<PAGE>
                                                                      Exhibit 99

                           MICROFINANCIAL INCORPORATED

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<S>                                                                          <C>
Reports of Independent Accountants                                           F-2

Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 2001                 F-4

Consolidated Statements of Operations for the Years Ended
   December 31, 1999, 2000, and 2001                                         F-5

Consolidated Statements of Stockholders' Equity for the Years Ended
   December 31, 1999, 2000, and 2001                                         F-6

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1999, 2000, and 2001                                         F-7

Notes to Consolidated Financial Statements                                   F-9
</TABLE>


                                       F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of MicroFinancial Incorporated

We have audited the accompanying consolidated balance sheets MicroFinancial
Incorporated and subsidiaries (the "Company") as of December 31, 2000 and 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2000
and 2001, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
February 21, 2002


                                      F-2
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of MicroFinancial Incorporated:

In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows of MicroFinancial Incorporated and its
subsidiaries (the "Company") for the year ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States of America.
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 audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 audit provides a
reasonable basis for our opinion. We have not audited the consolidated financial
statements of MicroFinancial Incorporated for any period subsequent to December
31, 1999.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 21, 2000


                                      F-3
<PAGE>
                           MICROFINANCIAL INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                         ---------------------
                                                                           2000         2001
                                                                           ----         ----
<S>                                                                      <C>          <C>
                               ASSETS

Net investment in leases and loans:
   Receivables due in installments                                       $405,437     $399,361
   Estimated residual value                                                35,368       37,114
   Initial direct costs                                                     9,321        7,090
   Loans receivable                                                        12,080        2,248
   Less:
     Advance lease payments and deposits                                    (400)        (287)
     Unearned income                                                    (132,687)    (104,538)
     Allowance for credit losses                                         (40,924)     (45,026)
                                                                         ---------------------
Net investment in leases and loans                                       $288,195     $295,962
Investment in service contracts                                            12,553       14,126
Cash and cash equivalents                                                  17,957       20,645
Property and equipment, net                                                11,505       16,034
Other assets                                                               12,392       14,961
                                                                         ---------------------
       Total assets                                                      $342,602     $361,728
                                                                         =====================

                LIABILITIES AND STOCKHOLDERS' EQUITY

Notes payable                                                            $201,991     $203,053
Subordinated notes payable                                                  4,785        3,262
Capitalized lease obligations                                                 859          833
Accounts payable                                                            1,605        2,517
Dividends payable                                                             573          642
Other liabilities                                                           5,433        6,182
Income taxes payable                                                        2,333        4,211
Deferred income taxes payable                                              29,000       30,472
                                                                         ---------------------
       Total liabilities                                                  246,579      251,172
                                                                         ---------------------

Commitments and contingencies (Note I)                                          -            -
Stockholders' equity:
   Preferred stock, $.01 par value; 5,000,000 shares authorized;
     none issued at 12/31/00 and 12/31/01                                       -            -
   Common stock, $.01 par value; 25,000,000 shares authorized;
     13,410,646 shares issued at 12/31/00 and 12/31/01                       134          134
   Additional paid-in capital                                              47,900       47,723
   Retained earnings                                                       55,291       69,110
   Treasury stock (669,700 shares of common stock at 12/31/00,
     588,700 shares of common stock at 12/31/01), at cost                 (7,234)      (6,343)
   Notes receivable from officers and employees                              (68)         (68)
                                                                         ---------------------
       Total stockholders' equity                                          96,023      110,556
                                                                         ---------------------
       Total liabilities and stockholders' equity                        $342,602     $361,728
                                                                         =====================
</TABLE>

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


                                      F-4
<PAGE>
                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per-share data)


<TABLE>
<CAPTION>
                                                     For the Years Ended
                                                          December 31,
                                                 -------------------------------
                                                   1999       2000        2001
                                                   ----       ----        ----
<S>                                              <C>         <C>         <C>
Revenues:
   Income on financing leases and loans          $55,545     $69,847     $70,932
   Income on service contracts                     6,349       8,687       8,665
   Rental income                                  21,582      27,638      37,664
   Loss and damage waiver fees                     5,660       6,034       6,344
   Service fees and other                         19,142      27,271      30,486
                                                 -------------------------------
       Total revenues                            108,278     139,477     154,091
                                                 -------------------------------

Expenses:
   Selling general and administrative             33,827      38,371      44,899
   Provision for credit losses                    37,836      38,912      54,092
   Depreciation and amortization                   7,597      10,227      14,378
   Interest                                       10,781      15,858      14,301
                                                 -------------------------------
       Total expenses                             90,041     103,368     127,670
                                                 -------------------------------

Income before provision for income taxes          18,237      36,109      26,421
Provision for income taxes                         7,509      15,249      10,104
                                                 -------------------------------

Net income                                       $10,728     $20,860     $16,317
                                                 ===============================

Net income per common share-basic                  $0.84       $1.64       $1.28
                                                 ===============================

Net income per common share-diluted                $0.83       $1.63       $1.26
                                                 ===============================

Dividends per common share                        $0.155      $0.175      $0.195
                                                 ===============================
</TABLE>

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


                                      F-5
<PAGE>
                           MICROFINANCIAL INCORPORATED
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1999, 2000 and 2001
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                                                           Notes
                                         Common Stock      Additional                Treasury Stock      Receivable      Total
                                    ---------------------    Paid -in   Retained   ------------------       From      Stockholders'
                                      Shares       Amount     Capital   Earnings    Shares     Amount     Officers       Equity
                                    ----------------------------------------------------------------------------------------------
<S>                                 <C>            <C>     <C>          <C>        <C>        <C>        <C>          <C>
Balance at December 31, 1998         9,932,766         99       1,816     27,956    162,190      (138)        (250)         29,483
Initial public offering              3,400,000         34      46,082                                                       46,116
Exercise of stock options               14,960                     22                                                           22
Common stock dividends                                                    (2,028)                                           (2,028)
Treasury stock repurchased                                                          505,600    (5,639)                      (5,639)
Notes receivable from officers
  and employees                                                                                                156             156
Net income                                                                10,728                                            10,728
                                    ----------------------------------------------------------------------------------------------

Balance at December 31, 1999        13,347,726        133      47,920     36,656    667,790    (5,777)         (94)         78,838
Exercise of stock options               62,920          1         118                                                          119
Common stock dividends                                                    (2,225)                                           (2,225)
Treasury stock repurchased                                                          164,100    (1,595)                      (1,595)
Treasury stock retired                                           (138)             (162,190)      138                            -
Notes receivable from officers
  and  employees                                                                                                26              26
Net income                                                                20,860                                            20,860
                                    ----------------------------------------------------------------------------------------------

Balance at December 31, 2000        13,410,646       $134     $47,900    $55,291    669,700   ($7,234)        ($68)        $96,023
Exercise of stock options,
  net of tax benefit                                             (177)              (96,000)    1,037                          860
Common stock dividends                                                    (2,498)                                           (2,498)
Treasury stock repurchased                                                           15,000      (146)                        (146)
Net income                                                                16,317                                            16,317
                                    ----------------------------------------------------------------------------------------------

Balance at December 31, 2001        13,410,646       $134     $47,723    $69,110    588,700   ($6,343)        ($68)       $110,556
                                    ==============================================================================================
</TABLE>

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


                                      F-6
<PAGE>
                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                           For the year ended
                                                                              December 31,
                                                               -----------------------------------------
                                                                   1999           2000           2001
                                                                   ----           ----           ----
<S>                                                            <C>            <C>            <C>
Cash flows from operating activities:
   Cash received from customers                                $   157,264    $   174,501    $   185,939
   Cash paid to suppliers and employees                            (33,905)       (34,405)       (44,060)
   Cash paid for income taxes                                       (1,339)        (9,726)        (6,767)
   Interest paid                                                   (10,740)       (15,649)       (14,186)
   Interest received                                                 3,443          1,639          1,354
                                                               -----------------------------------------
        Net cash provided by operating activities                  114,723        116,360        122,280
                                                               -----------------------------------------

Cash flows from investing activities:
   Investment in lease contracts                                  (116,808)      (141,076)       (92,118)
   Investment in inventory                                               -              -         (4,198)
   Investment in direct costs                                       (8,295)        (7,812)        (5,200)
   Investment in service contracts                                  (9,105)        (4,138)        (6,658)
   Investment in loans receivable                                  (11,857)             -              -
   Investment in Resource Leasing Corporation                            -         (2,800)        (6,900)
   Investment in fixed assets                                       (1,319)        (2,354)        (1,722)
   Issuance of notes from officers and employees                        (2)             -              -
   Repayment of notes from officers                                    158             25              -
   Investment in notes receivable                                     (613)          (117)           (70)
   Repayment of notes receivable                                       254            325              6
                                                               -----------------------------------------
        Net cash used in investing activities                     (147,587)      (157,947)      (116,860)
                                                               -----------------------------------------

Cash flows from financing activities:
   Proceeds from secured debt                                      121,680        195,917         84,750
   Repayment of secured debt                                      (108,003)      (123,075)       (90,839)
   Proceeds from refinancing of secured debt                       460,381        473,118        515,897
   Prepayment of secured debt                                     (460,381)      (488,118)      (509,555)
   Proceeds from short-term demand notes payable                       890            259            902
   Repayment of short-term demand notes payable                       (117)          (983)           (93)
   Proceeds from issuance of subordinated debt                           -              -          2,975
   Repayment of subordinated debt                                  (15,247)        (4,500)        (4,500)
   Proceeds from sale of common stock                               46,116              -              -
   Proceeds from exercise of common stock options                       22            119            810
   Repayment of capital leases                                        (733)          (494)          (505)
   Purchase of treasury stock                                       (5,639)        (1,595)          (146)
   Payment of dividends                                             (1,860)        (2,166)        (2,428)
                                                               -----------------------------------------
        Net cash provided by (used in ) financing activities        37,109         48,482        (2,732)
                                                               -----------------------------------------

Net increase in cash and cash equivalents                            4,245          6,895          2,688
Cash and cash equivalents, beginning of period                       6,817         11,062         17,957
                                                               -----------------------------------------
Cash and cash equivalents, end of period                       $    11,062    $    17,957    $    20,645
                                                               =========================================
</TABLE>

                                                                     (Continued)

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


                                      F-7
<PAGE>
                           MICROFINANCIAL INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Continued)


<TABLE>
<CAPTION>
                                                               For the Year Ended
                                                                  December 31,
                                                        ---------------------------------
                                                           1999        2000         2001
                                                           ----        ----         ----
<S>                                                     <C>         <C>         <C>
Reconciliation of net income to net cash provided
  by operating activities:

  Net income                                            $  10,728   $  20,860   $  16,317
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                         7,597      10,227      14,378
      Provision for credit losses                          37,836      38,912      54,092
      Recovery of equipment cost and residual
        value, net of revenue recognized                   52,029      40,288      34,685
      Increase (decrease) in current taxes                  2,919      (1,211)      1,878
      Increase in deferred income taxes                     3,966       6,480       1,472
      Changes in assets and liabilities:
        Decrease (increase) in other assets                   232        (934)     (1,200)
        Increase (decrease) in accounts payable               190       1,267       (129)
        Increase (decrease) in accrued liabilities           (774)        471         787
                                                        ---------------------------------
      Net cash provided by operating activities         $ 114,723   $ 116,360   $ 122,280
                                                        =================================

Supplemental disclosure of noncash activities:
  Property acquired under capital leases                $   1,203   $     109   $     479
                                                        =================================
  Accrual of common stock dividends                     $     514   $     573   $     642
                                                        =================================
</TABLE>

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

                                                                     (Concluded)


                                      F-8
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


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 $400 to $3,000, with an average amount financed of
      approximately $1,100 and an average lease term of 43 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 and
      securitizations. In July 1998, the Company changed its name from Boyle
      Leasing Technologies, Inc. to MicroFinancial Incorporated.

            In December 1992, May 1993, November 1994, March 2000, and September
      2001 Leasecomm Corporation created wholly owned subsidiaries, BLT Finance
      Corporation I ("BLT I"), BLT Finance Corporation II ("BLT II") BLT Finance
      Corporation III ("BLT III"), MFI Finance Corporation I ("MFI I"), and MFI
      Finance Corp II LLC ("MFI II LLC") respectively, which are special-purpose
      corporations for the securitization and financing of lease receivables.

            While the Company generally does not sell its interests in leases,
      service contracts or loans to third parties after origination, the Company
      does, from time to time, contribute certain leases to special-purpose
      corporations for purposes of obtaining financing in connection with its
      lease receivables. Since these transfers do not result in a change in
      control over the lease receivables, sale treatment and related gain
      recognition under Statement of Financial Accounting Standards ("SFAS") No.
      125 as replaced by SFAS No. 140, is not allowed, and does not occur.
      Accordingly, the lease receivable and related liability remain on the
      balance sheet.

            During 1997, 1996, and 2001 the credit facilities related to the
      securitization on BLT I, BLT II, and BLT III were paid off, respectively.
      BLT I and BLT II were dissolved on December 31, 1997. BLT III was
      dissolved on December 31, 2001.

B.    Summary of Significant Accounting Policies

Basis of Presentation

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

Use of Estimates

            The preparation of financial statements in conformity with
      accounting principles generally accepted in the United States of America,
      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 amounts of revenues and expenses during the reported period. A
      significant area requiring the use of management estimates is the
      Allowance for Credit Losses. 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


                                      F-9
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


      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. Unamortized unearned lease income
      and initial direct costs are written off 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) 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 interest 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 balances. Interest
      income on loans is recognized as it is earned.

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 current
      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, which is seven years. Income on service contracts is recognized
      monthly 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

            At the end of the lease term, the lease typically converts into a
      month-to-month rental contract. 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.


                                      F-10
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


Fair Value of Financial Instruments

            For financial instruments including cash and cash equivalents, net
      investment in leases and loans, accounts payable, and other liabilities,
      it is assumed that the carrying amount approximates fair value due to
      their short maturity.

Derivative Financial Instruments

            On January 1, 2001, the Company adopted SFAS No. 133, "Accounting
      for Derivative Instruments and Hedging Activities" as amended by SFAS No.
      138. SFAS No. 133, as amended, requires that all derivative instruments be
      measured at fair value and recognized in the consolidated balance sheet as
      either assets or liabilities. The Company has assessed the effects of SFAS
      No. 133 and has determined that the adoption of SFAS No. 133 does not have
      a material impact on its results of operations or consolidated financial
      position. The Company did not hold any derivative instruments at either
      December 31, 2000 or 2001.

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 of 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 2001, the Financial Accounting Standards Board ("FASB")
      issued SFAS No. 141, "Business Combinations." SFAS No. 141 addresses
      financial accounting and reporting for business combinations and amends or
      supersedes a number of interpretations concerning business combinations.
      SFAS No. 141 requires companies to use the purchase method of accounting
      for all business combinations, whereas previous interpretations provided
      for the use of another method (pooling-of-interests method) if certain
      criteria were met. This statement also amends the recognition policies of
      intangible assets and goodwill and provides for additional disclosure
      requirements for business combinations. The provisions for this statement
      apply to all business combinations initiated after June 30, 2001.

            In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
      Intangible Assets". This statement supersedes APB Opinion No. 17,
      "Intangible Assets" ("APB No. 17") and addresses financial accounting and
      reporting for intangible assets, but not those acquired in a business
      combination at acquisition. SFAS No. 142 addresses financial accounting
      and reporting of goodwill and other intangible assets subsequent to their
      acquisition, assigning a definite or indefinite useful life to these
      assets. Goodwill and other intangible assets having an indefinite useful
      life will not be amortized, but rather tested at least annually for
      impairment. It also provides guidance on how to define, measure and record
      impairment losses on goodwill and other intangible assets and provides for
      additional disclosures regarding these assets in years subsequent to their
      acquisition. The provisions for this statement are required to be applied
      for fiscal years beginning after December 15, 2001, although earlier
      adoption is permitted.

            In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
      Retirement Obligations." SFAS No. 143 provides new accounting standards
      for recording of liabilities related to legal obligations to retire
      tangible long-lived assets. The Statement requires an entity to recognize
      at fair value a liability associated with an asset retirement obligation
      in the period in which the liability is both incurred and in which the
      fair value is determinable. The


                                      F-11
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


      provisions of this Statement are effective for the Company's fiscal year
      ended December 31, 2003, although earlier application is permitted.

            In August 2001, the FASB issued SFAS No. 144, "Accounting for the
      Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
      financial accounting and reporting for the impairment or disposal of a
      long-lived asset or group of assets. This pronouncement, which supersedes
      and amends several earlier interpretations, establishes a single
      comprehensive statement to provide impairment accounting guidance for
      tangible long-lived assets to be either held and continued to be used by
      the entity or disposed of by sale or by some other means. This Statement
      will be effective for the first quarter of the Company's fiscal year
      ending December 31, 2002, although earlier application is permitted.

            The Company has not completed its evaluation of SFAS Nos. 141, 142,
      143 and 144 and has not yet determined their effect on its consolidated
      financial statements.

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

            Basic net income per common share is computed based on the
      weighted-average number of common shares outstanding during the period.
      Dilutive net income per common share gives effect to all dilutive
      potential common shares outstanding during the period. 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. Options
      to purchase 120,609, 830,000 and 440,609 shares of common stock were not
      included in the computation of diluted earnings per share for the years
      ended December 31, 1999, 2000, and 2001, respectively, because their
      effects were antidilutive.

<TABLE>
<CAPTION>
                                                                     For the years ended December 31,
                                                                     1999           2000           2001
                                                                 -----------------------------------------
<S>                                                              <C>            <C>            <C>
Net income                                                       $    10,728    $    20,860    $    16,317
                                                                 -----------------------------------------
Shares used in computation:
  Weighted-average common shares outstanding used in
    computation of net income per common share                    12,795,809     12,728,441     12,789,605
  Dilutive effect of common stock options                            108,422         79,373        155,638
                                                                 -----------------------------------------
Shares used in computation of net income
  per common share - assuming dilution                            12,904,231     12,807,814     12,945,243
                                                                 =========================================

Net income per common share - basic                              $      0.84    $      1.64    $      1.28
                                                                 =========================================

Net income per common share - diluted                            $      0.83    $      1.63    $      1.26
                                                                 =========================================
</TABLE>


                                      F-12
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


C.    Net Investment in Leases and Loans

            At December 31, 2001, future minimum payments on the Company's lease
      receivables are as follows:

<TABLE>
<CAPTION>
For the year ended
   December 31,
------------------
<S>                                          <C>
      2002                                   $  250,486
      2003                                       93,770
      2004                                       43,595
      2005                                       10,819
      2006                                          691
                                             ----------
      Total                                  $  399,361
                                             ==========
</TABLE>

            At December 31, 2001, the weighted-average remaining life of leases
      in the Company's lease portfolio is approximately 28 months and the
      implicit rate of interest is approximately 35.4%.

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

            The Company takes charge-offs against its receivables when such
      receivables are 360 days past due and no contact has been made with the
      lessee for 12 months. Cumulative net charge-offs after recoveries from the
      Company's inception to December 31, 2001 have totaled 10.62% of total
      cumulative receivables plus total billed fees over such period.

            The following table sets forth the Company's allowance for credit
      losses as of December 31, 1999, 2000, and 2001 and the related provisions,
      charge-offs and recoveries for the years ended December 31, 1999, 2000,
      and 2001.


                                      F-13
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


<TABLE>
<S>                                                                  <C>            <C>
Balance at December 31, 1998                                                        $24,850
Provision for credit losses                                                          37,836
Charge-offs                                                          35,957
Recoveries                                                           14,990
                                                                     ------
Charge-offs, net of recoveries                                                       20,967
                                                                                    -------
Balance at December 31, 1999                                                        $41,719
Provision for leases and loans credit losses                         36,029
Provision for other asset credit losses                               2,883
Total provisions for credit losses                                                   38,912
Charge-offs (including $1,064 in other asset charge-offs)            57,145
Recoveries                                                           19,257
                                                                     ------
Charge-offs, net of recoveries                                                       37,888
                                                                                    -------
Balance of allowance for credit losses at December 31, 2000                         $40,924
                                                                                    -------
Balance of other asset reserve at December 31, 2000                                 $ 1,819
                                                                                    -------
Provision for leases and loans credit losses                         54,092
Total provisions for credit losses                                                   54,092
Charge-offs (including $1,418 in other asset charge-offs)            68,882
Recoveries                                                           17,474
                                                                     ------
Charge-offs, net of recoveries                                                       51,408
                                                                                    -------
Balance of allowance for credit losses at December 31, 2001                         $45,026
                                                                                    =======
Balance of other asset reserve at December 31, 2001                                    $401
                                                                                    =======
</TABLE>

     At December 31, 2000 and 2001, other assets included prepayments and
deposits of $6,394,000 and $4,809,000 respectively, and receivables totaling
$7,817,000 and $10,553,000, respectively.

     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, 1999, 2000, and 2001 and changes in
the Company's estimated residual value as a result of new originations, and
lease terminations for the years ended December 31, 1999, 2000, and 2001.

<TABLE>
<S>                                                                    <C>
Balance of Estimated Residual Value at December 31, 1998               $ 17,562
New Originations                                                          9,753
Lease Terminations                                                       (6,245)
Balance of Estimated Residual Value at December 31, 1999               $ 21,070
New Originations                                                         22,893
Lease Terminations                                                       (8,595)
Balance of Estimated Residual Value at December 31, 2000               $ 35,368
New Originations                                                         15,052
Lease Terminations                                                      (13,306)
Balance of Estimated Residual Value at December 31, 2001               $ 37,114
</TABLE>

     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 or (iii) that has been charged
off by the Company.


                                      F-14
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


D.    Property and Equipment

            At December 31, 2000 and 2001, property and equipment consisted of
      the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                                          ----------------------
                                                            2000           2001
                                                            ----           ----
<S>                                                       <C>           <C>
Rental Equipment and Inventory                            $ 13,214      $ 19,196
Computer Equipment                                           5,536         7,251
Office Equipment                                             1,330         1,525
Leasehold improvements                                         338           381
                                                          ----------------------
                                                            20,418        28,353
Less accumulated depreciation and amortization               8,913        12,319
                                                          ----------------------
Total                                                     $ 11,505      $ 16,034
                                                          ======================
</TABLE>

            Depreciation and amortization expense totaled $7,597,000,
      $10,227,000, and $14,378,000 for the years ended December 31, 1999, 2000,
      and 2001, respectively.

            At December 31, 2000 and 2001, computer equipment includes
      $1,725,000 and $1,793,000 respectively, under capital leases. Accumulated
      amortization related to capital leases amounted to $912,000 and $988,000,
      in 2000 and 2001, respectively.

E.    Notes Payable and Subordinated Debt

Notes Payable

            On December 21, 1999, the Company entered into a revolving line of
      credit and term loan facility with a group of financial institutions
      whereby it may borrow a maximum of $150,000,000 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 the
      prevailing rate per annum as offered in the interbank Eurodollar market
      (Eurodollar) plus 1.75% for Eurodollar Loans. If the Eurodollar loans are
      not renewed upon their maturity they automatically convert into prime rate
      loans. On August 22, 2000, the revolving line of credit and term loan
      facility was amended and restated whereby the Company may now borrow a
      maximum of $192,000,000 based upon qualified lease receivables, loans,
      rentals and service contracts. Outstanding borrowings with respect to the
      revolving line of credit bear interest based either at Prime minus 0.25%
      for Prime Rate Loans or the prevailing rate per annum as offered in the
      London Interbank Offered Rate (LIBOR) plus 1.75% for LIBOR Loans or the
      seven-day Money Market rate plus 2.00% for Swing Line Advances. If the
      LIBOR loans are not renewed upon their maturity they automatically convert
      into prime rate loans. The Swing Line Advances have a seven-day maturity,
      and upon their maturity they automatically convert into prime rate loans.
      In addition, the Company's aggregate outstanding principal amount of Swing
      Line Advances shall not exceed $10 million. The prime rates at December
      31, 1999, 2000, and 2001 were 8.50%, 9.50%, and 4.75% respectively. The
      90-day Eurodollar rate at December 31, 1999 was 5.9375%. The 90-day LIBOR
      rates at December 31, 2000 and 2001 were 6.403% and 1.938% respectively.
      The 7-day Money Market Rates at December 31, 2000 and 2001 were 6.63% and
      1.88% respectively.

      At December 31, 2000 and 2001, the Company had borrowings outstanding
      under this agreement with the following terms:


                                      F-15
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


<TABLE>
<CAPTION>
                                             2000                  2001
                                     --------------------    -------------------
Type                                   Rate       Amount      Rate       Amount
----                                   ----       ------      ----       ------
<S>                                   <C>       <C>          <C>       <C>
Prime                                 9.5000%   $  17,260    4.5000%   $   4,640
Swing Line                            8.8100%       5,076
LIBOR                                 8.2500%      12,000    3.8750%     100,000
LIBOR                                 8.2500%      50,000
LIBOR                                 8.5625%      17,500
                                                ---------              ---------
     Total Outstanding                          $ 101,836              $ 104,640
                                                =========              =========
</TABLE>

            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 September 30, 2002 provided the line of credit is not renewed
      and no event of default exists at that date. All converted term loans are
      repayable over 36 monthly installments. The most restrictive covenants of
      the agreement have minimum net worth and income requirements.

            BLT III has three series of notes, the 1996-A Notes, the 1997-A
      Notes and the 1998-A Notes. 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. All outstanding amounts under the 1996-A Notes were
      repaid in October 1999. All outstanding amounts under the 1997-A Notes
      were repaid in September 2000. All outstanding amounts under the 1998-A
      notes were repaid in September 2001. MFI I has three series of notes, the
      2000-1 Notes, the 2000-2 Notes, and the 2001-3 Notes. In March 2000, MFI I
      issued the 2000-1 Notes in aggregate principal amount of $50,056,686. In
      December 2000, MFI I issued the 2000-2 Notes in aggregate principal amount
      of $50,561,633. In September 2001, MFI I issued the 2001-3 Notes in
      aggregate principal amount of $39,397,354. Outstanding borrowings are
      collateralized by a specific pool of lease receivables. In September 2001,
      MFI II, LLC was formed and issued one series of notes, the 2001-1 Notes in
      aggregate principal amount of $10,000,000. Outstanding borrowings are
      collateralized by a specific pool of lease receivables as well as the
      excess cash flow from the MFI I collateral. These notes are subordinated
      to the three series of notes issued by MFI I.

            At December 31, 2001, MFI I and MFI II, LLC had borrowings
      outstanding under the series of notes with the following terms:

<TABLE>
<CAPTION>
   Note Series                                  Expiration     Rate      Amount
   -----------                                  ----------     ----      ------
<S>                                             <C>            <C>      <C>
MFI I
2000-1 Notes                                       9/16/05     7.38%      19,855
2000-2 Notes                                       6/16/06     6.94%      34,518
2001-3 Notes                                       2/18/08     5.58%      34,160

MFI II LLC
2001-1 Notes                                       2/18/08     8.00%       8,725
                                                                         -------
  Total Outstanding                                                      $97,258
                                                                         =======
</TABLE>

            At December 31, 2000, BLT III and MFI I had borrowings outstanding
      under the series of notes with the following terms:


                                      F-16
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


<TABLE>
<CAPTION>
   Note Series                                  Expiration     Rate      Amount
   -----------                                  ----------     ----      ------
<S>                                             <C>            <C>      <C>
BLT III
1998-A Notes                                       5/17/04     6.03%     $12,252

MFI I
2000-1 Notes                                       9/16/05     7.38%      36,995
2000-2 Notes                                       6/16/06     6.94%      50,562
                                                                         -------
  Total Outstanding                                                      $99,809
                                                                         =======
</TABLE>

            At December 31, 2000 and 2001, the Company also had other notes
      payable which totaled $346,000 and $1,155,000 respectively. Of these
      notes, at December 2000 and 2001, $346,000 and $339,000, respectively, are
      notes that are due on demand and bear interest at a rate of prime less
      1.00%. At December 31, 2001, the Company also had $816,000 of notes which
      were borrowed against the cash surrender value of the life insurance
      policies held on key officers. The interest rates on these loans range
      from 5.05% to 8.00%. Other notes payable include amounts due to
      stockholders and directors of the Company at December 31, 2000 and 2001 of
      $316,000 and $309,000. Interest paid to stockholders under such notes was
      not material for the years ended December 31, 1999, 2000, and 2001.

Subordinated Notes Payable

            At December 31, 2000 and 2001, the Company also had senior
     subordinated and subordinated debt outstanding amounting to $4,785,000,
     and $3,262,000, 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% to 12.5% for
     fixed rate financing and prime plus 3% to 4% for variable rate financing.
     These notes have maturity dates ranging from May 2002 to November 2006. The
     Company had 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 required annual payments of $1,500,000 commencing on July
     15, 1997 until the note matured 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 required 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 matured in October 1, 2001. In April 1999, this note
     was amended to require monthly payments of $250,000 for the period May 1,
     1999 until the note matured on September 1, 2000. 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, 2000, the Company was in default on one of its debt
      covenants in its senior subordinated notes. The covenant that was in
      default requires that the Company maintain an allowance for credit losses
      in an amount not less than 100% of the Delinquent Billed Lease
      Receivables. The covenant default was waived as of December 31, 2000. In
      consideration of the waiver, the Company repaid one of the notes in full
      on March 2, 2001.

            At December 31, 2000 and 2001, subordinated notes payable included
      $102,000 and $727,000 due to stockholders, officers and directors.
      Interest paid to stockholders, officers and directors under such notes, at
      rates ranging between 8% and 12%, amounted to $104,000, $8,500, and
      $53,700 for the years ended December 31, 1999, 2000, and 2001,
      respectively.

Repayment Schedule

            At December 31, 2001, the repayment schedule for outstanding notes
      and subordinated notes is as follows:


                                      F-17
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


<TABLE>
<CAPTION>
December 31,
------------
<S>                                                                    <C>
    2002                                                               $  55,583
    2003                                                                  37,550
    2004                                                                   5,126
    2005                                                                       0
    Thereafter                                                             3,416
                                                                       ---------
                                                                         101,675
    Outstanding balance of revolving credit facility                     104,640
                                                                       ---------
    Total                                                              $ 206,315
                                                                       =========
</TABLE>

            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, 2000 and 2001, the
      aggregate carrying value of the Company's fixed rate borrowings was
      approximately $104,596,000 and $101,336,000, respectively, with an
      estimated fair value of approximately $104,719,000 and $102,049,000,
      respectively.

F.    Redeemable Preferred Stock:

            At December 2000 and 2001, the Company had authorized 5,000,000
      shares of preferred stock ("preferred stock") with a par value of $0.01 of
      which zero shares were issued and outstanding.

G.    Stockholders' Equity:

      Common Stock

            The Company had 25,000,000 authorized shares of common stock with a
      par value of $.01 per share of which 13,410,646 shares were issued and
      outstanding at December 31, 2000 and 2001.

      Treasury Stock

            The Company had 669,700 and 588,700 shares of common stock in
      treasury at December 31, 2000 and 2001, respectively.

      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
      June 16, 1997 stock split. Pursuant to this amendment, the aggregate
      number of shares issued could not exceed 1,220,000 and the exercise price
      of any outstanding options issued pursuant to the Plan would be reduced by
      a factor of ten and the number of outstanding options issued pursuant to
      the Plan would 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 reserved 2,000,000 shares
      of its 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.


                                      F-18
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


            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, 1998        120,380       $0.6375 to $1.95        $    1.866
Exercised                               (14,960)      $0.6375 to $1.95        $    1.531
Canceled                                (58,500)      $1.95 to $12.313        $   10.807
Granted                                 890,000      $12.063 to $13.544       $   12.447
                                      ---------

Outstanding at December 31, 1999        936,920      $0.6375 to $13.544       $   11.357
Exercised                               (62,920)      $0.6375 to $1.95        $    1.889
Canceled                                (10,000)          $12.313             $   12.313
Granted                                 730,000           $9.781              $    9.781
                                      ---------

Outstanding at December 31, 2000      1,594,000       $1.95 to $13.544        $   11.003
Exercised                               (96,000)      $1.95 to $13.125        $    8.439
Canceled                               (112,000)     $9.78125 to $13.125      $   11.214
Granted                                 650,000       $9.48 to $13.10         $   11.708
                                      ---------

Outstanding at December 31, 2001      2,036,000       $9.48 to $13.544        $   11.337
                                      =========
</TABLE>

            The options vest over five years and are exercisable only after they
      become vested. At December 31, 2000 and 2001, 200,000 and 414,000,
      respectively, of the outstanding options were fully vested.

            At December 31, 2000 and 2001, 1,594,000 and 2,036,000 shares,
      respectively, of common stock were reserved for common stock option
      exercises.


                                      F-19
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


            Information relating to stock options at December 31, 2001,
      summarized by exercise price, is as follows:

<TABLE>
<CAPTION>
                  Outstanding                                 Exercisable
--------------------------------------------------    --------------------------
                                       Weighted-        Weighted-
                                        Average          Average
  Exercise Price          Shares      Life (Years)    Exercise Price     Shares
--------------------------------------------------    --------------------------
<S>                     <C>           <C>             <C>                <C>
$          12.3125        687,391        7.15         $      12.3125     267,756
$          13.5440         40,609        7.15         $      13.5440      16,244
$          12.0625         10,000        7.58         $      12.0625       2,000
$           9.7813        648,000        8.15         $       9.7813     128,000
$          13.1000        400,000        9.14         $      13.1000          -
$           9.4800        250,000        9.87         $       9.4800          -
                        ---------                                        -------

$  9.48 to $13.544      2,036,000        8.20         $      11.5770     414,000
                        =========                                        =======
</TABLE>

            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. The Company follows the disclosure
      requirements of SFAS No. 123, Accounting for Stock-Based Compensation.
      SFAS No. 123 requires that compensation under a fair value method be
      determined using the 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, 1999, 2000, and 2001 would have been $9,812,000, $19,928,000,
      and $15,012,000, respectively. Pro forma net income per common share-basic
      would have been $0.77, $1.57, and $1.17 rather than $0.84, $1.64 and
      $1.28, as reported, for the years ended December 31, 1999, 2000, and 2001,
      respectively. Pro forma net income per common share-diluted would have
      been $0.76, $1.56, and $1.16 rather than $0.83, $1.63, and $1.26 as
      reported, for the years ended December 31, 1999, 2000 and 2001,
      respectively.

            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.

<TABLE>
<CAPTION>
                                               1999        2000        2001
                                               ----        ----        ----
<S>                                          <C>         <C>         <C>
            Risk-free interest rate            6.50%       6.50%       5.03%
            Expected dividend yield            1.25%       1.37%       2.50%
            Expected life                    7 years     7 years     7 years
            Volatility                        49.00%      55.00%      51.00%
</TABLE>

      The weighted-average fair value at the date of for options granted during
      1999, 2000, and 2001 approximated $6.46, $5.45, and $5.34 per option,
      respectively.


                                      F-20
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


H.    Income Taxes:

            The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                For the years ended December 31,
                                                --------------------------------
                                                 1999         2000         2001
                                                 ----         ----         ----
<S>                                             <C>         <C>          <C>
Current:
   Federal                                      $3,467       $7,109       $7,633
   State                                            77        1,659        1,000
                                                --------------------------------
                                                 3,544        8,768        8,633
                                                --------------------------------

Deferred:
   Federal                                       2,310        5,532        1,256
   State                                         1,655          949          215
                                                --------------------------------
                                                 3,965        6,481        1,471
                                                --------------------------------

        Total                                   $7,509      $15,249      $10,104
                                                ================================
</TABLE>

      At December 31, 2000 and 2001, the components of the net deferred tax
      liability were as follows:

<TABLE>
<CAPTION>
                                                              2000         2001
                                                            --------------------
<S>                                                         <C>          <C>
Investment in leases, other than allowance                  $51,302       $7,317
Allowance for credit losses                                 (15,889)     (19,181)
Depreciation                                                 (9,770)      42,336
Deferred receivables                                          3,357            0
                                                            --------------------
        Total                                               $29,000      $30,472
                                                            ====================
</TABLE>

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

<TABLE>
<CAPTION>
                                                For the years ended December 31,
                                                --------------------------------
                                                  1999        2000        2001
<S>                                             <C>           <C>         <C>
Federal statutory rate                            35.0%       35.0%       35.0%
State income taxes, net of federal benefit         5.8%        5.6%        4.6%
Nondeductible expenses and other                   0.4%        1.6%       -1.4%
                                                --------------------------------

Effective income tax rate                         41.2%       42.2%       38.2%
                                                ================================
</TABLE>

      At December 31, 1998, the Company had loss carryforwards of approximately
      $19,800,000, which were utilized in 1999.


                                      F-21
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


I.    Commitments and Contingencies:

      Operating and Capital Leases

            The Company's lease for its facility in Waltham, Massachusetts,
      expires in 2004. 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, and Herndon
      Virginia expire in 2005. The Company's lease for its facilities in Woburn,
      Massachusetts, expires in 2003.

            The Company also has entered into various operating lease agreements
      ranging from three to four years for additional office equipment. At
      December 31, 2001, the future minimum lease payments under noncancelable
      operating leases with remaining terms in excess of one year are as
      follows:

<TABLE>
<CAPTION>
For the years ended
    December 31,
-------------------
<S>                                                                     <C>
       2002                                                             $  1,787
       2003                                                                1,754
       2004                                                                  835
       2005                                                                  214
                                                                        --------
       Total                                                            $  4,590
                                                                        ========
</TABLE>

            Rental expense under operating leases totaled $1,567,000,
      $1,557,000, and $1,998,000 for the years ended December 31, 1999, 2000,
      and 2001, 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, 2001, future minimum lease
      payments under capital leases were as follows:

<TABLE>
<CAPTION>
For the years ended
    December 31,
-------------------
<S>                                                                       <C>
       2002                                                               $  468
       2003                                                                  267
       2004                                                                  154
       2005                                                                   44
                                                                          ------
       Total minimum lease payments                                          933
       Less amounts representing interest                                    (84)
                                                                          ------
       Total                                                              $  849
                                                                          ======
</TABLE>

      Legal Matters

            Management believes, after consultation with counsel, that the
      allegations against the Company included in the lawsuits described below
      are subject to substantial legal defenses, and the Company is vigorously
      defending each of the allegations. The Company also is subject to claims
      and suits arising in the ordinary course of business. At this time, it is
      not possible to estimate the ultimate loss or gain, if any, related to
      these lawsuits, nor if any such loss will have a material adverse effect
      on the Company's results of operations or financial position.

            A. The Company filed an action in the United States District Court
      for the District of Massachusetts against Sentinel Insurance Company,
      Ltd., ("Sentinel"), Premier Holidays International, Inc., ("Premier") and
      Daniel DelPiano ("DelPiano") arising from Premier's October, 1999, default
      on its repayment obligations to the Company under a Twelve Million Dollar
      ($12,000,000) loan. Judgment has been entered in this case against
      Sentinel, which had issued a business performance insurance policy
      guaranteeing repayment of the loan, in the amount of Fourteen Million
      Dollars ($14,000,000). This judgment has not been satisfied. Sentinel is
      currently undergoing liquidation


                                      F-22
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


      proceedings, and a claim in this amount has been filed with the bankruptcy
      court. As part of the Massachusetts litigation, Premier has asserted a
      counterclaim against the Company for Seven Hundred Sixty Nine Million
      Three Hundred Fifty Thousand dollars ($769,350,000) in actual and
      consequential damages, and for Five Hundred Million Dollars ($500,000,000)
      in punitive damages, plus interest, cost and attorney's fees. The
      counterclaim is based upon an alleged representation by the Company that
      it would lend Premier an additional Forty-Five Million Dollars
      ($45,000,000), when all documents evidencing the Premier loan refer only
      to the Twelve Million ($12,000,000) amount actually loaned and not repaid.
      The Company denies any liability on the counterclaim, which the Company is
      vigorously contesting. Because of the uncertainties inherent in
      litigation, the Company cannot predict whether the outcome will have a
      material adverse effect.

            B. On January 29, 2002, Leasecomm was served with an Amended
      Complaint ("Complaint") in an action entitled People v. Roma Computer
      Solutions, Inc., et al., Ventura County (California) Superior Court Case
      No. CIV207490. The Complaint asserts two claims, one for violation of the
      California Business Professions Code Section 17500 (false advertising),
      and the other for violation of the California Business and Professions
      Code Section 17200 (unfair or unlawful acts or practices). The claims
      arise from the marketing and selling activities of other defendants,
      including Roma Computer Solutions, Inc., and/or Maro Securities, Inc. The
      Complaint seeks to have Leasecomm held liable for the acts of other
      defendants, alleging that Leasecomm directly participated in those acts
      and received proceeds and the assignment of lease contracts as a result of
      those acts. The Complaint requests injunctive relief, rescission,
      restitution, and a civil penalty. No answer or motion has been filed.
      Because of the uncertainties inherent in litigation, the Company cannot
      predict whether the outcome will have a material adverse affect.

            C. On May 8, 2000, Plaintiff Efraim Bason brought an action in the
      Supreme Court of the State of New York, County of Nassau, seeking
      compensatory damages in the amount of $450,000 and punitive damages under
      various legal theories for Leasecomm's refusal to promptly release him
      from an equipment lease to which he claims his name was forged (the "Bason
      Complaint"). The Bason Complaint alleges that Leasecomm's failure to
      promptly release him from the lease, and subsequent negative reports to
      credit agencies, ruined his credit and prevented him from securing certain
      financing that he allegedly needed to purchase merchandise which he claims
      he could have then re-sold at a $450,000 profit. The Company has filed a
      motion for summary judgment, which Bason has opposed. The Court has not
      yet ruled on the motion. Because of the uncertainties inherent in
      litigation, the Company cannot predict whether the outcome will have a
      material adverse effect.

            D. On January 29, 2002, Leasecomm was served with an Amended
      Complaint ("Complaint") in an action entitled Rae Lynn Copitka v.
      Leasecomm Corp., et al., Travis County (Texas) District Court Case No.
      GN-102292. The Complaint asserts that the original action, filed mid-2001
      by a single plaintiff should proceed as a class action. In the original
      action, Ms Copitka sought to rescind her finance lease with Leasecomm and
      to recover economic damages arising from prior payments under the lease.
      Ms Copitka alleges that her proposed class includes all persons in Texas
      who have executed Leasecomm finance leases for "virtual terminal" type
      credit card software during the years 1998, 1999, 2000, and 2001.
      Leasecomm intends to vigorously contest both the class certification and
      the substantive merits of the lawsuit. No answer or motion has been filed.
      Because of the uncertainties inherent in litigation, the Company cannot
      predict whether the outcome will have a material adverse affect.

            E. On April 3, 2000, a purported class action suit was filed in
      Superior Court of the State of California, County of San Mateo against
      Leasecomm and MicroFinancial as well as a number of other defendants with
      whom Leasecomm and MicroFinancial are alleged to have done business,
      directly or indirectly. The complaint seeks certification of a subclass of
      those class members who entered into any lease agreement contracts with
      Leasecomm for the purposes of financing the goods or services allegedly
      purchased from other defendant entities. The class action complaint
      alleges multiple causes of action, including: fraud and deceit; negligent
      misrepresentation; unfair competition; false advertising; unjust
      enrichment; fraud in the inducement and the inception of contract; lack of
      consideration for contact; and breach of the contractual covenant of good
      faith and fair dealing.

            On February 1, 2002, the parties entered into stipulation of
      settlement to the class action litigation. The stipulation of settlement
      will be effective only if and when it is approved by the San Mateo
      Superior Court as fair


                                      F-23
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


      and reasonable to the members of the plaintiff class and as a good faith
      settlement pursuant to Section 877.6 of the California Code of Civil
      Procedure. It is unclear at this point how long this process will take.

            F. On October 29,2001, a purported class action suit was filed in
      Superior Court of the State of California, County of Orange against
      Leasecomm and MicroFinancial and another entity known as Prospecting
      Services of America, Inc. ("PSOA"). The plaintiffs purport to represent a
      class of customers who were allegedly solicited by PSOA to enter into
      leases with Leasecomm for the lease of a "virtual link point gateway" and
      "I-phone." Plaintiffs alleged that PSOA made numerous misrepresentations
      and omissions during the course of solicitation for which Leasecomm and
      MicroFinancial Incorporated should be responsible. On January 25, 2002,
      the trial court granted the motion of Leasecomm and MicroFinancial to stay
      the claims against them, on the grounds that the forum selection clause
      contained in the lease agreements required plaintiffs to litigate any
      claims against those entities in Massachusetts. In the event that this
      matter cannot be resolved, Leasecomm and MicroFinancial intend to
      vigorously defend the action. Because of the uncertainties inherent in
      litigation, the Company cannot predict whether the outcome will have a
      material adverse affect.

            G. On January 25, 2002, a purported class action suit was filed in
      Superior Court of the State of California, County of Los Angeles against
      Leasecomm. The complaint alleges that, two individuals were acting as
      agents of Leasecomm, and that they solicited plaintiff to enter into a
      lease agreement with Leasecomm. The complaint seeks declaratory and
      injunctive relief against all defendants based upon alleged violations of
      California law. The plaintiff purports to represent two subclasses
      comprised of: business entities who entered into commercial lease
      agreements with Leasecomm, all California residents who entered into lease
      agreements with Leasecomm for consumer goods. Leasecomm intends to
      vigorously defend the action. Because of the uncertainties inherent in
      litigation, the Company cannot predict whether the outcome will have a
      material adverse affect.

            Leasecomm has been served with Civil Investigative Demands by the
      Offices of the Attorney General for the states of Kansas, Illinois, and
      Florida, and for the Commonwealth of Massachusetts. Those Offices of the
      Attorney General, in conjunction with the Northwest Region Office of the
      Federal Trade Commission and the Offices of the Attorney General for Texas
      and North Dakota, have informed Leasecomm that they are coordinating their
      investigations jointly. The investigations raise a number of issues
      concerning Leasecomm's vendors and Leasecomm's leases, covering without
      limitation, enforceability, noncancellability, unconscionability, forum
      selection, rights of rescission, lease termination provisions, electronic
      funds transfer, software license leases, leases of satellites and
      computers, billing and collection practices, and business opportunity
      seminars.

            Since the investigations are at an early stage, and no legal action
      has been commenced against Leasecomm, there can be no assurance as to the
      eventual outcome.

J.    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 contributions to
      the defined contribution plan were $102,000, $142,700, and $89,100 for the
      years ended December 31, 1999, 2000, and 2001, respectively.

K.    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, credit policies are in place for approving leases and loans,
      and lease pools are monitored by management. In addition, the cash and
      cash equivalents are maintained with several high-quality financial
      institutions.

            One dealer accounted for approximately 14.7%, 10.6%, and 4.5% of all
      originations during the years ended December 31, 1999, 2000, and 2001,
      respectively. Another dealer accounted for approximately 10.1%, 3.8%, and


                                      F-24
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


      2.4% of all originations during the years ended December 31, 1999, 2000,
      and 2001, respectively. No other dealer accounted for more than 10% of the
      Company's origination volume during the years ended December 31, 1999,
      2000, or 2001.

            The Company originates and services leases, contracts and loans in
      all 50 states of the United States and its territories. As of December 31,
      2000 and 2001, leases in California, Florida, Texas, Massachusetts and New
      York accounted for approximately 44% and 42% of the Company's portfolio,
      respectively. Only California accounted for more than 10% of the total
      portfolio as of December 31, 2000 and 2001 at approximately 15% as of
      December 31, 2000 and 14% as of December 31, 2001. None of the remaining
      states accounted for more than 4% of such total.

L.    Related-Party Transactions:

            The Company had notes receivable from officers and employees of
      $68,000 at December 31, 2000 and 2001. 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. These notes are
      non-interest bearing unless the principal amount thereof is not paid in
      full when due, at which time interest will accrue at a rate per annum
      equal to the prime rate plus 4.0%. All principal amounts outstanding under
      these notes is due in full on the earlier of the end of employment or the
      expiration date. No new notes were issued during 2000 or 2001.

            Other notes payable includes amounts due to stockholders of the
      Company at December 31, 2000 and 2001 of $316,000 and $309,000
      respectively. Interest paid to stockholders under such notes, at an
      interest rate of prime minus 1%, was not material for the years ended
      December 31, 1999, 2000 and 2001.

            At December 31, 2000 and 2001, subordinated notes payable included
      $102,000 and $727,000 due to stockholders, officers and directors.
      Interest paid to stockholders, officers and directors under such notes, at
      rates ranging between 8% and 12%, amounted to $104,000, $8,500, and
      $53,700 for the years ended December 31, 1999, 2000, and 2001,
      respectively.


                                      F-25
<PAGE>
                           MICROFINANCIAL INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (Tables in thousands, except share and per-share data)


M.    Selected Quarterly Data (Unaudited):

            The following is a summary of the unaudited quarterly results of
      operations of the Company for 2000 and 2001.

<TABLE>
<CAPTION>
                                                                2000                                        2001
                                              ----------------------------------------    ----------------------------------------
                                               First     Second      Third     Fourth      First     Second      Third     Fourth
                                              Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                              -------    -------    -------    -------    -------    -------    -------    -------
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenues:
  Income on leases and loans                  $15,544    $16,946    $18,435    $18,922    $18,731    $18,060    $18,105    $16,036
  Income on service contracts
    rental and fees                            16,406     16,677     18,117     18,430     20,611     20,491     21,204     20,853
                                              -------    -------    -------    -------    -------    -------    -------    -------
      Total revenues                           31,950     33,623     36,552     37,352     39,342     38,551     39,309     36,889
                                              -------    -------    -------    -------    -------    -------    -------    -------

Expenses:
  Selling general and administrative            9,521      9,343      9,665      9,842     11,903     10,658     10,900     11,438
  Provision for credit losses                   8,529      9,040     10,576     10,767     10,266     11,819     15,064     16,943
  Depreciation and amortization                 2,033      2,554      2,808      2,832      3,442      3,640      3,618      3,678
  Interest                                      3,192      3,827      4,351      4,488      4,370      3,493      3,444      2,994
                                              -------    -------    -------    -------    -------    -------    -------    -------
      Total expenses                           23,275     24,764     27,400     27,929     29,981     29,610     33,026     35,053
                                              -------    -------    -------    -------    -------    -------    -------    -------

Income before provision for income taxes        8,675      8,859      9,152      9,424      9,361      8,941      6,283      1,836
                                              -------    -------    -------    -------    -------    -------    -------    -------

Net Income                                    $ 4,970    $ 5,131    $ 5,301    $ 5,459    $ 5,419    $ 5,179    $ 3,639    $ 2,080
                                              -------    -------    -------    -------    -------    -------    -------    -------

Net Income per common share - basic              0.39       0.40       0.42       0.43       0.43       0.41       0.28       0.16
Net Income per common share - diluted            0.39       0.40       0.42       0.43       0.42       0.40       0.28       0.16
Dividends per common share                      0.040      0.045      0.045      0.045      0.045      0.050      0.050      0.050
</TABLE>


                                      F-26