    by reference to Exhibit 10.14.15 in the Registrants
    Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 31, 2009.21
.1

Subsidiaries of Registrant23
.1

Consent of Caturano and Company, P.C.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement required
    to be filed as an exhibit pursuant to Item 14(c) of this
    Report.     35




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##### Table of Contents



SIGNATURES    Microfinancial
    Incorporated
  By:
    /s/  Richard
    F. Latour  President and Chief Executive Officer
  By:
    /s/  James
    R. Jackson Jr.  Vice President and Chief Financial Officer
      Signature

Title

Date/s/  Peter
    R. BleylebenPeter
    R. Bleyleben

Chairman of the Board of Directors

March 31, 2010/s/  Richard
    F. LatourRichard
    F. Latour

President, Chief Executive Officer, Treasurer, Clerk, Secretary
    and Director

March 31, 2010/s/  James
    R. Jackson Jr.James
    R. Jackson Jr.

Vice President and Chief Financial Officer

March 31, 2010/s/  Brian
    E. BoyleBrian
    E. Boyle

Director

March 31, 2010/s/  John
    W. EveretsJohn
    W. Everets

Director

March 31, 2010/s/  Torrence
    C. HarderTorrence
    C. Harder

Director

March 31, 2010/s/  Fritz
    Von MeringFritz
    Von Mering

Director

March 31, 2010/s/  Alan
    J. ZakonAlan
    J. Zakon

Director

March 31, 2010  36




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Report of Independent Registered Public
    Accounting Firm


F-2Financial Statements Consolidated Balance Sheets
    as of December 31, 2009 and 2008


F-3Consolidated Statements of Operations for the
    Years Ended December 31, 2009, 2008 and 2007


F-4Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2009, 2008 and
    2007


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2009, 2008 and 2007


F-6Notes to Consolidated Financial Statements


F-7   F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
         Caturano
    and Company, P.C.
    F-2




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED BALANCE SHEETS
  December 31,2009


2008(In thousands,except shareand per share data)ASSETSCash and cash equivalents

$
391


$
5,047Restricted cash


834



528Net investment in leases:Receivables due in installments


175,615



142,881Estimated residual value


19,014



15,257Initial direct costs


1,509



1,211Less:Advance lease payments and deposits


(2,411
)


(982
)Unearned income


(55,821
)


(49,384
)Allowance for credit losses


(13,856
)


(11,722
)Net investment in leases


124,050



97,261Investment in service contracts, net






32Investment in rental contracts, net


379



240Property and equipment, net


699



759Other assets


744



983Total assets

$
127,097


$
104,850LIABILITIES AND STOCKHOLDERS EQUITYRevolving line of credit

$
51,906


$
33,325Accounts payable


2,011



1,648Capital lease obligation


93



125Dividends payable






702Other liabilities


1,250



1,308Income taxes payable


209



8Deferred income taxes


4,863



3,396Total liabilities


60,332



40,512Commitments and contingencies (Note H)Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares
    authorized; no shares issued at December 31, 2009 and 2008






Common stock, $.01 par value; 25,000,000 shares
    authorized; 14,174,326 and 14,038,257 shares issued and
    outstanding at December 31, 2009 and 2008, respectively


142



140Additional paid-in capital


46,197



45,774Retained earnings


20,426



18,424Total stockholders equity


66,765



64,338Total liabilities and stockholders equity

$
127,097


$
104,850    F-3




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2009


2008


2007(In thousands, except share and per share data)Revenues:Income on financing leases

$
29,415


$
23,095


$
12,302Rental income


8,584



9,829



13,612Income on service contracts


676



925



1,271Loss and damage waiver fees


4,136



3,236



2,033Service fees and other


3,340



2,300



1,576Interest income


14



140



877Total revenues


46,165



39,525



31,671Expenses:Selling, general and administrative


13,371



13,060



12,824Provision for credit losses


22,039



15,313



7,855Depreciation and amortization


1,628



976



1,344Interest


2,769



1,020



143Total expenses


39,807



30,369



22,166Income before provision for income taxes


6,358



9,156



9,505Provision for income taxes


2,231



3,206



3,303Net income

$
4,127


$
5,950


$
6,202Net income per common share  basic

$
0.29


$
0.42


$
0.45Net income per common share  diluted

$
0.29


$
0.42


$
0.44Weighted average shares outstanding  basic


14,147,436



14,002,045



13,922,974Weighted average shares outstanding  diluted


14,261,644



14,204,105



14,149,634Dividends declared per common share

$
0.15


$
0.20


$
0.20    F-4




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
 Years Ended December 31, 2007, 2008 and 2009
  Additional





TotalCommon Stock


Paid-in


Retained


StockholdersShares


Amount


Capital


Earnings


Equity(In thousands, except share and per share data)Balance at December 31, 2006


13,811,442


$
138


$
44,136


$
11,862


$
56,136Warrant exercises


125,000



1



319







320Purchase and retirement of shares


(75,000
)


(1
)


(398
)






(399
)Stock issued for deferred compensation


77,654



2



307







309Restricted stock granted


11,682







72







72Stock-based compensation










12







12Amortization of unearned compensation


10,000







32







32Conversion of share-based liability awards to equity awards










932







932Common stock dividends ($0.20 per share)














(2,788
)


(2,788
)Net income














6,202



6,202Balance at December 31, 2007


13,960,778



140



45,412



15,276



60,828Stock options exercised


17,500







28







28Stock issued for deferred compensation


53,729







241







241Stock-based compensation










74







74Amortization of unearned compensation


6,250







19







19Common stock dividends ($0.20 per share)














(2,802
)


(2,802
)Net income














5,950



5,950Balance at December 31, 2008


14,038,257



140



45,774



18,424



64,338Stock issued for deferred compensation


131,069



2



336







338Stock-based compensation










73







73Amortization of unearned compensation


5,000







14







14Common stock dividends ($0.15 per share)














(2,125
)


(2,125
)Net income














4,127



4,127Balance at December 31, 2009


14,174,326


$
142


$
46,197


$
20,426


$
66,765    F-5




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2009


2008


2007(In thousands)Cash flows from operating activities:Cash received from customers

$
76,022


$
59,330


$
42,553Cash paid to suppliers and employees


(15,290
)


(14,564
)


(12,653
)Cash paid for income taxes


(563
)


(576
)


(230
)Interest paid


(2,286
)


(1,020
)


(107
)Interest received


14



140



877Net cash provided by operating activities


57,897



43,310



30,440Cash flows from investing activities:Investment in lease contracts


(76,306
)


(68,007
)


(54,035
)Investment in direct costs


(1,294
)


(1,156
)


(761
)Investment in property and equipment


(369
)


(360
)


(407
)Net cash used in investing activities


(77,969
)


(69,523
)


(55,203
)Cash flows from financing activities:Proceeds from secured debt


91,146



87,541



11,685Repayment of secured debt


(72,565
)


(60,747
)


(5,159
)Decrease (increase) in restricted cash


(306
)


33



(561
)Proceeds from capital leases obligations


31



163



Repayment of capital leases


(63
)


(38
)


Proceeds from exercise of common stock warrants










41Purchase and retirement of common stock warrants










(120
)Proceeds from the sale of capital stock






28



Payment of dividends


(2,827
)


(2,800
)


(2,780
)Net cash provided by financing activities


15,416



24,180



3,106Net change in cash and cash equivalents


(4,656
)


(2,033
)


(21,657
)Cash and cash equivalents, beginning


5,047



7,080



28,737Cash and cash equivalents, ending

$
391


$
5,047


$
7,080Reconciliation of net income to net cash provided by operating
    activitites:Net income


4,127



5,950



6,202Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of unearned income, net of initial direct costs


(29,415
)


(23,095
)


(12,302
)Depreciation and amortization


1,628



976



1,344Provision for credit losses


22,039



15,313



7,855Recovery of equipment cost and residual value


56,881



40,549



22,909Stock-based compensation expense


425



334



549Non-cash interest expense










37Increase in deferred income taxes liability


1,467



2,850



3,636Changes in assets and liabilities:Income taxes payable


201



(220
)


(513
)Decrease (increase) in other assets


239



(280
)


(87
)Increase in accounts payable


363



426



691Increase (decrease) in other liabilities


(58
)


507



119Net cash provided by operating activities

$
57,897


$
43,310


$
30,440Supplemental disclosure of non-cash activities:Fair value of stock issued for compensation

$
338


$
241


$
381Conversion of share-based liability awards to equity awards










932    F-6




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS
 (Tables in thousands, except share and per share data)
  A.
    Nature of
    Business    B.
    Summary
    of Significant Accounting Policies  Basis of
    Presentation
    Use of
    Estimates
    Cash and
    Cash Equivalents
    Restricted
    Cash
    Leases
    and Revenue Recognition
  month-to-month
 F-7




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Allowance
    for Credit Losses
      Investment
    in Service Contracts
      December 31,2009


2008Investment in service contracts

$
1,350


$
1,819Less accumulated amortization


(1,350
)


(1,787
)Investment in service contracts, net

$



$
32    F-8




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Investment
    in Rental Contracts
  point-of-sale
    December 31,2009


2008Investment in rental contracts

$
3,262


$
4,020Less accumulated depreciation


(2,883
)


(3,780
)Investment in rental contracts, net

$
379


$
240     Property
    and Equipment
    Fair
    Value of Financial Instruments
    Debt
    Issue Costs
    Income
    Taxes
   F-9




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  740-10
  Net
    Income Per Common Share
    Year Ended December 31,2009


2008


2007Net income

$
4,127


$
5,950


$
6,202Weighted-average shares outstanding used in computation of net
    income per share  basic


14,147,436



14,002,045



13,922,974Dilutive effect of options, warrants and restricted stock


114,208



202,060



226,660Shares used in computation of net income per common
    share  assuming dilution


14,261,644



14,204,105



14,149,634Net income per common share  basic

$
0.29


$
0.42


$
0.45Net income per common share  diluted

$
0.29


$
0.42


$
0.44   Stock-Based
    Employee Compensation
  Share-Based Payment
  
    All new awards issued after the effective date;
    All modifications, repurchases or cancellations of existing
    awards after the effective date; and
    Unvested awards at the effective date. F-10




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Recent
    Accounting Pronouncements
  105-10-65.
  03-6-1,Determining (EITF 03-6-1)
  EITF 07-05,
  FAS 107-1 28-1, Form 10-K 10-Qs.
 F-11




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  FSP 157-4,
  FAS 115-2 FAS 124-2, Other-than-Temporary other-than-temporary other-than-temporary
  2009-5,
    No. 2010-06, 820-10 No. 2010-06
 F-12




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   C.
    Net
    Investment in Leases    Year Ending December 31,2010

$
77,9662011


51,6762012


30,2272013


12,5362014


3,210Total

$
175,615       Year Ended December 31,2009


2008


2007Allowance for credit losses, beginning

$
11,722


$
5,722


$
5,223Provision for credit losses


22,039



15,313



7,855Charge-offs


(24,181
)


(13,641
)


(12,119
)Recoveries


4,276



4,328



4,763Allowance for credit losses, ending

$
13,856


$
11,722


$
5,722     Year Ended December 31,2009


2008


2007Estimated residual value, beginning

$
15,257


$
9,814


$
3,859Lease originations


8,747



8,221



7,145Terminations


(4,990
)


(2,778
)


(1,190
)Estimated residual value, ending

$
19,014


$
15,257


$
9,814    F-13




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   D.
    Property
    and Equipment    December 31,2009


2008Computer equipment

$
4,136


$
4,911Office equipment


742



732Leasehold improvements


263



263Total


5,141



5,906Less accumulated depreciation and amortization


(4,442
)


(5,147
)Net

$
699


$
759     E.
    Notes
    Payable    December 31,2009


2008Revolving line of credit-Sovereign

$
51,906


$
33,325         90-day
 F-14




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    F.
    Stockholders
    Equity  Warrants
  EITF 07-05,
        Stock
    Options and Restricted Stock
   F-15




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Number


Amortizedof


CompensationShares


ExpenseNon-vested at December 31, 2006


25,000Granted


Vested


(10,000
)

$
32,000Non-vested at December 31, 2007


15,000Granted


Vested


(6,250
)

$
19,000Non-vested at December 31, 2008


8,750Granted


Vested


(5,000
)

$
14,000Non-vested at December 31, 2009


3,750  F-16




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                       F-17




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-AverageShares


Price Per Share

Exercise PriceOutstanding at December 31, 2006


1,242,500


$1.585 to $13.544

$
9.189Granted


40,188


$5.77

$
5.77Outstanding at December 31, 2007


1,282,688


$1.585 to $13.544

$
9.08Granted


176,879


$5.85

$
5.85Exercised


(17,500
)

$1.585

$
1.585Outstanding at December 31, 2008


1,442,067


$1.585 to $13.544

$
8.78Granted


321,058


$2.30

$
2.30Expired


(400,000
)

$12.31 to $13.544

$
12.34Forfeited


(105,097
)

$2.30 to $5.85

$
3.74Outstanding at December 31, 2009


1,258,028


$1.585 to 13.10

$
6.38       Outstanding


ExercisableWeighted-





Weighted-Average


Intrinsic


Average





IntrinsicExercise Price

Shares


Life (Years)


Value


Exercise Price


Shares


Value$9.78


350,000



0.15






$
9.78



350,000



13.10


90,000



1.14







13.10



90,000



6.70


235,000



2.16







6.70



235,000



1.59


150,000



2.91



227,000



1.59



150,000



227,0005.77


31,923



7.17







5.77







5.85


142,382



8.08







5.85







2.30


258,723



9.17



207,000



2.30







1,258,028



3.86


$
434,000



6.38



825,000


$
227,000      F-18




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Common
    Stock Reserved
   F-19




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Warrants


93,289Stock options


1,258,028Restricted stock grants


3,750Reserved for future grants [under 2008 Equity Incentive Plan]


579,479Total


1,934,546   G.
    Income
    Taxes    Year Ended December 31,2009


2008


2007Current:Federal

$



$



$
67State


764



358



188764



358



255Deferred:Federal


1,699



2,988



3,269State


(232
)


(140
)


(221
)1,467



2,848



3,048Total

$
2,231


$
3,206


$
3,303     2009


2008Deferred tax assets:Allowance for credit losses

$
5,542


$
4,713Depreciation and amortization


18,318



17,640Federal alternative minimum tax credit


808



808Federal NOL carryforward


5,877



4,146State NOL and other state attributes


3,792



3,440State valuation allowance


(948
)


(1,289
)Total deferred tax assets


33,389



29,458Deferred tax liabilities:Lease receivable and unearned income


(30,248
)


(26,109
)Residual value


(7,605
)


(6,131
)Initial direct costs


(399
)


(325
)Reserve for contingencies






(289
)Total deferred tax liabilities


(38,252
)


(32,854
)Net deferred tax liability

$
(4,863
)

$
(3,396
)    F-20




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2009


2008


2007Federal statutory rate


35.00
%


35.00
%


35.00
%State income taxes, net of federal benefit


7.43



4.33



7.10State valuation allowance


(3.48
)


(3.33
)


(6.35
)Reversal of state income tax reserve


(4.33
)


(1.17
)


(2.02
)Nondeductible expenses and other


0.47



0.18



1.02Effective income tax rate


35.09
%


35.01
%


34.75
%     Uncertain
    Tax Positions
    Balance at January 1, 2008

$
620,000Additions for tax positions related to current year


32,000Reductions for tax positions as a result of:Settlements


(44,000
)Lapse of statute of limitations


(163,000
)Balance at December 31, 2008


445,000Additions for tax positions related to current year


39,550Reductions for tax positions as a result of:Lapse of statute of limitations


(445,000
)Balance at December 31, 2009

$
39,550    F-21




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   H.
    Commitments
    and Contingencies  Operating
    Leases
    Capital
    Leases
    For the years ended December 31,2010

$
70,0002011


25,0002012


1,000Total minimum payments


96,000Less amounts representing interest


(3,000
)Total


93,000   Dividends
    Legal
    Matters
    Lease
    Commitments
    I.
    Employee
    Benefit Plan   F-22




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   J.
    Concentration
    of Credit Risk         F-23