##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2010oro

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

04-2962824(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)16 New England Executive Park, Suite 200, Burlington, MA

01803(Zip Code)(Address of Principal Executive
    Offices)   Registrants telephone number, including area code:
 (781) 994-4800
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

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

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




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##### 





Table of
    Contents
   
 PageDescription



NumberPART IItem 1.


Business


2Item 1A.


Risk Factors


6Item 2.


Properties


11Item 3.


Legal Proceedings


11Item 4.


(Removed and Reserved)


11PART IIItem 5.


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


12Item 6.


Selected Financial Data


15Item 7.


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


17Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


29Item 8.


Financial Statements and Supplementary Data


29Item 9.


Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


29Item 9A.


Controls and Procedures


29Item 9B.


Other Information


29PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


30Item 11.


Executive Compensation


30Item 12.


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


30Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


31Item 14.


Principal Accountant Fees and Services


31PART IVItem 15.


Exhibits and Financial Statement Schedules


32SIGNATURES


35EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2   1




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




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##### Table of Contents



Year EndedDecember 31,

Florida


California


Texas


New York2008


13
%


12
%


8
%


7
%2009


13
%


12
%


8
%


7
%2010


13
%


11
%


8
%


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




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Use
    of Technology
    ® e-mail,
    Underwriting
        Service
    Contracts
   4




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##### Table of Contents



Bulk
    and Portfolio Acquisitions
    Servicing
    and Collections
      Competition
    Employees
    Executive
    Officers
  Name and Age of Executive Officers

TitleRichard F. Latour, 57

Director, President, Chief Executive Officer, Treasurer, Clerk
    and SecretaryJames R. Jackson, Jr., 49

Vice President and Chief Financial OfficerSteven J. LaCreta, 51

Vice President, Lessee Relations and LegalStephen J. Constantino, 45

Vice President, Human Resources  5




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##### Table of Contents



Backgrounds
    of Executive Officers
          Availability
    of Information
  http://www.microfinancial.com Form 10-K, Form 10-Q, Form 8-K Form 10-K. http://www.sec.gov
  Item 1A.
    Risk
    Factors    We depend
    on external financing to fund leases and contracts, and adequate
    financing may not be available to us in amounts that are
    sufficient, together with our cash flow, to originate new
    leases.
   6




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A
    protracted economic downturn may cause an increase in defaults
    under our leases and lower demand for the commercial equipment
    we lease.
      We
    experience a significant rate of default under our leases, and a
    higher than expected default rate would have an adverse effect
    on our cash flow and earnings.
      Our
    allowance for credit losses may prove to be inadequate to cover
    future credit losses.
   7




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We are
    vulnerable to changes in the demand for the types of equipment
    we lease or price reductions in such equipment.
      We may
    face adverse consequences of litigation, including consequences
    of using litigation as part of our collection policy.
    Increased
    interest rates may make our leases or contracts less
    profitable.
   8




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We may
    not be able to realize our entire investment in the residual
    interests in the equipment covered by our leases.
    We face
    intense competition, which could cause us to lower our lease
    rates, hurt our origination volume and strategic position and
    adversely affect our financial results.
    Recently
    proposed accounting changes may negatively impact the demand for
    equipment leases.
    Government
    regulation could restrict our business.
   9




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




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




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PART II  Item 5.
    Market
    For Registrants Common Equity, Related Stockholder Matters
    And Issuer Purchases Of Equity Securities  Market Information
    2010

2009First

Second

Third

Fourth

First

Second

Third

FourthQuarter

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

QuarterStock PriceHigh

$
4.14


$
4.20


$
4.01


$
4.74


$
2.80


$
3.98


$
3.75


$
3.47Low

$
2.95


$
3.32


$
3.31


$
3.75


$
1.55


$
1.72


$
2.85


$
2.49   Holders
    Dividends
              Repurchases
   12




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##### Table of Contents



ApproximateTotal Number of


Dollar Value ofShares Purchased


Shares that Mayas Part of Publicly


Yet Be PurchasedTotal Number of


Average Price


Announced


Under thePeriod

Shares Purchased


Paid Per Share


Program (1)


Program (2)October 1 to










October 31, 2010November 1 to


11,864


$
4.11



11,864November 30, 2010December 1 to


22,548


$
4.04



22,548December 31, 2010Total


34,412


$
4.06



34,412


$
868,800     (1)
    
    All repurchases were made pursuant to the publicly announced
    repurchase program described above, which was publicly announced
    on August 11, 2010.(2)
    
    Based on the maximum number of shares remaining to be
    repurchased under the program, and the closing price of our
    common stock of $4.03 on December 31, 2010. 13




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Performance Graph
    Comparison
    of 5 Year Cumulative Total Return
    Assumes Initial Investment of $100
    December 2010
  
   14




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##### Table of Contents



ITEM 6.
    Selected
    Financial Data    Year Ended December 31,2010


2009


2008


2007


2006(Amounts in thousands, except share and per share data)Income Statement Data:Revenues:Income on financing leases

$
34,398


$
29,415


$
23,095


$
12,302


$
3,917Rental income


7,773



8,584



9,829



13,612



20,897Income on service contracts


512



676



925



1,271



1,870Other income(1)


8,246



7,490



5,676



4,486



5,758Total revenues


50,929



46,165



39,525



31,671



32,442Expenses:Selling, general and administrative


13,839



13,371



13,060



12,824



14,499Provision for credit losses


23,148



22,039



15,313



7,855



6,985Depreciation and amortization


2,212



1,628



976



1,344



5,326Interest


3,150



2,769



1,020



143



162Total expenses


42,349



39,807



30,369



22,166



26,972Income (loss) before provision (benefit) for income taxes


8,580



6,358



9,156



9,505



5,470Provision (benefit) for income taxes


3,284



2,231



3,206



3,303



1,555Net income (loss)

$
5,296


$
4,127


$
5,950


$
6,202


$
3,915Net income (loss) per common share:Basic

$
0.37


$
0.29


$
0.42


$
0.45


$
0.28Diluted


0.37



0.29



0.42



0.44



0.28Weighted-average shares:Basic


14,240,308



14,147,436



14,002,045



13,922,974



13,791,403Diluted


14,466,266



14,261,644



14,204,105



14,149,634



13,958,759Dividends declared per common share

$
0.20


$
0.15


$
0.20


$
0.20


$
0.20   15




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December 31,2010


2009


2008


2007


2006(Dollars in thousands)Balance Sheet Data:Cash and cash equivalents

$
1,528


$
391


$
5,047


$
7,080


$
28,737Restricted cash


753



834



528



561



Gross investment in leases(2)


212,899



194,629



158,138



102,128



44,314Unearned income


(59,245
)


(55,821
)


(49,384
)


(35,369
)


(13,682
)Allowance for credit losses


(13,132
)


(13,856
)


(11,722
)


(5,722
)


(5,223
)Investment in service contracts, net










32



203



613Investment in rental contracts, net


461



379



240



106



313Total assets


143,605



127,097



104,850



70,982



59,721Revolving line of credit


62,650



51,906



33,325



6,531



5Total liabilities


74,118



60,332



40,512



10,154



3,585Total stockholders equity


69,487



66,765



64,338



60,828



56,136   December 31,2010


2009


2008


2007


2006(Dollars in thousands, except statistical data)Other Data:Operating Data:Value of leases originated(3)

$
116,052


$
113,987


$
104,698


$
83,698


$
33,343Dealer funding(4)


77,794



76,306



68,007



54,035



21,498Average yield on leases(5)


27.8
%


27.7
%


28.5
%


29.0
%


30.0
%Cash Flows From (Used In):Operating activities

$
73,714


$
57,897


$
43,310


$
30,440


$
26,870Investing activities


(79,635
)


(77,969
)


(69,523
)


(55,203
)


(22,114
)Financing activities


7,058



15,416



24,180



3,106



(8,945
)Net change in cash and cash equivalents

$
1,137


$
(4,656
)

$
(2,033
)

$
(21,657
)

$
(4,189
)Selected Ratios:Return on average assets


3.91
%


3.56
%


6.77
%


9.49
%


6.27
%Return on average stockholders equity


7.77



6.30



9.51



10.60



7.07Operating margin(6)


62.30



61.51



61.91



54.81



38.39Credit Quality Statistics:Net charge-offs

$
23,872


$
19,906


$
9,313


$
7,356


$
10,476Net charge-offs as a percentage of average
    gross investment(7)


11.72
%


11.28
%


7.15
%


9.99
%


26.34
%Provision for credit losses as a percentage of
    average gross investment(7)


11.36



12.49



11.76



10.67



17.56Allowance for credit losses as a percentage of
    gross investment(8)


6.17



7.12



7.41



5.59



11.63     (1)
    
    Includes loss and damage waiver fees, service fees, interest
    income, and miscellaneous revenue.(2)
    
    Consists of receivables due in installments and estimated
    residual value.(3)
    
    Represents the amount paid to dealers upon funding of leases
    plus the associated unearned income.(4)
    
    Represents the net amount paid to dealers upon funding of leases
    and contracts. 16




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(5)
    
    Represents the aggregate of the implied interest rate on each
    lease originated during the period weighted by the amount funded.(6)
    
    Represents income before provision (benefit) for income taxes
    and provision for credit losses as a percentage of total
    revenues.(7)
    
    Represents a percentage of average gross investment in leases
    and net investment in service contracts.(8)
    
    Represents allowance for credit losses as a percentage of gross
    investment in leases and net investment in service contracts.  Item 7.
    Managements
    Discussion And Analysis Of Financial Condition And Results Of
    Operations, Including Selected Quarterly Financial Data
    (Unaudited)    
    the demand for the equipment types we finance;
    our significant capital requirements;
    our ability or inability to obtain the financing we need, or to
    use internally generated funds, in order to continue originating
    contracts;
    the risks of defaults on our leases;
    our provision for credit losses;
    our residual interests in underlying equipment;
    possible adverse consequences associated with our collection
    policy;
    the effect of higher interest rates on our portfolio;
    increasing competition;
    increased governmental regulation of the rates and methods we
    use in financing and collecting on our leases and contracts;
    acquiring other portfolios or companies;
    dependence on key personnel;
    changes to accounting standards for equipment leases;
    adverse results in litigation and regulatory matters, or
    promulgation of new or enhanced legislation or
    regulations; and
    general economic and business conditions.   17




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Overview
                Critical
    Accounting Policies
   18




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##### Table of Contents



Revenue
    Recognition
  month-to-month
    Allowance
    for Credit Losses
     19




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##### Table of Contents



Income
    Taxes
      Share-Based
    Compensation
    Results
    of Operations
  Revenues
  2010


Change


2009


Change


2008(In thousands)Income on financing leases

$
34,398



16.9
%

$
29,415



27.4
%

$
23,095Rental income


7,773



(9.4
)


8,584



(12.7
)


9,829Income on service contracts


512



(24.3
)


676



(26.9
)


925Loss and damage waiver fees


4,555



10.1



4,136



27.8



3,236Service fees and other


3,690



10.5



3,340



45.2



2,300Interest income


1



(92.9
)


14



(90.0
)


140Total revenues

$
50,929



10.3
%

$
46,165



16.8
%

$
39,525    20




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##### Table of Contents



Selling,
    General and Administrative
  2010

Change

2009

Change

2008(Dollars in thousands)Selling, general and administrative

$
13,839



3.5
%

$
13,371



2.4
%

$
13,060As a percent of revenue


27.1
%






29.0
%






33.0
%       Provision
    for Credit Losses
  2010

Change

2009

Change

2008(Dollars in thousands)Provision for credit losses

$
23,148



5.0
%

$
22,039



43.9
%

$
15,313As a percent of revenue


45.5
%






47.7
%






38.7
%    21




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##### Table of Contents



Depreciation
    and Amortization
  2010


Change


2009


Change


2008(Dollars in thousands)Depreciation  fixed assets

$
615



43.4
%

$
429



12.0
%

$
383Depreciation  rental equipment


1,597



36.5



1,170



181.9



415Amortization  service contracts






(100.0
)


29



(83.7
)


178Total depreciation and amortization

$
2,212



35.9
%

$
1,628



66.8
%

$
976As a percent of revenue


4.3
%






3.5
%






2.5
%   month-to-month
       22




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##### Table of Contents



Interest
    Expense
  2010

Change

2009

Change

2008(Dollars in thousands)Interest

$
3,150



13.8
%

$
2,769



171.5
%

$
1,020As a percent of revenue


6.2
%






6.0
%






2.6
%       Provision
    for Income Taxes
  2010

Change

2009

Change

2008(In thousands)Provision for income taxes

$
3,284



47.2
%

$
2,231



(30.4
)%

$
3,206As a percent of revenue


6.4
%






4.8
%






8.1
%         Other
    Operating Data
   23




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##### Table of Contents



Selected
    Quarterly Data
  Form 10-K.
  2010


2009First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter(Unaudited)Revenues:Income on leases

$
8,122


$
8,509


$
8,790


$
8,977


$
6,789


$
7,098


$
7,635


$
7,893Rental income


1,958



1,920



1,917



1,978



2,209



2,138



2,124



2,113Income on service contracts


141



132



124



115



189



175



162



150Loss and damage waiver fees


1,104



1,119



1,154



1,178



986



1,018



1,048



1,084Service fees and other


993



940



912



845



671



699



1,001



969Interest income






1











13



1







Total revenues


12,318



12,621



12,897



13,093



10,857



11,129



11,970



12,209Expenses:Selling, general and administrative


3,230



3,581



3,356



3,672



3,572



3,492



3,349



2,958Provision for credit losses


6,931



5,562



4,969



5,686



5,453



4,993



5,437



6,156Depreciation and amortization


428



474



731



579



335



383



440



470Interest


811



885



743



711



516



661



751



841Total expenses


11,400



10,502



9,799



10,648



9,876



9,529



9,977



10,425Income before provision for income taxes


918



2,119



3,098



2,445



981



1,600



1,993



1,784Provision for income taxes


353



818



1,192



921



378



616



767



470Net income

$
565


$
1,301


$
1,906


$
1,524


$
603


$
984


$
1,226


$
1,314Net income per common share  basic

$
0.04


$
0.09


$
0.13


$
0.11


$
0.04


$
0.07


$
0.09


$
0.09Net income per common share  diluted


0.04



0.09



0.13



0.11



0.04



0.07



0.09



0.09Dividends declared per common share


0.05



0.05



0.05



0.05







0.05



0.05



0.05  24




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##### Table of Contents



Exposure
    to Credit Losses
    December 31, 2010


December 31, 2009


December 31, 2008(Dollars in thousands)Current

$
160,674



84.1
%

$
140,000



79.7
%

$
110,423



77.3
%31-60 days
    past due


6,142



3.2



6,233



3.6



6,941



4.861-90 days
    past due


4,369



2.3



5,336



3.0



5,079



3.6Over 90 days past due


19,882



10.4



24,046



13.7



20,438



14.3Receivables due in installments

$
191,067



100.0
%

$
175,615



100.0
%

$
142,881



100.0
%   Liquidity
    and Capital Resources
  General
           25




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##### Table of Contents



Borrowings
    December 31, 2010


December 31, 2009Maximum











MaximumAmounts


Interest


Unused


Facility


Amounts


Interest


Unused


FacilityOutstanding


Rate


Capacity


Amount


Outstanding


Rate


Capacity


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

$
62,650



3.52
%
    -4.50%

$
37,350


$
100,000


$
51,906



5.00
%

$
33,094


$
85,000     (1)
    
    The unused capacity is subject to limitations based on lease
    eligibility and the borrowing base formula.    Financial
    Covenants
   26




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##### Table of Contents



Contractual
    Obligations and Lease Commitments
    Payments Due


Payments


Payments


PaymentsLess than


Due


Due


Due AfterContractual Obligations

Total


1 Year


1-3 Years


4-5 Years


5 YearsRevolving line of credit

$
62,650


$
62,650


$



$



$
Operating lease obligations


4,207



313



1,712



1,202



980Capital lease obligations


26



25



1







Total

$
66,883


$
62,988


$
1,713


$
1,202


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




---



##### Table of Contents



Recently
    Issued Accounting Pronouncements
    ASC 810-10  ASC 810-10 ASC 810-10 ASC 810-10 ASC 810-10 ASC 810-10
  No. 2010-06, 820-10 
  
    Transfers in and out of Levels 1 and 2. A reporting entry
    should disclose separately the amounts of significant transfers
    in and out of Level 1 and Level 2 fair value
    measurements and describe the reasons for the transfers.
    Activity in level 3 fair value measurements
    A reporting entity should provide fair value measurement
    disclosures for each class of assets and liabilities.  2010-6 2010-6
  2010-20 2010-10
 28




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    controls and procedures
  Rule 13a-15
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
      Change in
    Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   29




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##### Table of Contents



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


Weighted-Average


Future IssuanceUpon Exercise


Exercise Price of


Under Equityof Outstanding


Outstanding


Compensation PlansOptions,


Options,


(Excluding SecuritiesWarrants


Warrants and


Reflected inPlan Category

and Rights


Rights(2)


Column (a))(a)


(b)


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


941,546


$
5.07



390,656Equity compensation plans not approved by security holders










Total


941,546


$
5.07



390,656     (1)
    
    Includes our 1998 Equity Incentive Plan (which was approved by
    stockholders at the 2001 special meeting of stockholders in lieu
    of annual meeting) and our 2008 Equity Incentive Plan (which was
    approved by our stockholders at the 2008 special meeting of
    stockholders in lieu of annual meeting). The number of
    securities available for future issuance will be reduced by
    three for each share of restricted stock or other full
    share award made to an employee, and by one for any option
    granted to an employee or for any award made to non-employee
    directors, under the terms of our 2008 Equity Incentive Plan.(2)
    
    Weighted average exercise price of outstanding options; excludes
    restricted stock. 30




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   31




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##### Table of Contents



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

Description3
.1

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

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

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

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

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

Registration Rights Agreement dated April 14, 2003 among the
    Registrant and the Lenders named therein. Incorporated by
    reference to Exhibit 10.5 in the Registrants Quarterly
    Report on Form 10-Q filed with the Securities and Exchange
    Commission on May 15, 2003.10
.5

Office lease for the Burlington facility at 16 New England
    Executive Park, Suite 200, Burlington, MA dated September 20,
    2101 among MicroFinancial Incorporated and MA-New England
    Executive Park, LLC. Incorporated by reference to Exhibit 10.2
    in the Registrants Quarterly Report on Form 10-Q filed
    with the Securities and Exchange Commission on November 15, 2010.10
.6.1*

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

Form of Restricted Stock Agreement grant under 1998 Equity
    Incentive Plan. Incorporated by reference to Exhibit 10.27 in
    the Registrants Annual Report on Form 10-K filed with the
    Securities and Exchange Commission on March 30, 2004.10
.6.3*

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

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

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

Form of restricted stock unit (RSU) agreement under the
    MicroFinancial Incorporated 2008 Equity Incentive Plan.
    Incorporated by reference in Exhibit 10.6.6 in the
    Registrants Annual Report on Form 10-K filed with the
    Securities and Exchange Commission on March 31, 2010. 32




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##### Table of Contents



ExhibitNumber

Description10
.7*

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

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

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

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

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

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

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

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

Amendment to Employment Agreement between the Registrant and
    Steven LaCreta dated December 24, 2008. Incorporated by
    reference to Exhibit 10.11.2 in the Registrants Annual
    Report on Form 10-K filed with the Securities and Exchange
    Commission on March 31, 2009.10
.12.1

Credit Agreement dated August 2, 2007. Incorporated by reference
    to Exhibit 10.1 in the Registrants Form 8-K filed on
    August 8, 2007.10
.12.2

Unlimited Guaranty of Registrant dated August 2, 2007.
    Incorporated by reference to Exhibit 10.2 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.3

Unlimited Guaranty of Leasecomm dated August 2, 2007.
    Incorporated by reference to Exhibit 10.3 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.4

Security Agreement between Borrower and Agent dated August 2,
    2007. Incorporated by reference to Exhibit 10.4 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.5

Security Agreement between Registrant and Agent dated August 2,
    2007. Incorporated by reference to Exhibit 10.5 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.6

Security Agreement between Leasecomm and Agent dated August 2,
    2007. Incorporated by reference to Exhibit 10.6 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.7

Trademark Security Agreement and License dated August 2, 2007 by
    Borrower. Incorporated by reference to Exhibit 10.7 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.8

Trademark Security Agreement and License dated August 2, 2007 by
    Registrant. Incorporated by reference to Exhibit 10.8 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.9

Trademark Security Agreement and License dated August 2, 2007 by
    Leasecomm. Incorporated by reference to Exhibit 10.9 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.10

Pledge Agreement of Registrant dated August 2, 2007.
    Incorporated by reference to Exhibit 10.10 in the
    Registrants Form 8-K filed on August 8, 2007.10
.12.11

Amended and Restated Credit Agreement dated July 9, 2008.
    Incorporated by reference to Exhibit 10.10 in the
    Registrants Form 8-K filed on July 15, 2008.10
.12.12

Agreement and Amendment No. 1 to Amended and Restated Credit
    Agreement dated February 10, 2009. Incorporated by reference to
    Exhibit 10.1 in the Registrants Form 8-K filed on February
    17, 2009. 33




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##### Table of Contents



ExhibitNumber

Description10
.12.13

Additional Lender Supplement dated February 10, 2009.
    Incorporated by reference to Exhibit 10.2 in the
    Registrants Form 8-K filed on February 17, 2009.10
.12.14

Commitment Increase Supplement dated February 10, 2009.
    Incorporated by reference to Exhibit 10.3 in the
    Registrants Form 8-K filed on February 17, 2009.10
.12.15

Sovereign Note dated July 9, 2008. Incorporated by reference to
    Exhibit 10.14 in the Registrants Annual Report on Form
    10-K filed with the Securities and Exchange Commission on March
    31, 2009.10
.12.16

TD Banknorth Note dated July 9, 2008. Incorporated by reference
    to Exhibit 10.14 in the Registrants Annual Report on Form
    10-K filed with the Securities and Exchange Commission on March
    31, 2009.10
.12.17

Commerce Bank & Trust Company Note dated February 10, 2009.
    Incorporated by reference to Exhibit 10.14 in the
    Registrants Annual Report on Form 10-K filed with the
    Securities and Exchange Commission on March 31, 2009.10
.12.18

Danversbank Note dated February 10, 2009. Incorporated by
    reference to Exhibit 10.14 in the Registrants Annual
    Report on Form 10-K filed with the Securities and Exchange
    Commission on March 31, 2009.10
.12.19

Wells Fargo Bank Note dated February 10, 2009. Incorporated by
    reference to Exhibit 10.14.15 in the Registrants Annual
    Report on Form 10-K filed with the Securities and Exchange
    Commission on March 31, 2009.10
.12.20

Agreement and Amendment No. 2, dated July 28, 2010 to Amended
    and Restated Credit Agreement dated July 9, 2008 (Incorporated
    by reference to Exhibit 10.1 in the Registrants Form 8-K
    filed on August 2, 2010).21
.1

Subsidiaries of Registrant23
.1

Consent of McGladrey & Pullen, LLP23
.2

Consent of Caturano and Company, Inc.31
.1

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

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

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

Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement required
    to be filed as an exhibit pursuant to Item 14(c) of this
    Report.     34




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##### Table of Contents



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

Title

Date/s/  Peter
    R. BleylebenPeter
    R. Bleyleben

Chairman of the Board of Directors

March 31, 2011/s/  Richard
    F. LatourRichard
    F. Latour

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

March 31, 2011/s/  James
    R. Jackson Jr.James
    R. Jackson Jr.

Vice President and Chief Financial Officer

March 31, 2011/s/  Brian
    E. BoyleBrian
    E. Boyle

Director

March 31, 2011/s/  John
    W. EveretsJohn
    W. Everets

Director

March 31, 2011/s/  Torrence
    C. HarderTorrence
    C. Harder

Director

March 31, 2011/s/  Fritz
    Von MeringFritz
    Von Mering

Director

March 31, 2011/s/  Alan
    J. ZakonAlan
    J. Zakon

Director

March 31, 2011  35




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##### Table of Contents



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


F-2, F-3Financial Statements Consolidated Balance Sheets
    as of December 31, 2010 and 2009


F-4Consolidated Statements of Operations for the
    Years Ended December 31, 2010, 2009 and 2008


F-5Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2010, 2009 and
    2008


F-6Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2010, 2009 and 2008


F-7Notes to Consolidated Financial Statements


F-8  F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
        McGladrey &
    Pullen, LLP
    F-2




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            Caturano
    and Company, P.C.
    F-3




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
   CONSOLIDATED
    BALANCE SHEETS  December 31,2010


2009(In thousands,except shareand per share data)ASSETSCash and cash equivalents

$
1,528


$
391Restricted cash


753



834Net investment in leases:Receivables due in installments


191,067



175,615Estimated residual value


21,832



19,014Initial direct costs


1,490



1,509Less:Advance lease payments and deposits


(3,479
)


(2,411
)Unearned income


(59,245
)


(55,821
)Allowance for credit losses


(13,132
)


(13,856
)Net investment in leases


138,533



124,050Investment in rental contracts, net


461



379Property and equipment, net


800



699Other assets


1,530



744Total assets

$
143,605


$
127,097   LIABILITIES
    AND STOCKHOLDERS EQUITY
  December 31,2010


2009Revolving line of credit

$
62,650


$
51,906Accounts payable


2,435



2,011Capital lease obligation


26



93Dividends payable


5



Other liabilities


1,375



1,250Income taxes payable






209Deferred income taxes


7,627



4,863Total liabilities


74,118



60,332Commitments and contingencies (Note H)Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares
    authorized; no shares issued at December 31, 2010 and 2009






Common stock, $.01 par value; 25,000,000 shares
    authorized; 14,231,933 and 14,174,326 shares issued and
    outstanding at December 31, 2010 and 2009, respectively


142



142Additional paid-in capital


46,475



46,197Retained earnings


22,870



20,426Total stockholders equity


69,487



66,765Total liabilities and stockholders equity

$
143,605


$
127,097    F-4




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
   CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2010


2009


2008(In thousands, except share and per share data)Revenues:Income on financing leases

$
34,398


$
29,415


$
23,095Rental income


7,773



8,584



9,829Income on service contracts


512



676



925Loss and damage waiver fees


4,555



4,136



3,236Service fees and other


3,690



3,340



2,300Interest income


1



14



140Total revenues


50,929



46,165



39,525Expenses:Selling, general and administrative


13,839



13,371



13,060Provision for credit losses


23,148



22,039



15,313Depreciation and amortization


2,212



1,628



976Interest


3,150



2,769



1,020Total expenses


42,349



39,807



30,369Income before provision for income taxes


8,580



6,358



9,156Provision for income taxes


3,284



2,231



3,206Net income

$
5,296


$
4,127


$
5,950Net income per common share  basic

$
0.37


$
0.29


$
0.42Net income per common share  diluted

$
0.37


$
0.29


$
0.42Weighted average shares outstanding  basic


14,240,308



14,147,436



14,002,045Weighted average shares outstanding  diluted


14,466,266



14,261,644



14,204,105Dividends declared per common share

$
0.20


$
0.15


$
0.20    F-5




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
   CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITYYears Ended December 31, 2008, 2009 and
    2010  Additional





TotalCommon Stock


Paid-in


Retained


StockholdersShares


Amount


Capital


Earnings


Equity(In thousands, except share and per share data)Balance at December 31, 2007


13,960,778


$
140


$
45,412


$
15,276


$
60,828Stock options exercised


17,500







28







28Stock issued for deferred compensation


53,729







241







241Stock-based compensation










74







74Amortization of unearned compensation


6,250







19







19Common stock dividends ($0.20 per share)














(2,802
)


(2,802
)Net income














5,950



5,950Balance at December 31, 2008


14,038,257



140



45,774



18,424



64,338Stock issued for deferred compensation


131,069



2



336







338Stock-based compensation










73







73Amortization of unearned compensation


5,000







14







14Common stock dividends ($0.15 per share)














(2,125
)


(2,125
)Net income














4,127



4,127Balance at December 31, 2009


14,174,326



142



46,197



20,426



66,765Stock issued for deferred compensation


88,269







295







295Stock-based compensation










112







112Amortization of unearned compensation


3,750







10







10Stock purchase program


(34,412
)






(139
)






(139
)Common stock dividends ($0.20 per share)














(2,852
)


(2,852
)Net income














5,296



5,296Balance at December 31, 2010


14,231,933


$
142


$
46,475


$
22,870


$
69,487    F-6




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
   CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2010


2009


2008(In thousands)Cash flows from operating activities:Cash received from customers

$
93,874


$
76,022


$
59,330Cash paid to suppliers and employees


(16,595
)


(15,290
)


(14,564
)Cash paid for income taxes


(1,054
)


(563
)


(576
)Interest paid


(2,512
)


(2,286
)


(1,020
)Interest received


1



14



140Net cash provided by operating activities


73,714



57,897



43,310Cash flows from investing activities:Investment in lease contracts


(77,794
)


(76,306
)


(68,007
)Investment in direct costs


(1,124
)


(1,294
)


(1,156
)Investment in property and equipment


(717
)


(338
)


(197
)Net cash used in investing activities


(79,635
)


(77,938
)


(69,360
)Cash flows from financing activities:Proceeds from secured debt


103,270



91,146



87,541Repayment of secured debt


(92,526
)


(72,565
)


(60,747
)Payments of debt closing costs


(714
)






Decrease (increase) in restricted cash


81



(306
)


33Repayment of capital leases


(67
)


(63
)


(38
)Repurchase of common stock


(139
)






Proceeds from the sale of capital stock










28Payment of dividends


(2,847
)


(2,827
)


(2,800
)Net cash provided by financing activities


7,058



15,385



24,017Net change in cash and cash equivalents


1,137



(4,656
)


(2,033
)Cash and cash equivalents, beginning


391



5,047



7,080Cash and cash equivalents, ending

$
1,528


$
391


$
5,047Reconciliation of net income to net cash provided by operating
    activitites:Net income

$
5,296


$
4,127


$
5,950Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of unearned income, net of initial direct costs


(34,398
)


(29,415
)


(23,095
)Depreciation and amortization


2,212



1,628



976Provision for credit losses


23,148



22,039



15,313Recovery of equipment cost and residual value


74,007



56,881



40,549Stock-based compensation expense


122



425



334Non-cash interest expense










Increase in deferred income taxes liability


2,764



1,467



2,850Changes in assets and liabilities:Income taxes payable


(209
)


201



(220
)Decrease (increase) in other assets


(72
)


239



(280
)Increase in accounts payable


719



363



426Increase (decrease) in other liabilities


125



(58
)


507Net cash provided by operating activities

$
73,714


$
57,897


$
43,310Supplemental disclosure of non-cash activities:Fair value of stock issued for compensation

$
295


$
338


$
241    F-7




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS
 (Tables in thousands, except share and per share data)
  A.
    Nature of
    Business    B.
    Summary
    of Significant Accounting Policies  Basis of
    Presentation
    Use of
    Estimates
    Cash and
    Cash Equivalents
    Restricted
    Cash
    Leases
    and Revenue Recognition
  month-to-month
 F-8




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Allowance
    for Credit Losses
      Investment
    in Service Contracts
      December 31,2010


2009Investment in service contracts

$
1,047


$
1,350Less accumulated amortization


(1,047
)


(1,350
)Investment in service contracts, net

$



$
    F-9




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Investment
    in Rental Contracts
  point-of-sale
    December 31,2010


2009Investment in rental contracts

$
2,808


$
3,262Less accumulated depreciation


(2,347
)


(2,883
)Investment in rental contracts, net

$
461


$
379     Property
    and Equipment
    Fair
    Value of Financial Instruments
    Debt
    Issue Costs
    Income
    Taxes
  Income Taxes
 F-10




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  740-10
  Net
    Income Per Common Share
    Year Ended December 31,2010


2009


2008Net income

$
5,296


$
4,127


$
5,950Weighted-average shares outstanding used in computation of net
    income per share  basic


14,240,308



14,147,436



14,002,045Dilutive effect of options, warrants and restricted stock


225,958



114,208



202,060Shares used in computation of net income per common
    share  assuming dilution


14,466,266



14,261,644



14,204,105Net income per common share  basic

$
0.37


$
0.29


$
0.42Net income per common share  diluted

$
0.37


$
0.29


$
0.42   Stock-Based
    Employee Compensation
  Share-Based Payment
  Recent
    Accounting Pronouncements
   F-11




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ASC 810-10  ASC 810-10 ASC 810-10 ASC 810-10 ASC 810-10 ASC 810-10
  No. 2010-06, 820-10 
        2010-6 2010-6
  2010-20 2010-10
 F-12




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  C.
    Net
    Investment in Leases    Year Ending December 31,2011

$
86,4952012


56,3142013


31,4762014


13,3342015


3,448Total

$
191,067     Allowance
    for Loan Losses and Credit Quality of Loans
  2010-20
      2010


2009


2008Allowance for Credit Losses:Beginning Balance

$
13,856


$
11,722


$
5,722Charge-offs


(28,435
)


(24,181
)


(13,641
)Recoveries


4,563



4,276



4,328Provision


23,148



22,039



15,313Ending Balance

$
13,132


$
13,856


$
11,722  F-13




---



##### Table of Contents



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


TimePayment


TotalMicroticket


MicroticketEquipment


EquipmentAllowance for Credit Losses:Beginning Balance

$
381


$
13,475


$
13,856Charge-Offs


(1,123
)


(27,312
)


(28,435
)Recoveries


1,264



3,299



4,563Provisions


(291
)


23,439



23,148Ending Balance

$
231


$
12,901


$
13,132Ending Balance: Individually evaluated for impairment










Ending Balance: Collectively evaluated for impairment


231



12,901



13,132Ending Balance: contracts acquired with deteriorated credit
    quality










Financing Receivables:Ending Balance


531



151,134



151,665Ending Balance: Individually evaluated for impairment










Ending Balance: Collectively evaluated for impairment


531



151,134



151,665(1
)Ending Balance: contracts acquired with deteriorated credit
    quality










     (1)
    
    Total financing receivables include net investment in leases.
    For purposes of asset quality and allowance calculations, the
    allowance for credit losses is excluded.       F-14




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    Leases assigned a gold rating represent those transactions which
    exhibit the highest risk rating based on our internal credit
    scores. They are considered of sufficient quality to preclude an
    otherwise adverse rating. Gold rated leases are typically
    represented by lessees with high bureau reported credit scores
    at lease inception or are supported by established businesses
    for those transactions which are not personally guaranteed by
    the lessee.
    Leases assigned a silver rating fall in the middle range of the
    nine acceptable scores generated by the scoring model. These
    transactions possess a reasonable amount of risk based on their
    profile and may exhibit vulnerability to deterioration if
    adverse factors are encountered. These accounts typically
    demonstrate adequate coverage but warrant a higher level of
    monitoring by management to ensure that weaknesses do not
    advance.
    A bronze rating applies to leases at the lower end of the nine
    acceptable scores generated by the scoring model whereby the
    lessee may have difficulty meeting the lease obligation if
    adverse factors are encountered. Bronze rated transactions
    typically have lower reported credit scores at lease inception
    and will typically have other less desirable credit attributes.      Current


Past Due


TotalTimePayment Corp.GradeGold

$
42,786


$
3,533


$
46,319Silver


77,758



19,688



97,446Bronze


4,542



2,827



7,369Total


125,086



26,048



151,134LeaseComm


230



301



531Total

$
125,316


$
26,349


$
151,665     Age Analysis
    of Past Due Financing Receivables
  As of
    December 31, 2010
  31 to 60


61 to 90


Over 90





Over 90Days


Days


Days





DaysCurrent


Past Due


Past Due


Past Due


Total


AccruingLeaseComm:

$
230


$
13


$
14


$
274


$
531


$
274TimePayment Corp.Gold


42,786



1,401



418



1,714



46,319



1,714Silver


77,758



3,171



2,849



13,668



97,446



13,668Bronze


4,542



317



339



2,171



7,369



2,171TimePayment Corp. subtotal


125,086



4,889



3,606



17,553



151,134



17,553Total

$
125,316


$
4,902


$
3,620


$
17,827


$
151,665


$
17,827Percent of Total Financing Receivables


82.6
%


3.2
%


2.4
%


11.8
%


100.0
%  F-15




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Estimated residual value, beginning

$
19,014


$
15,257


$
9,814Lease originations


8,765



8,747



8,221Terminations


(5,947
)


(4,990
)


(2,778
)Estimated residual value, ending

$
21,832


$
19,014


$
15,257     D.
    Property
    and Equipment    December 31,2010


2009Computer equipment

$
3,996


$
4,136Office equipment


749



742Leasehold improvements


592



263Total


5,337



5,141Less accumulated depreciation and amortization


(4,537
)


(4,442
)Net

$
800


$
699     E.
    Revolving
    Line of Credit    December 31,2010

2009Revolving line of credit-Sovereign

$
62,650


$
51,906    F-16




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      F.
    Stockholders
    Equity  Warrants
  Derivatives and Hedging)
  Stock
    Options and Restricted Stock
   F-17




---



##### Table of Contents



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


Amortizedof


CompensationShares


ExpenseNon-vested at December 31, 2007


15,000Granted


Vested


(6,250
)

$
19Non-vested at December 31, 2008


8,750Granted


Vested


(5,000
)

$
14Non-vested at December 31, 2009


3,750Granted


Vested


(3,750
)

$
10Non-vested at December 31, 2010


        F-18




---



##### Table of Contents



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




---



##### Table of Contents



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


Price Per Share

Exercise PriceOutstanding at December 31, 2007


1,282,688


$1.585 to $13.544

$
9.08Granted


176,879


$5.85

$
5.85Exercised


(17,500
)

$1.585

$
1.585Outstanding at December 31, 2008


1,442,067


$1.585 to $13.544

$
8.78Granted


321,058


$2.30

$
2.30Expired


(400,000
)

$12.31 to $13.544

$
8.78Forfeited


(105,097
)

$2.30 to $5.85

$
3.74Outstanding at December 31, 2009


1,258,028


$1.585 to $13.10

$
6.38Granted





$

$
Expired


(350,000
)

$9.78

$
9.78Outstanding at December 31, 2010


908,028


$1.585 to 13.10

$
5.07       Outstanding


ExercisableWeighted-





Weighted-Average


Intrinsic


Average





IntrinsicExercise Price

Shares


Life (Years)


Value


Exercise Price


Shares


Value$13.10


90,000



0.14






$
13.10



90,000



6.70


235,000



1.16







6.70



235,000



1.59


150,000



1.91


$
367



1.59



150,000


$
3675.77


31,923



6.17







5.77







5.85


142,382



7.08







5.85



35,596



2.30


258,723



8.17



448



2.30







908,028



4.28


$
815



6.27



510,596


$
367        F-20




---



##### Table of Contents



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


93,289Stock options


908,028Restricted stock units


33,518Reserved for future grants under 2008 Equity Incentive Plan


390,656Total


1,425,491   Repurchases
   F-21




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  G.
    Income
    Taxes    Year Ended December 31,2010


2009


2008Current:Federal

$
76


$



$
State


444



764



358520



764



358Deferred:Federal


2,816



1,699



2,988State


(52
)


(232
)


(140
)2,764



1,467



2,848Total

$
3,284


$
2,231


$
3,206     2010


2009Deferred tax assets:Allowance for credit losses

$
5,253


$
5,542Depreciation and amortization


19,709



18,318Federal alternative minimum tax credit


884



808Federal NOL carryforward


4,580



5,877State NOL and other state attributes


3,524



3,792State valuation allowance


(384
)


(948
)Total deferred tax assets


33,566



33,389Deferred tax liabilities:Lease receivable and unearned income


(32,206
)


(30,248
)Residual value


(8,733
)


(7,605
)Initial direct costs


(254
)


(399
)Reserve for contingencies






Total deferred tax liabilities


(41,193
)


(38,252
)Net deferred tax liability

$
(7,627
)

$
(4,863
)    F-22




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Federal statutory rate


35.00
%


35.00
%


35.00
%State income taxes, net of federal benefit


7.10



7.43



4.33State valuation allowance


(4.27
)


(3.48
)


(3.33
)Reversal of state income tax reserve






(4.33
)


(1.17
)Nondeductible expenses and other


0.44



0.47



0.18Effective income tax rate


38.27
%


35.09
%


35.01
%     Uncertain
    Tax Positions
    Balance at January 1, 2009

$
445Additions for tax positions related to current year


40Reductions for tax positions as a result of:


Lapse of statute of limitations


(445
)Balance at December 31, 2009


40Additions for tax positions related to current year


Reductions for tax positions as a result of:


Lapse of statute of limitations


(19
)Balance at December 31, 2010

$
21    F-23




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  H.
    Commitments
    and Contingencies  Operating
    Leases
      For the years ended December 31,2011

$
3132012


5582013


5712014


5832015


594Thereafter


1,588Total

$
4,207     Capital
    Leases
    For the years ended December 31,2011

$
262012


1Total minimum payments


27Less amounts representing interest


(1
)Total

$
26   Legal
    Matters
    Lease
    Commitments
   F-24




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    I.
    Employee
    Benefit Plan    J.
    Concentration
    of Credit Risk          K.
    Subsequent
    Events       F-25