Exhibit 99

MICROFINANCIAL INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Accountants                                          F-2

Financial Statements:

Consolidated Balance Sheets as of December 31, 1997 and 1998               F-3

Consolidated Statements of Operations for the years ended 
          December 31, 1996, 1997 and 1998                                 F-4

Consolidated Statements of Stockholders' Equity for the years 
          ended December 31, 1996, 1997 and 1998                           F-5

Consolidated Statements of Cash Flows for the years ended 
           December 31, 1996, 1997 and 1998                                F-6

Notes to Consolidated Financial Statements                                 F-8









                                      F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
MicroFinancial Incorporated:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
statements  of  operations,  of  stockholders'  equity and of cash flows present
fairly,  in all material  respects,  the  financial  position of  MicroFinancial
Incorporated and its subsidiaries (the "Company") at December 31, 1997 and 1998,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP

Boston, Massachusetts
February 19, 1999













                                      F-2
<PAGE>

                           MICROFINANCIAL INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                    ---------------------------------
                                                                                          1997            1998
                                                       ASSETS

Net investment in leases and loans:
<S>                                                                                   <C>             <C>
     Receivables due in installments                                                    $238,979        $251,060
     Estimated residual value                                                             16,784          17,562
     Initial direct costs                                                                  2,777           4,260
     Loans receivable                                                                      2,467          12,253
     Less:
        Advance lease payments and deposits                                                 (334)         (1,081)
        Unearned income                                                                  (73,060)        (74,520)
        Allowance for credit losses                                                      (26,319)        (24,850)
                                                                                ---------------------------------
Net investment in leases and loans:                                                     $161,294        $184,684
Investment in service contracts                                                            2,145           8,920
Cash and cash equivalents                                                                  9,252           6,817
Property and equipment, net                                                                4,265           6,747
Other assets                                                                               2,745           3,086
                                                                                =================================
          Total assets                                                                  $179,701        $210,254
                                                                                =================================
</TABLE>

                       LIABILITIES, REDEEMABLE CONVERTIBLE
                    PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

<S>                                                                                     <C>             <C>
Notes payable                                                                           $116,830        $130,421
Subordinated notes payable                                                                26,382          24,421
Capitalized lease obligations                                                              1,071             774
Accounts payable                                                                              89             149
Dividends payable                                                                            294             346
Other liabilities                                                                          5,300           5,481
Income taxes payable                                                                           0             625
Deferred income taxes payable                                                             10,969          18,554
                                                                                ---------------------------------
          Total liabilities                                                              160,935         180,771
                                                                                ---------------------------------

Commitments and contingencies                                                                  -               -
Redeemable convertible preferred stock (liquidation preference
     $12, at December 31, 1997 and 1998)                                                       -               -
Stockholders' equity:
     Common stock                                                                             98              99
     Additional paid-in capital                                                            1,604           1,816
     Retained earnings                                                                    17,366          27,956
     Treasury stock, at cost                                                                (138)           (138)
     Notes receivable from officers and employees                                           (164)           (250)
                                                                                ---------------------------------
          Total stockholders' equity                                                      18,766          29,483
                                                                                =================================
          Total liabilities and stockholders' equity                                    $179,701        $210,254
                                                                                =================================

 The accompanying notes are an integral part of the consolidated financial statements
</TABLE>

                                      F-3
<PAGE>

                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                            For the years ended
                                                                                                December 31,
                                                                                ----------------------------------------
                                                                                      1996         1997        1998

Revenues:
<S>                                                                                 <C>          <C>         <C>    
     Income on financing leases and loans                                           $38,654      $45,634     $47,341
     Income on service contracts                                                          6          501       2,565
     Rental income                                                                    8,250       10,809      16,118
     Loss and damage waiver fees                                                      4,188        5,448       5,441
     Service fees                                                                     4,487        5,788       5,035
                                                                                -------------------------------------
          Total revenues                                                             55,585       68,180      76,500
                                                                                -------------------------------------

Expenses:
     Selling general and administrative                                              14,073       17,252      20,061
     Provision for credit losses                                                     19,822       21,713      19,075
     Depreciation and amortization                                                    2,981        3,787       5,076
     Interest                                                                        10,163       11,890      12,154
                                                                                -------------------------------------
          Total expenses                                                             47,039       54,642      56,366
                                                                                -------------------------------------

Income before provision for income taxes                                              8,546       13,538      20,134
Provision for income taxes                                                            3,466        5,886       8,210
                                                                                -------------------------------------

Net Income                                                                           $5,080       $7,652     $11,924
                                                                                =====================================

Net Income per common share - basic                                                   $0.52        $0.78       $1.21
                                                                                =====================================

Net Income per common share - diluted                                                 $0.52        $0.76       $1.19
                                                                                =====================================

Dividends per common share                                                            $0.10        $0.12       $0.14
                                                                                =====================================

 The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>




                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                           MICROFINANCIAL INCORPORATED
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              for the years ended December 31, 1996, 1997, and 1998
                        (in thousands, except share data)


                                                                                                        Notes
                                           Common Stock          Additional                           Receivable     Total
                                   -------------------------     Paid-in     Retained     Treasury      From         Stockholders'
                                      Shares         Amount      Capital     Earnings       Stock      Officers      Equity
                                   -----------------------------------------------------------------------------------------
<S>                                  <C>              <C>       <C>          <C>          <C>          <C>         <C>    
Balance at December 31, 1995          9,677,720        $ 97      $ 1,438      $ 6,681      $ (100)      $ (205)     $ 7,911
Exercise of stock options                 5,620                        4                                                  4
Common stock dividends                                                           (920)                                 (920)
Notes receivable from officers                                                                             104          104
Net income                                                                      5,080                                 5,080
                                   -----------------------------------------------------------------------------------------

Balance at December 31, 1996          9,683,340          97        1,442       10,841        (100)        (101)      12,179
Exercise of stock options               120,910           1          162                                                163
Common stock dividends                                                         (1,127)                               (1,127)
Purchase of treasury stock               (5,250)                                              (38)                      (38)
Notes receivable from officers
     and employees                                                                                         (63)         (63)
Net income                                                                      7,652                                 7,652
                                   -----------------------------------------------------------------------------------------

Balance at December 31, 1997          9,799,000          98        1,604       17,366        (138)        (164)      18,766
Exercise of stock options               114,166           1          212                                                213
Common stock dividends                                                         (1,334)                               (1,334)
Conversion of preferred stock to
     common stock                        19,600
Notes receivable from officers
     and employees                                                                                         (86)         (86)
Net income                                                                     11,924                                11,924
                                   -----------------------------------------------------------------------------------------

Balance at December 31, 1998          9,932,766        $ 99      $ 1,816     $ 27,956      $ (138)      $ (250)    $ 29,483
                                   =========================================================================================

 The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>




                                      F-5
<PAGE>


<TABLE>
<CAPTION>
                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                                                           For the year ended
                                                              December 31,
                                                        -------------------------------
                                                           1996        1997       1998
Cash flows from operating activities:
<S>                                                     <C>         <C>        <C>
    Cash received from customers                        $ 87,130    $ 118,444  $ 139,215
    Cash paid to suppliers and employees                 (16,708)     (29,113)   (31,993)
    Interest paid                                        (10,724)     (12,334)   (11,648)
    Interest received                                        406          396        399
                                                        --------------------------------
       Net cash provided by operating activities          60,104       77,393     95,973
                                                        --------------------------------

Cash flows from investing activities:
    Investment in leased equipment                       (81,303)     (71,943)   (83,786)
    Investment in direct costs                            (2,186)      (2,354)    (4,070)
    Investment in service contracts                       (2,431)      (2,972)    (8,080)
    Investment in loans receivable                             0       (2,538)   (11,683)
    Investment in fixed assets                              (628)        (288)      (459)
    Issuance of notes from officers and employees              0         (150)      (145)
    Repayment of notes from officers                         104           87         59
    Investment in notes receivable                          (349)        (160)      (228)
    Repayment of notes receivable                            111          191        281
                                                        --------------------------------
       Net cash used in investing activities             (86,682)     (80,127)  (108,111)
                                                        --------------------------------

Cash flows from financing activities:
    Proceeds from secured debt                           181,006       56,639     96,817
    Repayment of secured debt                            (29,946)     (56,194)   (83,135)
    Proceeds from refinancing of secured debt                  0      203,580    343,499
    Prepayment of secured debt                          (129,049)    (203,580)  (343,499)
    Proceeds from short term demand notes payable            123          497        280
    Repayment of short term demand notes payable            (833)        (315)      (369)
    Proceeds from issuance of subordinated debt           15,410        2,123      1,200
    Repayment of subordinated debt                        (1,740)      (2,891)    (3,261)
    Proceeds from exercise of common stock options             4          162        162
    Repayment of capital leases                             (393)        (697)      (709)
    Purchase of treasury stock                                 0          (38)         0
    Payment of dividends                                    (871)      (1,075)    (1,282)
                                                        ---------------------------------
       Net cash provided by (used in)
       financing activities                                33,711       (1,789)     9,703
                                                        ---------------------------------

Net increase (decrease) in cash and cash equivalents:      7,133       (4,523)    (2,435)
Cash and cash equivalents, beginning of period:            6,642       13,775      9,252
                                                        =================================
Cash and cash equivalents, end of period:               $ 13,775      $ 9,252    $ 6,817
                                                        =================================




                                      F-6
<PAGE>

                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Continued)


                                                             For the year ended
                                                                December 31,
                                                        -------------------------------
                                                           1996        1997       1998
Reconciliation of net income to net cash
 provided by operating activities:
    Net Income                                          $  5,080     $  7,652   $ 11,924
    Adjustments to reconcile net income to cash 
     provided by operating activities
      Depreciation and amortization                        2,981        3,787      5,076
      Provision for credit losses                         19,822       21,713     19,075
      Recovery of equipment cost and residual value, 
      net of revenue recognized                           29,378       41,334     51,271
      Increase (decrease) in current taxes                  (379)      (1,266)     1,285
      Increase in deferred income taxes                    1,892        4,897      7,585
    Change in assets and liabilities:
      Decrease (increase) in other assets                   (603)        (173)      (809)
      (Decrease) increase in accounts payable                711           65         60
      Increase (decrease) in accrued liabilities           1,222         (616)       506
                                                        =================================
       Net cash provided by operating activities        $ 60,104     $ 77,393   $ 95,973
                                                        =================================
Cash paid for income taxes                              $  1,954     $  2,254   $    146
                                                        =================================

Supplemental disclosure of noncash activities:
    Property acquired under capital leases              $    985     $    246   $    412
    Accrual of common stock dividends                   $    242     $    294   $    346


 The accompanying notes are an integral part of the consolidated financial statements.


                                      F-7
</TABLE>
<PAGE>

                          MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              (tables in thousands)


A.   Nature of Business

     MicroFinancial   Incorporated  (the  "Company")  which  operates  primarily
through its wholly-owned  subsidiary,  Leasecomm  Corporation,  is a specialized
commercial  finance  company that leases and rents  "microticket"  equipment and
provides  other  financing  services in amounts  generally  ranging from $900 to
$2,500,  with an average amount financed of approximately  $1,400 and an average
lease term of 45 months.  The Company does not market its  services  directly to
lessees but sources leasing  transactions through a network of independent sales
organizations  and  other  dealer-based  origination  networks  nationwide.  The
Company  funds its  operations  primarily  through  borrowings  under its credit
facilities,  issuances  of  subordinated  debt and  securitizations.  One dealer
accounted for 11.6% of originations in the year ended December 31, 1998. In July
1998,  the Company  changed its name from Boyle  Leasing  Technologies,  Inc. to
MicroFinancial Incorporated.

     In December 1992, May 1993 and November 1994, Leasecomm Corporation created
wholly-owned  subsidiaries,  BLT Finance  Corporation  I ("BLT I"),  BLT Finance
Corporation  II  ("BLT  II")  and  BLT  Finance  Corporation  III  ("BLT  III"),
respectively,  which are special purpose corporations for the securitization and
financing of lease receivables.

     In June 1996, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and  Extinguishment  of Liabilities"  ("SFAS No. 125"). SFAS
No. 125 is effective  for  transactions  entered  into after  December 31, 1996.
Under SFAS No. 125, an entity will recognize the financial and servicing  assets
it controls and the liabilities it has incurred,  derecognize  financial  assets
when control has been surrendered and derecognize liabilities when extinguished.
Effective January 1997, the Company adopted SFAS No. 125.

     While the Company generally does not sell its interests in leases,  service
contracts  or  loans to third  parties  after  origination,  the  Company  does,
however,  from  time to time,  contribute  certain  leases  to  special  purpose
corporations  for purposes of obtaining  financing in connection  with its lease
receivables.  As these  transfers  do not result in a change in control over the
lease  receivables,  sale treatment and related gain recognition  under SFAS No.
125 does not occur.  Accordingly,  the lease  receivable  and related  liability
remain on the balance sheet.

     If SFAS No. 125 were effective for transactions  prior to 1997, there would
have been no change in the accounting for these financing transactions.

     During 1997 and 1996, the credit facilities related to the  securitizations
of BLT I and BLT II were paid off, respectively. Both of these subsidiaries were
dissolved on December 31, 1997.

B.    Summary of Significant Accounting Policies

Basis of Presentation

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All significant  intercompany  accounts and
transactions have been eliminated in consolidation.



                                      F-8
<PAGE>

                          MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                  (Continued)


Stock Splits

     On June 16, 1997, the Company's Board of Directors authorized a ten-for-one
stock split.  This  resulted in the issuance of 4,432,824  additional  shares of
common stock.  On June 12, 1998, the Company's  Board of Directors  authorized a
two-for-one  stock  split to be  effective  with the  Company's  initial  public
offering.  All share and per share  amounts have been  restated to reflect these
stock splits.  The two-for-one stock split resulted in the issuance of 5,047,478
additional  shares of common stock  including  the  automatic  conversion of 490
shares of preferred stock to 19,600 shares of common stock.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amount of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported  amount of revenues and expenses during the reported
period. Actual results could differ from those estimates.

Cash and Cash Equivalents

     The Company considers all highly liquid instruments  purchased with initial
maturities of less than three months to be cash  equivalents.  Cash  equivalents
consist principally of overnight investments.

Leases and Loans

     The Company's  lease  contracts are accounted for as financing  leases.  At
origination,  the  Company  records the gross lease  receivable,  the  estimated
residual  value of the leased  equipment,  initial direct costs incurred and the
unearned  lease income.  Unearned  lease income is the amount by which the gross
lease  receivable  plus the  estimated  residual  value  exceeds the cost of the
equipment. Unearned lease income and initial direct costs incurred are amortized
over the related  lease term using the interest  method which results in a level
rate of return on the net investment in leases.  Amortization  of unearned lease
income and initial  direct costs is suspended if, in the opinion of  management,
the lease  agreement is determined to be impaired.  It is  management's  opinion
given the nature of its  business and the large  number of small  balance  lease
receivables that a lease is impaired when one of the following  occurs:  (i) the
obligor  files  for  bankruptcy;  (ii) the  obligor  dies and the  equipment  is
returned;  or (iii)  when an account  has  become 360 days past due.  It is also
management's  policy to maintain  an  allowance  for credit  losses that will be
sufficient  to provide  adequate  protection  against  losses in its  portfolio.
Management  regularly reviews the  collectibility of its lease receivables based
upon all of its communications with the individual lessees through its extensive
collection  efforts and through  further review of the  creditworthiness  of the
lessee.

     In conjunction  with the  origination  of leases,  the Company may retain a
residual interest in the underlying equipment upon termination of the lease. The
value of such  interests is  estimated  at inception of the lease and  evaluated
periodically  for  impairment.  An impairment  is recognized  when expected cash
flows to be realized  subsequent to the end of the lease are expected to be less
than the residual value recorded.  Other revenues such as loss and damage waiver
and service fees relating to the leases, contracts and loans and rental revenues
are recognized as they are earned.

     Loans are reported at their outstanding principal balance.  Interest income
on loans is recognized as it is earned.



                                      F-9
<PAGE>
                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (in thousands, except per share data)
                                  (Continued)



Allowance for Credit Losses

     The Company  maintains an allowance for credit losses on its  investment in
leases,  service contracts and loans at an amount that it believes is sufficient
to provide adequate protection against losses in its portfolio. The allowance is
determined  principally  on the basis of the historical  loss  experience of the
Company and the level of recourse  provided by such lease,  service  contract or
loan, if any, and reflects  management's  judgment of additional  loss potential
considering future economic conditions and the nature and characteristics of the
underlying  lease  portfolio.  The Company  determines  the  necessary  periodic
provision for credit losses  taking into account  actual and expected  losses in
the  portfolio  as a whole  and the  relationship  of the  allowance  to the net
investment in leases, service contracts and loans.

Investment in Service Contracts

     The Company's  investments in cancelable  service contracts are recorded at
cost and  amortized  over the  expected  life of the service  period.  Income on
service  contracts from monthly  billings is recognized as the related  services
are provided. The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or recoverability of the
investment in service contracts.

Property and Equipment

     Rental  equipment is recorded at estimated  residual value and  depreciated
using the straight-line method over a period of twelve months.

     Office  furniture,  equipment  and capital  leases are recorded at cost and
depreciated using the straight-line method over a period of three to five years.
Leasehold  improvements  are amortized over the shorter of the life of the lease
or the  asset.  Upon  retirement  or other  disposition,  the  cost and  related
accumulated  depreciation  of the assets are removed  from the  accounts and the
resulting gain or loss is reflected in income.

Fair Value of Financial Instruments

     For financial instruments including cash and cash equivalents,  investments
in financing leases and loans,  accounts payable,  and accrued  expenses,  it is
assumed  that the  carrying  amount  approximates  fair value due to their short
maturity.


                                      F-10
<PAGE>

                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (in thousands, except per share data)
                                  (Continued)


Interest-Rate Hedging Agreements

     The Company enters into  interest-rate  hedging agreements to hedge against
potential increases in interest rates on the Company's  outstanding  borrowings.
The  Company's  policy is to accrue  amounts  receivable  or payable  under such
agreements as reductions or increases in interest expense, respectively.

Debt Issue Costs

     Debt issuance  costs  incurred in securing  credit  facility  financing are
capitalized and subsequently amortized over the term of the credit facility.

Income Taxes

     Deferred   income  taxes  are  determined   under  the  liability   method.
Differences  between  the  financial  statement  and tax  bases  af  assets  and
liabilities are measured using the currently enacted tax rates expected to be in
effect when these  differences  reverse.  Deferred  tax expense is the result of
changes in the liability for deferred taxes. The principal  differences  between
assets and liabilities  for financial  statement and tax return purposes are the
treatment of leased assets, accumulated depreciation and provisions for doubtful
accounts.  The  deferred  tax  liability  is reduced by loss  carryforwards  and
alternative minimum tax credits available to reduce future income taxes.

New Accounting Pronouncements

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive  Income." This
statement requires that changes in comprehensive  income be shown in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements. The statement is effective for fiscal years beginning after December
15, 1997 and the Company has  adopted its  provisions  in 1998.  The Company has
evaluated the impact this  statement  will have on its financial  statements and
determined that no additional disclosure is required.

     In March 1998,  the  American  Institute of  Certified  Public  Accountants
issued  Statement of Position 98-1,  "Internal Use Software," ("SOP 98-1") which
provides  guidance  on the  accounting  for the costs of software  developed  or
obtained for internal  use.  SOP 98-1 is  effective  for fiscal years  beginning
after  December  15, 1998.  The Company does not expect the  statement to have a
material impact on its financial position or results of operations.







                                      F-11
<PAGE>

                          MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data
                                   (Continued)




     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities"  ("SFAS No. 133"). SFAS No. 133 establishes  accounting
and reporting  standards for derivative  instruments and requires that an entity
recognize all  derivatives  as either assets or liabilities in the balance sheet
and measure  those  instruments  at fair value.  SFAS No. 133 is  effective  for
companies with fiscal years  beginning  after June 15, 1999 and the Company will
adopt its  provisions in 2000. The Company has not yet evaluated the impact this
statement will have on its financial position or results of operations.

Reclassification of Prior Year Balances

     Certain  reclassifications  have  been  made to prior  years'  consolidated
financial statements to conform to the current presentation.

Net Income Per Common Share

     The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings  Per  Share,"  ("SFAS  No.  128")  which  specifies  the  computation,
presentation and disclosure  requirements for net income per common share. Basic
net income per common share is computed based on the weighted  average number of
common shares outstanding during the period,  adjusted for a 10-to-1 stock split
effected  in 1997 and a 2-to-1  stock  split  which  became  effective  with the
Company's initial public offering on February 5, 1999, each as described in Note
H.  Dilutive net income per common share gives effect to all dilutive  potential
common shares outstanding during the period. Under SFAS No. 128, the computation
of diluted earnings per share does not assume the issuance of common shares that
have an antidilutive effect on net income per common share.

<TABLE>
<CAPTION>
                                                              For the year ended December 31,
                                                    ---------------------------------------------------
                                                          1996             1997             1998
                                                    ---------------------------------------------------
<S>                                                          <C>              <C>             <C>     
Net income                                            $     5,080    $     7,652         $   11,924
                                                    ---------------------------------------------------
Shares used in computation:
     Weighted average common shares
        outstanding used in computation of
        net income per common share                     9,682,851      9,793,140          9,859,127
     Dilutive effect of redeemable
        convertible preferred stock                        39,200         19,600             19,600
     Dilutive effect of common stock
        options                                            48,562        112,589            153,248
                                                    ---------------------------------------------------

Shares used in computation of net income
     per common share - assuming
     dilution                                           9,770,613      9,925,329         10,031,975
                                                    ===================================================

Net income per common share                           $      0.52     $     0.78         $     1.21
                                                    ===================================================

Net income per common share -
     assuming dilution                                $      0.52     $     0.76         $     1.19
                                                    ===================================================

</TABLE>



                                      F-12
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                  (Continued)


C. Leases and Loans

     At December  31,  1998,  future  minimum  payments on the  Company's  lease
receivables are as follows:

For the year ended
   December 31,
       1999  .............................           $117,315
       2000  .............................             75,220
       2001  .............................             44,229
       2002  .............................             13,633
       2003  .............................                600
       Thereafter ........................                 63
                                                     ========
       Total ...........................             $251,060
                                                     ========

At December  31,  1998,  the weighted  average  remaining  life of leases in the
Company's  lease portfolio is  approximately  45 months and the implicit rate of
interest is approximately 35%.

The Company's  business is  characterized  by a high incidence of  delinquencies
which in turn may lead to significant levels of defaults.  The Company evaluates
the  collectibility of leases and loans based on the level of recourse provided,
if any, delinquency  statistics,  historical lease experience,  current economic
conditions and other  relevant  factors.  The Company  provides an allowance for
credit losses for leases which are considered impaired.

     The Company historically took charge-offs against its receivables when such
receivables  were  360  days  past  due.  During  this  period,  cumulative  net
charge-offs  after recoveries from the Company's  inception to December 31, 1998
have totaled 7.8% of total  cumulative  receivables  plus total billed fees over
such period.  In September and October 1996, the Company reduced the time period
for charging off its non-securitized  receivables from 360 to 240 days and, as a
result, increased its charge-offs by a total of approximately $5.0 million. As a
result of this change,  recoveries  increased  significantly,  indicating that a
240-day  charge-off period was too early in the collection  process to determine
ultimate  collectibility.  As such, during 1997 net charge-offs after recoveries
were not  significantly  different than the Company's  historical net charge-off
experience. For this reason, in January 1998, the Company changed its charge-off
policy for its  receivables  back to 360 days to better  reflect  the  Company's
collection experience.

The following  table sets forth the Company's  allowance for credit losses as of
December 31, 1995, 1996, 1997 and 1998 and the related  provisions,  charge-offs
and recoveries for the years ended December 31, 1996, 1997 and 1998.

    Balance at December 31, 1995......................                   $15,952
    Provision for credit losses ......................                    19,822
    Charge-offs ......................................        15,675
    Recoveries........................................         3,727
                                                             --------
     Charge-offs, net of recoveries...................                    11,948
                                                                          ------

    Balance at December 31, 1996......................                   $23,826
    Provision for credit losses.......................                    21,713
    Charge-offs.......................................        24,290
    Recoveries........................................         5,070
                                                             --------
     Charge-offs, net of recoveries...................                    19,220
                                                                         -------


                                      F-13
<PAGE>

    Balance at December 31, 1997......................                   $26,319
    Provision for credit losses.......................                    19,075
    Charge-offs.......................................        28,750
    Recoveries........................................         8,206
                                                             --------
     Charge-offs, net of recoveries...................                    20,544
                                                                         -------

    Balance at December 31, 1998......................                   $24,850
                                                                         =======

In conjunction with the origination of leases, the Company may retain a residual
interest in the underlying equipment upon termination of the lease. The value of
such interests is estimated at inception of the lease and evaluated periodically
for impairment.  The following table sets forth the Company's estimated residual
value as of December 31, 1995,  1996, 1997 and 1998 and changes in the Company's
estimated residual value as a result of new originations, and lease terminations
for the years ended December 31, 1996, 1997 and 1998.

    Balance of Estimated Residual Value at December 31, 1995...     $10,967
    New Originations...........................................       6,335
    Lease Terminations.........................................      (2,600)
    Balance of Estimated Residual Value at December 31, 1996...     $14,702
    New Originations...........................................       6,056
    Lease Terminations.........................................      (3,974)
    Balance of Estimated Residual Value at December 31, 1997...     $16,784
    New Originations...........................................       6,424
    Lease Terminations.........................................      (5,646)
    Balance of Estimated Residual Value at December 31, 1998...     $17,562





                                      F-14
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                  (Continued)


New originations  represent the residual value added to the Company's  estimated
residual value upon origination of new leases. Lease terminations  represent the
residual  value  deducted from the Company's  estimated  residual value upon the
termination  of a lease (i) that is bought out during or at the end of the lease
term; (ii) upon expiration of the original lease term when the lease converts to
an extended rental contract and (iii) that has been charged off by the Company.

D.      Property and Equipment

     At December  31, 1997 and 1998,  property  and  equipment  consisted of the
following:


                                                                 December 31,
                                                          ----------------------
                                                              1997          1998

     Rental Equipment....................................   $ 5,588      $ 9,676
     Computer Equipment..................................     2,998        2,821
     Office Equipment....................................       634          968
     Leasehold improvements..............................       224          218
                                                          ----------------------
                                                              9,444       13,683
     Less accumulated depreciation and amortization.......    5,179        6,936
                                                          ----------------------
     Total................................................  $ 4,265      $ 6,747
                                                          ======================

Depreciation  and  amortization  expense  totaled  $2,981,000,   $3,787,000  and
$5,076,000 for the years ended December 31, 1996, 1997 and 1998, respectively.

At December  31,  1997 and 1998,  computer  equipment  includes  $2,339,000  and
$2,141,000 respectively,  under capital leases. Accumulated amortization related
to capital leases amounted to $1,306,000 and $1,393,000, respectively.

At  December  31,  1997 and 1998,  accumulated  depreciation  related  to rental
equipment amounted to $3,060,000 and $4,408,000, respectively.

E.     Notes Payable

Notes Payable 

The Company has a revolving  line of credit and term loan  facility with a group
of financial  institutions whereby it may borrow a maximum of $105,000,000 based
upon qualified  lease  receivables.  Outstanding  borrowings with respect to the
revolving  line of credit  bear  interest  based  either at Prime for Prime Rate
loans or London  Interbank  Offered Rate (LIBOR) plus 1.85% for LIBOR Loans.  If
the LIBOR  loans are not renewed  upon their  maturity  then they  automatically
convert into prime rate loans.  The prime rates at December  31, 1996,  1997 and
1998 were 8.25%, 8.50% and 7.75% respectively.  The 90-day LIBOR at December 31,
1996, 1997 and 1998 were 5.76%, 5.91% and 5.28% respectively.



                                      F-15
<PAGE>


                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


At December 31, 1998, the Company had borrowings outstanding under the agreement
with the following terms:


            Type                                         Rate     Amount

            Prime..........................             7.7500%      $572
            LIBOR..........................             7.4068%    15,000
            LIBOR..........................             7.3939%    20,000
            Fixed..........................             7.7500%     3,709
                                                                ----------
                   Total Outstanding                              $39,281
                                                                ==========

At December 31, 1997, the Company had borrowings outstanding under the agreement
with the following terms:


            Type                                         Rate      Amount

            Prime..........................             8.5000%    $6,634
            LIBOR..........................             7.7250%    12,000
            Fixed..........................             8.3000%     5,798
            Fixed..........................             7.7500%     9,273
                                                                ----------
                   Total Outstanding                              $33,705
                                                                ==========

Outstanding  borrowings  are  collateralized  by leases  and  service  contracts
pledged  specifically  to the  financial  institutions.  All balances  under the
revolving line of credit will be automatically  converted to a term loan on July
31,  1999  provided  the line of credit is not  renewed  and no event of default
exists at that date. All converted term loans are repayable over the term of the
underlying leases, but not in any event to exceed 48 monthly  installments.  The
most  restrictive  covenants of the agreement  have minimum net worth and income
requirements  and limit payment of dividends to no more than 50% of consolidated
net income, as defined, for the immediately preceding fiscal year.




                                      F-16
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)



The Company has an additional  revolving  credit  agreement and term loan with a
group of  financial  institutions  whereby  it may  borrow  up to a  maximum  of
$35,000,000  based on eligible lease  receivables.  Outstanding  borrowings with
respect to the revolving  line of credit bear interest based either at prime for
prime rate loans or LIBOR plus 1.85% for LIBOR Loans. If the LIBOR loans are not
renewed  upon their  maturity  then they  automatically  convert into prime rate
loans.

At December 31, 1998, the Company had borrowings outstanding under the agreement
with the following terms:

            Type                                         Rate      Amount

            Prime..........................             7.7500%    $5,943
            LIBOR..........................             7.1938%    10,001
            LIBOR..........................             7.4103%     7,499
                                                                ----------
                   Total Outstanding                              $23,443
                                                                ==========

At December 31, 1997, the Company had borrowings outstanding under the agreement
with the following terms:


            Type                                         Rate      Amount

            Prime..........................             8.5000%    $2,816
            LIBOR..........................             7.5688%    17,500
            LIBOR..........................             8.4375%     5,000
            LIBOR..........................             7.6273%     3,000
            Fixed..........................             8.3000%        68
            Fixed..........................             7.7500%       797
                                                                ----------
                   Total Outstanding                              $29,181
                                                                ==========




                                      F-17
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


Outstanding  borrowings  are  collateralized  by leases  and  service  contracts
pledged  specifically  to the  financial  institutions.  All balances  under the
revolving line of credit will be automatically  converted to a term loan on July
31,  1999  provided  the line of credit is not  renewed  and no event of default
exists at that date. All converted term loans are repayable over the term of the
underlying leases, but not in any event to exceed 24 monthly  installments.  The
most  restrictive  covenants of the agreement  have minimum net worth and income
requirements  and limit payment of dividends to no more than 50% of consolidated
net income, as defined, for the immediately preceding fiscal year.

BLT III has five series of notes,  the 1994-A  Notes,  the 1996-A  Notes and the
1997-A Notes the 1998-A Notes and the Warehouse Notes. In November 1994, BLT III
issued the 1994-A Notes in aggregate  principal  amount of  $18,885,000.  In May
1996,  BLT III  issued  the  1996-A  Notes  in  aggregate  principal  amount  of
$23,406,563.  In August  1997,  BLT III  issued the  1997-A  Notes in  aggregate
principal  amount of $44,763,000 and in November 1998, BLT III issued the 1998-A
Notes in aggregate principal amount of $40,769,000.

Pursuant to the Master Financing  Indenture the Company may issue one additional
series of Term Notes,  the warehouse notes,  with a maximum  principal amount of
$20,000,000.  The warehouse  notes expired in August of 1997, at which time they
were converted to BLT III 1997-A Notes.

At December 31, 1998, BLT III had borrowings  outstanding under the three series
of notes with the following terms:

             Note Series                      Expiration    Rate      Amount

            1996-A Notes..................       5/16/00   6.6900% $   4,752
            1997-A Notes..................       1/16/00   6.4200%    23,944
            1998-A Notes..................       5/17/04   6.0300%    38,703
                                                                   ==========
                   Total                                           $  67,399
                                                                   ==========

At December 31, 1997, BLT III had borrowings  outstanding under the three series
of notes with the following terms:

            Note Series                      Expiration     Rate      Amount

            1994-A Notes.................      12/16/98     7.33%  $     721
            1996-A Notes.................       5/16/00     6.69%     13,214
            1997-A Notes.................       1/16/00     6.42%     39,620
                                                                   =========
                   Total                                           $  53,555
                                                                   =========





                                      F-18
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)

Outstanding   borrowings  are   collateralized  by  a  specific  pool  of  lease
receivables.

At December 31, 1997 and 1998,  the Company also had other notes  payable  which
totaled  $389,000 and  $298,000,  respectively.  The notes are due on demand and
bear interest at a rate of prime less 1.00%. Other notes payable include amounts
due to stockholders of the Company at December 31, 1997 and 1998 of $197,000 and
$248,000,  respectively.  Interest paid to Stockholders under such notes was not
material for the years ended December 31, 1996, 1997 and 1998.

Subordinated Notes Payable

At December  31, 1997 and 1998,  the Company  also has senior  subordinated  and
subordinated  debt  outstanding  amounting to $26,382,000 and $24,421,000 net of
unamortized  discounts  of $213,000  and  $113,000,  respectively.  This debt is
subordinated  in the  rights to the  Company's  assets to notes  payable  to the
primary lenders as described above. Outstanding borrowings bear interest ranging
from 8.5% to 14% for fixed rate  financing  and prime plus 3% to 4% for variable
rate  financing.  These notes have  maturity  dates ranging from January 1998 to
October 2003.  The Company has three senior  subordinated  notes.  The first was
issued  in  August  1994 at 12% to a  financial  institution  with an  aggregate
principal  amount of $7,500,000.  Cash proceeds from this note were  $6,743,108,
net of a discount  of  $756,892  which is being  amortized  over the life of the
note. This senior note requires annual payments of $1,500,000 commencing on July
15, 1997 until the note  matures in July 2001.  The second  senior  subordinated
note was issued in October  1996 at 12.25% to a  financial  institution  with an
aggregate  principal  amount of  $5,000,000.  This senior note requires  monthly
payments of (i)$125,000  for the period November 1, 1998 through October 1, 2000
and (ii)  $166,667  for the period  November  1, 2000 until the note  matures in
October 1, 2001. The third senior  subordinated  note was issued in October 1996
at 12.60% to a  financial  institution  with an  aggregate  principal  amount of
$5,000,000.  This senior note requires quarterly payments of $250,000 commencing
on March 15, 1999 until the note matures in October 2003.  The most  restrictive
covenants of the senior  subordinated note agreements have minimum net worth and
interest  coverage ratio  requirements and restrictions on payment of dividends.
At December  31, 1998  subordinated  notes  payable  include  $3,697,000  due to
shareholders.  Interest paid to shareholders  under such notes, at rates ranging
between 8% and 14%,  amounted to  $183,000,  $472,000 and $488,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.




                                      F-19
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


At December  31,  1998,  the  repayment  schedule,  assuming  conversion  of the
revolving line of credit to a term loan, for outstanding  notes and subordinated
notes is as follows:

    Repayment Schedule

    For the year ended
       December 31,
    ------------------
           1999........................................ $    62,295
           2000........................................      49,340
           2001........................................      29,614
           2002........................................      11,295
           2003........................................       2,411
           Thereafter..................................           0
                                                        -----------
                                                            154,955
           Unamortized discount on senior
             subordinated debt.........................        (113)
                                                        -----------
           Total....................................... $   154,842
                                                        ===========

It is estimated that the carrying amounts of the Company's  borrowings under its
variable rate revolving credit agreements approximate their fair value. The fair
value of the  Company's  short-term  and  long-term  fixed  rate  borrowings  is
estimated using  discounted cash flow analysis,  based on the Company's  current
incremental  borrowing  rates for similar  types of borrowing  arrangements.  At
December 31, 1997 and 1998, the aggregate  carrying value of the Company's fixed
rate borrowings was  approximately  $96,900,000 and  $95,500,000,  respectively,
with an  estimated  fair value of  approximately  $92,900,000  and  $96,000,000,
respectively.

F.     Notes Receivable from Officers and Employees

     During 1997 and 1998,  the Company  issued  notes to certain  officers  and
employees in connection  with the exercise of common stock options  amounting to
$150,000 and $144,000  respectively,  in exchange for recourse  loans with fixed
maturity dates prior to the expiration date of the original grant. The notes are
non- interest  bearing  unless the principal  amount thereof is not paid in full
when due,  at which  time  interest  accrues  and is payable at a rate per annum
equal to the prime rate plus 4.0%. The notes can be repaid from the  application
of dividends paid on the common stock but in all cases are to be paid in full at
the maturity date or upon the employee leaving the Company. At December 31, 1997
and 1998, notes receivable outstanding from officers and employees were $164,000
and $250,000, respectively.





                                      F-20

<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)

G.     Redeemable Preferred Stock:

     At December  1997 and 1998,  the Company had  authorized  88,231  shares of
convertible  preferred stock  ("preferred  stock") with a par value of $1.00, of
which 490 shares of the Series C  Convertible  Preferred  Stock were  issued and
outstanding, respectively, at December 31, 1997 and 1998.

     Shares of preferred  stock are  convertible  into shares of common stock at
the  option  of the  holder  according  to a  conversion  formula  (which  would
currently result in a one-for-forty exchange) with mandatory conversion upon the
completion of a public offering  meeting certain minimum  proceeds,  as defined.
Holders of the preferred stock are entitled to an annual cumulative  dividend of
$.765 per share,  if and when declared.  The holder of the preferred stock has a
liquidation  preference  of $25.50 for preferred  stock,  plus earned and unpaid
dividends.  In  addition,  the  preferred  shareholder  is entitled to vote as a
class,  proportional  to the number of common  shares  into which his  preferred
shares are convertible.

     Upon  completion of the Company's  initial  public  offering on February 5,
1999,  the 490 preferred  shares were  automatically  converted to 19,600 common
shares.

H.     Stockholders' Equity:

Common Stock

     The Company had 10,000,000 and 25,000,000 authorized shares of common stock
with a par  value of $.01 per  share of which  9,799,000  and  9,932,766  shares
(giving  effect to the two stock  splits  referred  to below)  were  issued  and
outstanding at December 31, 1997 and 1998, respectively.

Treasury Stock

     The Company had 142,590  shares of common stock in treasury at December 31,
1997 and 1998,  and 490 shares of  preferred  stock in treasury at December  31,
1997 and 1998.






                                      F-21
<PAGE>

                          MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                  (Continued)


H.   Stockholders' Equity (Continued):

Stock Options

     In 1987, the Company  adopted its 1987 Stock Option Plan (the "Plan") which
provided  for the  issuance of  qualified  or  nonqualified  options to purchase
shares of the Company's  common stock. In 1997, the Company's Board of Directors
approved an amendment to the Plan,  as a result of the stock split.  Pursuant to
this amendment, the aggregate number of shares issued shall not exceed 1,220,000
and the exercise price of any  outstanding  options issued  pursuant to the Plan
shall be reduced by a factor of ten and the number of outstanding options issued
pursuant to the Plan shall be increased by a factor of ten. The Company  adopted
the 1998 Equity  Incentive Plan (the "1998 Plan") on July 9, 1998. The 1998 Plan
permits the  Compensation  Committee of the Company's Board of Directors to make
various long-term incentive awards, generally equity-based, to eligible persons.
The company intends to reserve  2,000,000  shares of the Company's  common stock
for  issuance  pursuant to the 1998 Plan.  Qualified  stock  options,  which are
intended to qualify as  "incentive  stock  options"  under the Internal  Revenue
Code,  may be issued to employees  at an exercise  price per share not less than
the fair value of the common  stock at the date  granted  as  determined  by the
Board of  Directors.  Nonqualified  stock  options  may be issued  to  officers,
employees and directors of the Company as well as consultants  and agents of the
Company at an exercise  price per share not less than fifty  percent of the fair
value of the common stock at the date of grant as determined  by the Board.  The
vesting  periods and expiration  dates of the grants are determined by the Board
of Directors. The option period may not exceed ten years.

The following summarizes the stock option activity:

<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                         Average
                                            Shares            Price Per Share         Exercise Price
                                       ----------------  -------------------------- --------------------

<S>                                          <C>          <C>                           <C>
Outstanding at December 31, 1994          1,466,680         $0.10625 to $0.6375           $ 0.275
Exercised                                (1,399,400)        $0.10625 to $0.6375           $ 0.260
Granted                                     320,000         $0.6375  to $1.95             $ 1.910

Outstanding at December 31, 1995            387,280         $0.6375  to $1.95             $ 1.690
Exercised                                    (5,620)        $0.6375                       $ 0.6375

Outstanding at December 31, 1996            381,660         $0.6375  to $1.95             $ 1.705
Exercised                                  (120,910)        $0.6375  to $1.95             $ 0.975
Canceled                                     (9,750)        $1.95                         $ 1.950

Outstanding at December 31, 1997            251,000         $0.6375  to $1.95             $ 1.870
Exercised                                  (114,166)        $0.6375  to $1.95             $ 1.859
Canceled                                    (16,454)        $1.95                         $ 1.950

Outstanding at December 31, 1998            120,380         $0.6375  to $1.95             $ 1.866

</TABLE>

     The options vest over five years and are exercisable only after they become
fully vested. At December 31, 1997 and 1998, 65,988 and 6,682 of the outstanding
options were fully vested.

     At December 31, 1997 and 1998,  270,000 and 139,980  shares of common stock
were  reserved for  conversion  of redeemable  convertible  preferred  stock and
common stock option exercises.

                                      F-22
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


H.     Stockholders' Equity (Continued):

Stock Options (Continued):

     Information  relating to stock options at December 31, 1998,  summarized by
exercise price is as follows:

                       Outstanding                                   Exercisable
-------------------------------------------------   ----------------------------

                                      Weighted            Weighted
                                      Average             Average
   Exercise Price         Shares    Life (Years)       Exercise Price   Shares
-------------------------------------------------   ----------------------------

    $ 0.6375            7,698            2.7            $ 0.6375           0
    $   1.95          112,682            4.0              $ 1.95       6,682
                      -------                                         ------


$0.6375 to $1.95      120,380            3.9            $ 1.866        6,682
                      =======                                         ======

     All stock options  issued to employees have an exercise price not less than
the fair market value of the  Company's  common  stock on the date of grant.  In
accordance with accounting for such options utilizing the intrinsic value method
there is no related  compensation  expense  recorded in the Company's  financial
statements.  Effective  for fiscal  1996,  the Company  adopted  the  disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock  Based  Compensation"  (SFAS No.  123").  SFAS No. 123  requires  that
compensation  under a fair  value  method be  determined  using a  Black-Scholes
option  pricing  model and  disclosed  in a pro forma  effect  on  earnings  and
earnings per share.  Had  compensation  cost for stock based  compensation  been
determined based on the fair value at the grant dates consistent with the method
of SFAS No. 123, the Company's  pro forma net income  applicable to common stock
for the years ended December 31, 1996, 1997 and 1998 would have been $5,072,000,
$7,644,000 and $11,918,000,  respectively. Pro forma net income per common share
would not have been different than net income per common share as reported.

     The fair value of option grants is estimated on the date of grant utilizing
the  Black-Scholes  option-pricing  model with the  following  weighted  average
assumptions  for grants in 1995: an expected life of the options of seven years,
a risk-free interest rate of approximately  5.5%, a dividend yield of 4%, and no
volatility. The weighted average fair value at date of grant for options granted
during 1995 approximated $.27 per option. There were no options granted in 1996,
1997 or 1998.





                                      F-23

<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


I.     Income Taxes


The provision for income taxes consists of the following:

                                      For the years ended December 31,
                             --------------------------------------------------
                                     1996              1997              1998

Current:
      Federal                        1,556              898               500
      State                             18               91               125
                             --------------------------------------------------
                                     1,574              989               625
                             --------------------------------------------------

Deferred:
      Federal                        1,100            3,703             6,447
      State                            792            1,194             1,138
                             --------------------------------------------------
                                     1,892            4,897             7,585
                             --------------------------------------------------

               Total                 3,466            5,886             8,210
                             ==================================================


At December 31, 1997 and 1998,  the components of the net deferred tax liability
were as follows:

                                                       1997              1998
                                                 -------------------------------

Investment in leases, other than allowance          64,405            35,257
Allowance for credit losses                           (108)             (986)
Operating lease depreciation                       (45,001)          (25,436)
Debt issue costs                                       455               391
Other                                                1,947            13,549
Alternative minimum tax                             (3,983)           (4,483)
Loss carryforwards                                  (6,746)            8,151
Deferred receivables                                     0            (7,889)
                                                 -------------------------------
               Total                                10,969            18,554
                                                 ===============================





                                      F-24
<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                  (Continued)


     The following is a reconciliation between the effective income tax rate and
the applicable statutory federal income tax rate:

                                                For the years ended December 31,
                                            ------------------------------------
                                                1996         1997       1998

Federal statutory rate                          34.0%        34.0%      35.0%
State income taxes, net of federal benefit       6.3%         6.7%       5.7%
Nondeductible expenses and other                 0.3%         2.8%       0.1%
                                            ------------------------------------

Effective income tax rate                       40.6%        43.5%      40.8%
                                            ====================================


     At December 31, 1998, the Company had loss  carryforwards  of approximately
$19,800,000 which may be used to offset future income.  These loss carryforwards
are  available  indefinitely  for use against  future  income  until they expire
between the years 2015 and 2017.

J.     Commitments and Contingencies

The Company's lease for its facility in Waltham,  Massachusetts expires in 1999.
This lease  contains one five-year  renewal option with  escalation  clauses for
increases  in  the  lessor's  operating  costs.  The  Company's  lease  for  its
facilities in Newark, California expires in 2001.

The Company  signed a lease for 44,659  square  feet of office  space in Woburn,
Massachusetts  which  commenced on December 15, 1998 and expires on December 14,
2003. The monthly rent under this lease is $57,000.





                                      F-25

<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


The Company has entered into various  operating  lease  agreements  ranging from
three to four years for additional office  equipment.  At December 31, 1998, the
future  minimum  lease  payments  under  noncancelable   operating  leases  with
remaining terms in excess of one year are as follows:

    For the year ended
       December 31,
    -------------------
           1999....................................  $ 1,252
           2000....................................      738
           2001....................................      727
           2002....................................      685
           Thereafter..............................      628
                                                   ==========
           Total...................................  $ 4,030
                                                   ==========

Rental expense under operating leases totaled $788,000, $991,000, and $1,131,000
for the years ended December 31, 1996, 1997 and 1998, respectively.

The Company has entered into various capital lease agreements ranging from three
to four years for office  equipment,  computer  equipment and  telecommunication
systems. At December 31, 1998 future minimum lease payments under capital leases
were as follows:

    For the year ended
       December 31,
    -------------------
           1999..................................... $   550
           2000.....................................     209
           2001.....................................      67
           2002.....................................       0
                                                   ----------
           Total minimum lease payments.............     826
           Less amounts representing interest.......    (52)
                                                   =========
           Total...................................    $ 774
                                                   ==========

The  Company  and its  subsidiaries  are  frequent  parties to  various  claims,
lawsuits  and  administrative  proceedings  arising  in the  ordinary  course of
business.  Although  the  outcome of these  lawsuits  cannot be  predicted  with
certainty, the Company does not expect such matters to have a material effect on
the financial condition or results of operations of the Company.

K.     Employee Benefit Plan:

     The Company has a defined  contribution  plan under  Section 401 (k) of the
Internal Revenue Code to provide retirement and profit sharing benefits covering
substantially all full-time  employees.  Employees are eligible to contribute up
to 15% of their gross salary.  The Company will  contribute $.50 for every $1.00
contributed  by an employee up to 3% of the  employee's  salary.  Vesting in the
Company  contributions  is over a five-year  period based upon 20% per year. The
Company's  contribution to the defined contribution plan were $72,000,  $106,000
and $134,000 for the years ended December 31, 1996, 1997 and 1998.


                                      F-26

<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


L.      Interest Rate Swap

The Company is exposed to market risks brought on by changes in interest  rates.
Derivative financial  instruments are used by the Company to reduce those risks,
as explained in this note.

(a) Notional amounts and credit exposures of derivatives

The notional amount of  derivatives,  as summarized in section (b) below, do not
represent amounts that are exchanged by the parties,  and thus are not a measure
of the Company's exposure.  The amounts exchanged are calculated on the basis of
the notional or contract amounts, as well as on other terms of the interest rate
swap derivatives, and the volatility of these rates and prices.

The  Company  would  be  exposed  to  credit-related  losses  in  the  event  of
nonperformance by the counterparties that issued the financial instruments.  The
Company does not expect the  counterparty to interest rate swaps to fail to meet
their  obligations,  given  its high  credit  rating.  The  credit  exposure  of
derivative  contracts is  represented by the positive fair value of contracts at
the reporting date, reduced by the effects of the master netting agreement.  The
Company does not give or receive  collateral  on its interest  rate swaps due to
its own credit rating and that of its counterparty.

(b) Interest Rate Risk Management

Interest  rate swap  contracts  involve the exchange by the Company with another
party of their  respective  commitments  to pay or receive  interest,  e.g., and
exchange of floating  rate  payments for fixed rate  payments  with respect to a
notional  amount of  principal.  The Company has entered  into this  contract to
reduce the impact of changes in interest rates on its floating rate debt.

The Company has entered into this  interest  rate swap  agreement  only on a net
basis, which means that the two payment streams are netted out, with the Company
receiving  or  paying,  as the  case  may be,  only  the net  amount  of the two
payments.  Interest rate swaps do not involve the delivery of securities,  other
underlying  assets or principal.  Accordingly,  the risk of loss with respect to
interest rate swaps is limited to the net amount of payments that the Company is
contractually  entitled to receive,  if any. Interest rate swaps entered into by
the Company may not be readily marketable.

At December  31,  1998,  the  Company had  outstanding  one  interest  rate swap
agreement  with one of its banks,  having a total notional  principal  amount of
$17,500,000.  The  agreement  effectively  changes the  Company's  interest rate
exposure on  $17,500,000  of its floating  rate  $35,000,000  revolving  line of
credit due July 31, 1999 to a fixed  8.45%.  The  interest  rate swap matures on
July 10, 2000. The interest  differential paid or received on the swap agreement
is recognized as an adjustment to interest expense.  Interest expense related to
the swap was $78,000 and  $177,000  for the years  ended  December  31, 1997 and
1998, respectively. At December 31, 1998, the fair market value of this interest
rate swap,  which  represents  the amount the  Company  would  receive or pay to
terminate the agreement, is a net payable of $458,000, based on dealer quotes.


                                      F-27

<PAGE>

                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (tables in thousands, except per share data)
                                   (Continued)


The market risk exposure from the interest rate swap is assessed in light of the
underlying  interest  rate  exposures.  Credit  risk  exposure  from the swap is
minimized as the agreement is with a major  financial  institution.  The Company
monitors the creditworthiness of this financial institution and full performance
is anticipated.

M.    Concentration of Credit Risk

     The Company's  financial  instruments that are exposed to concentrations of
credit risk consist  primarily of lease and loan  receivables  and cash and cash
equivalent  balances.  To  reduce  the  risk to the  Company,  stringent  credit
policies are followed in approving leases and loans, and lease pools are closely
monitored  by  management.  In  addition,  the  cash and  cash  equivalents  are
maintained with several high quality financial institutions.

     One dealer accounted for approximately 11.6% of all originations during the
year ended December 31, 1998. No other dealer accounted for more than 10% of the
Company's  origination volume during the years ended December 31, 1996, 1997, or
1998.

N.     Subsequent Events

     On  February  5,  1999,  the  Company  was  admitted  to the New York Stock
Exchange  following its initial  public  offering of 4 million shares at $15 per
share, 600,000 of which were sold by existing stockholders.  The Company's stock
trades under the ticker  symbol MFI.  Total costs of  $1,313,891  related to the
initial public offering  offset the proceeds of  $51,000,000.  On June 12, 1998,
the  Company's  Board of Directors  authorized a  two-for-one  stock split to be
effective with the Company's  initial public  offering.  All share and per share
amounts have been restated to reflect this stock split.

     In conjunction with the Initial Public Offering in February 1999, the Board
of Directors of the Company authorized 5,000,000 shares of preferred stock, none
of which has been issued. Shares of such preferred stock may be issued from time
to time  in one or more  series  and  with  such  designations,  voting  powers,
preferences,  and relative  participating  optional or other special rights, and
qualifications,  limitations,  and  restrictions  on such rights as the Board of
Directors may authorize.

     On January 27, 1999, the Company amended and restated both of its revolving
lines of credit  and term loan  facilities,  whereby  it may borrow a maximum of
$55,000,000  under  each  facility  based  upon  qualified  lease   receivables.
Outstanding  borrowings  with  respect  to the  revolving  line of  credit  bear
interest  based  either at prime for prime  rate  loans or LIBOR  plus 1.75% for
LIBOR  loans.  Outstanding  borrowings  are  collateralized  by leases,  service
contracts,  and  installment  finance  contracts  pledged  specifically  to  the
financial institutions.  All balances under the revolving line of credit will be
automatically  converted to a term loan on July 31, 2000 and September 30, 2000,
respectively, provided the line of credit is not renewed and no event of default
exists at that date. All converted term loans are repayable over the term of the
underlying leases, but not in any event to exceed 36 monthly  installments.  The
most  restrictive  covenants of the agreement  have minimum net worth and income
requirements  and limit payment of dividends to no more than 50% of consolidated
net income, as defined, for the immediately preceding fiscal year.



                                      F-28