<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For The Fiscal Year Ended December 31, 2001

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                               Commission File No.

                           MICROFINANCIAL INCORPORATED
             (Exact name of Registrant as Specified in its Charter)


             Massachusetts                              04-2962824
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     Incorporation or Organization)

    950 Winter Street, Waltham, MA                        02451
(Address of Principal Executive Offices)                (zip code)

       Registrant's Telephone Number, Including Area Code: (781) 890-0177

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
           Title of each class               Name of each exchange on
                                                  which registered

        Common Shares, $0.01 par value per share New York Stock Exchange

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price of such stock as
of March 15, 2002, was approximately $60,520,500

         As of March 15, 2002, 12,821,946 shares of the registrant's common
stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Proxy Statement for the 2002 Special Meeting in lieu of the Annual
Meeting of Stockholders (to be filed with the Securities and Exchange Commission
on or before April 30, 2002) is incorporated by reference in Part III hereof.
<PAGE>
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
Description                                                                                 Page Number
<S>                                                                                         <C>
PART I       .............................................................................        1
  Item 1.    Business.....................................................................        1
  Item 2.    Properties...................................................................        7
  Item 3.    Legal Proceedings............................................................        7
  Item 4.    Submission of Matters to a Vote of Security Holders..........................       10

PART II      .............................................................................       11
  Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters........       11
  Item 6.    Selected Financial Data......................................................       13
  Item 7.    Management's Discussion and Analysis of Financial Condition
                and Results of Operations.................................................       15
  Item 7a.   Quantitative and Qualitative Disclosures about Market Risk...................       22
  Item 8.    Financial Statements and Supplementary Data, Including Selected
                 Selected Quarterly Financial Data (Unaudited)............................       23
  Item 9.    Changes In and Disagreements with Accountants on
                Accounting and Financial Disclosure.......................................       23

PART III     .............................................................................       24
  Item 10.   Directors and Executive Officers of the Registrant...........................       24
  Item 11.   Executive Compensation.......................................................       24
  Item 12.   Security Ownership of Certain Beneficial Owners and Management...............       24
  Item 13.   Certain Relationships and Related Transactions...............................       24

PART IV      .............................................................................       25
  Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............       25

SIGNATURES   .............................................................................       29
</TABLE>
<PAGE>
                                     PART I

         ITEM 1.  BUSINESS

         GENERAL

         MicroFinancial Incorporated ("MicroFinancial" or the "Company") was
formed as a Massachusetts corporation on January 27, 1987. 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. Leasecomm Corporation started originating
leases in January 1986. The Company has used proprietary software in developing
a sophisticated, risk-adjusted pricing model and in automating its credit
approval and collection systems, including a fully-automated, Internet-based
application, credit scoring and approval process.

         The Company provides financing to lessees which may have few other
sources of credit. The Company primarily leases and rents low-priced commercial
equipment which is used by these lessees in their daily operations. The Company
does not market its services directly to lessees, but sources leasing
transactions through a nationwide network of over 1,100 independent sales
organizations and other dealer-based origination networks ("Dealers").

         The majority of the Company's leases are currently for authorization
systems for point-of-sale, card-based payments by, for example, debit, credit
and charge cards ("POS authorization systems"). POS authorization systems
require the use of a POS terminal capable of reading a cardholder's account
information from the card's magnetic strip and combining this information with
the amount of the sale entered via a POS terminal keypad, or POS software used
on a personal computer to process a sale. The terminal electronically transmits
this information over a communications network to a computer data center and
then displays the returned authorization or verification response on the POS
terminal.

         The Company continues to develop other product lines, including leasing
other commercial products and acquiring payment streams from service contracts.

         LEASING, SERVICING AND FINANCING PROGRAMS

         The Company originates leases for products that typically have limited
distribution channels and high selling costs. The Company facilitates sales of
such products by making them available to Dealers' customers for a small monthly
lease payment rather than a high initial purchase price. The Company primarily
leases and rents low-priced commercial equipment to small merchants. The
majority of the Company's leases are currently for POS authorization systems;
however, the Company also leases a wide variety of other equipment including
advertising and display equipment, coffee machines, paging systems, water
coolers and restaurant equipment. In addition, the Company also acquires service
contracts and contracts in certain other financing markets. The Company
opportunistically seeks to enter various other financing markets.


                                      -1-
<PAGE>
         The Company's residential financings include acquiring service
contracts from Dealers that provide security monitoring services, primarily.

         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.

         TERMS OF EQUIPMENT LEASES

         Substantially all equipment leases originated or acquired by the
Company are non-cancelable. In a typical lease transaction, the Company
originates leases referred to it by the Dealer and buys the underlying equipment
from the referring Dealer upon the funding of an approved application. Leases
are structured with limited recourse to the Dealer, with risk of loss in the
event of default by the lessee residing with the Company in most cases. The
Company performs all processing, billing and collection functions under its
leases.

         During the term of a typical lease, the Company is scheduled to receive
payments sufficient, in the aggregate, to cover the Company's borrowing costs
and the costs of the underlying equipment, and to provide the Company with an
appropriate profit. Throughout the term of the lease, the Company charges late
fees, prepayment penalties, loss and damage waiver fees and other service fees,
when applicable. Initial terms of the leases in the Company's portfolio
generally range from 12 to 48 months, with an average initial term of 43 months
as of December 31, 2001.

         The terms and conditions of all of the Company's leases are
substantially similar. In most cases, the contracts require lessees to: (i)
maintain, service and operate the equipment in accordance with the
manufacturer's and government-mandated procedures; (ii) insure the equipment
against property and casualty loss; (iii) pay all taxes associated with the
equipment; and (iv) make all scheduled contract payments regardless of the
performance of the equipment. The Company's standard lease forms provide that in
the event of a default by the lessee, the Company can require payment of
liquidated damages and can seize and remove the equipment for subsequent sale,
refinancing or other disposal at its discretion. Any additions, modifications or
upgrades to the equipment, regardless of the source of payment, are
automatically incorporated into, and deemed a part of, the equipment financed.

         The Company seeks to protect itself from credit exposure relating to
poor-quality Dealers by entering into limited recourse agreements with its
Dealers, under which the Dealer agrees to reimburse the Company for payment of
defaulted amounts under certain circumstances, primarily defaults within the
first month following origination, and upon evidence of Dealer errors or
misrepresentations in originating a lease or contract.


                                      -2-
<PAGE>
         RESIDUAL INTERESTS IN UNDERLYING EQUIPMENT

         The Company typically owns a residual interest in the equipment covered
by a lease. At the end of the lease term, the lease typically converts into a
month-to-month rental contract. If the lease does not convert, the lessee either
buys the equipment at a price quoted by the Company or returns the equipment. If
the equipment is returned, the Company may either sell the equipment, or place
it into its used equipment rental or leasing program.

         SERVICE CONTRACTS

         In a typical transaction for the acquisition of service contracts, a
homeowner will purchase a security system and simultaneously sign a contract
with the Dealer for the monitoring of that system for a monthly fee. The Dealer
will then sell the right to payment under that contract to the Company for a
multiple of the monthly payments. The Company performs all processing, billing
and collection functions under these contracts.

         DEALERS

         The Company provides financing to obligors under microticket leases,
contracts and loans through its Dealers. The Company had over 1,100 different
Dealers originating 79,840 Company leases, contracts and loans in 2001. 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 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 does not sign exclusive agreements with its Dealers.
Dealers interact with merchants directly and typically market not only POS
authorization systems, but also financing through the Company and ancillary POS
processing services.

         USE OF TECHNOLOGY

         The Company's business is operationally intensive, due in part to the
small average amount financed. Accordingly, technology and automated processes
are critical in keeping servicing costs to a minimum while providing quality
customer service.

         The Company has developed LeasecommDirect(TM), an Internet-based
application processing, credit approval and Dealer information tool. Using
LeasecommDirect(TM), a Dealer can input an application directly to the Company
via the Internet and obtain almost instantaneous approval automatically over the
Internet through the Company's computer system, all without any contact with any
employee of the Company. The Company also offers Instalease(R), a program that
allows a Dealer to submit applications by telephone, telecopy or e-mail to a
Company representative, receive approval, and complete a sale from a lessee's
location. By assisting the Dealers in providing timely, convenient and
competitive financing for their equipment or service contracts and offering
Dealers a variety of value-added services, the Company simultaneously promotes
equipment and service contract sales and the utilization of the Company as the
finance provider, thus differentiating the Company from its competitors.


                                      -3-
<PAGE>
         The Company has used its proprietary software to develop a
multidimensional credit-scoring model which generates pricing of its leases,
contracts and loans commensurate with the risk assumed. This software does not
produce a binary "yes or no" decision, but rather, determines the price at which
the lease, contract or loan can be profitably underwritten. The Company uses
credit scoring in most, but not all, of its extension of credit.

         UNDERWRITING

         The nature of the Company's business requires two levels of review: the
first focused on the ultimate end-user of the equipment or service and the
second focused on the Dealer. The approval process begins with the submission by
telephone, facsimile or electronic transmission of a credit application by the
Dealer. Upon submission, the Company, either manually or through
LeasecommDirect(TM) over the Internet, conducts its own independent credit
investigation of the lessee through its own proprietary database and recognized
commercial credit reporting agencies such as Dun & Bradstreet, Experian, Equifax
and TransUnion. The Company's software evaluates this information on a
two-dimensional scale, examining both credit depth (how much information exists
on an applicant) and credit quality (past payment history). The Company is thus
able to analyze both the quality and amount of credit history available with
respect to both obligors and Dealers and to assess the credit risk. The Company
uses this information to underwrite a broad range of credit risks and provide
financing in situations when its competitors may be unwilling to provide such
financing. The credit-scoring model is complex and automatically adjusts for
different transactions. In situations where the amount financed is over $6,000,
the Company may go beyond its own data base and recognized commercial credit
reporting agencies to obtain information from less readily available sources
such as banks. In certain instances, the Company will require the lessee to
provide verification of employment and salary.

         The second aspect of the credit decision involves an assessment of the
originating Dealer. Dealers undergo both an initial screening process and
ongoing evaluation, including an examination of Dealer portfolio credit quality
and performance, lessee complaints, cases of fraud or misrepresentation, aging
studies, number of applications and conversion rates for applications. This
ongoing assessment enables the Company to manage its Dealer relationships,
including ending relationships with poorly performing Dealers.

         Upon credit approval, the Company requires receipt of signed lease
documentation on the Company's, standard or other pre-approved, lease form
before funding. Once the equipment is shipped and installed, the Dealer invoices
the Company, and thereafter, the Company verifies that the lessee has received
and accepted the equipment. Upon the lessee authorizing payment to the Dealer,
the lease is forwarded to the Company's funding and documentation department for
funding, transaction accounting, and billing procedures.

         BULK AND PORTFOLIO ACQUISITIONS

         In addition to originating leases through its Dealer relationships, the
Company, from time to time, has purchased lease portfolios from Dealers. The
Company purchases leases from Dealers on an ongoing basis in packages ranging
from $20,000 to $200,000. While certain of these leases initially do not meet
the Company's underwriting standards, the Company often will purchase the leases
once the


                                      -4-
<PAGE>
lessee demonstrates a payment history. The Company will only acquire these
smaller lease portfolios in situations where the company selling the portfolio
will continue to act as a Dealer following the acquisition. The Company has also
completed the acquisition of six large POS authorization system lease and rental
portfolios: two in 1996, one in 1998, one in 1999, one in 2000 and the
acquisition of the rental and lease portfolio of Resource Leasing in 2001. The
acquisition, completed in September of 1999, consisted of 2,148 leases with
fundings of $3.2 million. The acquisition, completed in April of 2000, consisted
of 7,085 rental contracts and 1,996 lease contracts, together totaling fundings
of $5.5 million. On January 3, 2001, the Company acquired the rental and lease
portfolio of Resource Leasing Corporation ("Resource") along with certain other
assets. The acquisition consisted of 7,862 rental contracts and 326 lease
contracts.

         SERVICING AND COLLECTIONS

         The Company performs all servicing functions on its leases, contracts
and loans, including its securitized leases, through its automated servicing and
collection system. Servicing responsibilities generally include billing,
processing payments, remitting payments to Dealers and investors in the
Company's securitization programs (the "Securitizations"), preparing investor
reports, paying taxes and insurance and performing collection and liquidation
functions.

         The Company differentiates itself from its competitors in the way in
which it pursues delinquent accounts that it believes its competitors would not
pursue due to the costs of collection. The Company's automated lease
administration system handles application tracking, invoicing, payment
processing, automated collection queuing, portfolio evaluation and report
writing. The system is linked with bank accounts for payment processing and
provides for direct withdrawal of lease, contract and loan payments. The Company
monitors delinquent accounts using its automated collection process. The Company
uses several computerized processes in its collection efforts, including the
generation of daily priority call lists and scrolling for daily delinquent
account servicing, generation and mailing of delinquency letters, routing of
incoming calls to appropriate employees with instant computerized access to
account details, generation of delinquent account lists eligible for litigation,
generation of pleadings, and litigation monitoring. Collection efforts commence
immediately with repeated reminder letters and telephone calls upon payments
becoming 10 days past due, and generally with a lawsuit filed if an account is
more than 85 days past due. The Company's collection efforts include one or more
of the following: sending collection letters, making collection calls, reporting
delinquent accounts to credit reporting agencies, and litigating delinquent
accounts when necessary and obtaining and enforcing judgments.

         COMPETITION

         The microticket leasing and financing industry is highly competitive.
The Company competes for customers with a number of national, regional and local
banks and finance companies. The Company's competitors also include equipment
manufacturers that lease or finance the sale of their own products. While the
market for microticket financing has traditionally been fragmented, the Company
could also be faced with competition from small- or large-ticket leasing
companies that could use their expertise in those markets to enter and compete
in the microticket financing market. The Company's competitors include larger,
more established companies, some of which may possess substantially greater
financial,


                                      -5-
<PAGE>
marketing and operational resources than the Company, including a lower cost of
funds and access to capital markets and to other funding sources which may be
unavailable to the Company.

         EMPLOYEES

         As of December 31, 2001, the Company had 380 full-time employees, of
whom 67 were engaged in the credit activities and Dealer service, 170 were
engaged in servicing and collection activities, 20 were engaged in marketing
activities, and 123 were engaged in general administrative activities.
Management believes that its relationship with its employees is good. No
employees of the Company are members of a collective bargaining unit in
connection with their employment by the Company.

         EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
NAME                           AGE    POSITION
----                           ---    --------
<S>                            <C>    <C>
Peter R. Bleyleben..........   48     Chairman and Chief Executive Officer
Richard F. Latour...........   48     President, Chief Operating Officer, Chief Financial
                                      Officer, Treasurer, Clerk and Secretary
Mark S. Belinsky............   40     Vice President, Marketing and Sales
John Plumlee................   50     Vice President, MIS
Carol A. Salvo..............   35     Vice President, Legal
</TABLE>

         Set forth below is a brief description of the business experience of
the executive officers of the Company.

         Peter R. Bleyleben has served as President, Chief Executive Officer and
Director of the Company or its predecessor since June 1987. Before joining the
Company, Dr. Bleyleben was Vice President and Director of the Boston Consulting
Group, Inc. ("BCG") in Boston. During his more than eight years with BCG, Dr.
Bleyleben focused his professional strategic consulting practice on the
financial services and telecommunications industries. Dr. Bleyleben is also a
Director of UpToDate in Medicine, Inc. and serves on the advisory board at
GoldK. He earned an M.B.A. with distinction and honors from Harvard Business
School, an M.B.A. and a Ph.D. in Business Administration and Economics,
respectively, from the Vienna Business School in Vienna, Austria, and a B.S. in
Computer Science from the Vienna Institute of Technology.

         Richard F. Latour has served as Executive Vice President, Chief
Operating Officer, Chief Financial Officer, Treasurer, Clerk and Secretary of
the Company since 1995. From 1986 to 1995, Mr. Latour was Vice President of
Finance and Chief Financial Officer of the Company. Prior to joining the
Company, Mr. Latour was Vice President, Finance for TRAK, Incorporated, an
international manufacturer and distributor of consumer products, where he was
responsible for all financial and related administrative functions.

         Mark S. Belinsky has served as Vice President, Sales and Marketing of
the Company since June 2001. Prior to joining the Company, Mr. Belinsky was the
Vice President of Marketing and Business Development for Iwant.com, an
Internet-based Application Service Provider, which owns a patent for Online
advertising technology, used by the Internet's top websites.


                                      -6-
<PAGE>
         John Plumlee has served as Vice President, MIS of the Company since
1990. Prior to joining the Company, Mr. Plumlee was Vice President of M.M.C.,
Inc., a firm focusing on the delivery of software services to local governments.

         Carol A. Salvo has served as Vice President, Legal of the Company since
1996. From 1992 to 1995, Ms. Salvo served as Litigation Supervisor of the
Company. From 1995 to 1996, Ms. Salvo served as Director of Legal Collection
Services of the Company. Prior to joining the Company, Ms. Salvo was a junior
accountant with InfoPlus Inc.

         AVAILABILITY OF INFORMATION

         The Company will provide without charge to each of its stockholders
upon the written request of such person, a copy of the Company's Annual Report
on Form 10K for its fiscal year ended December 31, 2001, including the financial
statements and the financial statement schedules, required to be filed with the
Securities and Exchange Commission. Requests for such document should be
directed to Richard F. Latour, Clerk of MicroFinancial Incorporated, at 950
Winter Street, Waltham, Massachusetts 02451.

         ITEM 2.  PROPERTIES

         The Company's corporate headquarters are located in leased space of
21,656 square feet at 950 Winter Street, Waltham, Massachusetts 02451. The lease
for this space expires on July 31, 2004. The Company also leases 5,133 square
feet of office space for its West Coast office in Newark, California, under a
lease which expires on May 1, 2005. The Company also leases 44,659 square feet
of office space in Woburn, Massachusetts, under a lease which expires on
December 14, 2003. The Company's collection, credit, marketing, computer
operations, and other administrative functions are located at the Woburn
location.

         On January 3, 2001, the Company acquired certain assets and assumed
certain liabilities of Resource including the assumption of Resource's lease on
15,399 square feet of office space in Herndon, Virginia which expires on May 31,
2005.

         ITEM 3.  LEGAL PROCEEDINGS

         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


                                      -7-
<PAGE>
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 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


                                      -8-
<PAGE>
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 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


                                      -9-

<PAGE>
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.

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of its fiscal year ended December 31, 2001.


                                      -10-
<PAGE>
                                     PART II

         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

         (a)      Market Information

         The Company's common stock, par value $0.01 per share (the "Common
Stock"), is listed on the New York Stock Exchange under the symbol "MFI."


<TABLE>
<CAPTION>
         By quarter
                                            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>
         Stock Price
         High              12.38      10.75      10.13      11.75      14.00      17.00      16.75      14.00
         Low                8.50       9.38       8.25       8.75      10.50      11.00      12.40       9.48
</TABLE>

         (b)      Holders

         At March 15, 2002, there were approximately 33 stockholders of record
of the Common Stock.

         (c)      Dividends

         The Company paid the following quarterly cash dividends on the Common
Stock.

<TABLE>
<CAPTION>
                                                     Year ended           Year ended
                                                  December 31, 2000    December 31, 2001
                                                  -----------------    -----------------
<S>                                               <C>                  <C>
         First Quarter..........................       $0.040               $0.045
         Second Quarter.........................       $0.045               $0.050
         Third Quarter..........................       $0.045               $0.050
         Fourth Quarter.........................       $0.045               $0.050
</TABLE>

         The Company currently intends to pay dividends in the future.
Provisions in certain of the Company's credit facilities and agreements
governing its subordinated debt contain, and the terms of any indebtedness
issued by the Company in the future are likely to contain, certain restrictions
on the payment of dividends on the Common Stock. The decision as to the amount
and timing of future dividends paid by the Company, if any, will be made at the
discretion of the Company's Board of Directors in light of the financial
condition, capital requirements, earnings and prospects of the Company and any
restrictions under the Company's credit facilities or subordinated debt
agreements, as well as other factors the Board of Directors may deem relevant,
and there can be no assurance as to the amount and timing of payment of future
dividends.


                                      -11-

<PAGE>
(d)      Recent Sales of Unregistered Securities

Not applicable

(e)      Use of Proceeds from Registered Securities

Not applicable


                                      -12-

<PAGE>
         ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected consolidated financial and
operating data for the Company and its subsidiaries for the periods and at the
dates indicated. The selected financial data were derived from the financial
statements and accounting records of the Company. The data presented below
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                     -----------------------------------------------------------
                                                      1997         1998         1999        2000           2001
                                                     ------       ------       ------      ------         ------
Income Statement Data:                                    (Dollars in thousands, except per share data)
<S>                                                 <C>          <C>          <C>         <C>            <C>
Revenues

     Income on financing leases and loans....       $45,634      $47,341      $55,545     $69,847        $70,932
     Income on service contracts (1).........           501        2,565        6,349       8,687          8,665
     Rental income...........................        10,809       16,118       21,582      27,638         37,664
     Other income (2)........................        16,506       18,248       24,802      33,305         36,830
                                                     ------       ------       ------      ------         ------

     Total revenues..........................        73,450       84,272      108,278     139,477        154,091
                                                     ------       ------      -------     -------        -------

Expenses:
     Selling, general and administrative.....        22,126       27,434       33,827      38,371         44,899
     Provision for credit losses.............        21,713 (3)   19,075       37,836 (3)  38,912         54,092
     Depreciation and amortization...........         3,787        5,076        7,597      10,227         14,378
     Interest................................        12,286       12,553       10,781      15,858         14,301
                                                     ------       ------       ------      ------         ------

     Total expenses..........................        59,912       64,138       90,041     103,368        127,670
                                                     ------       ------       ------     -------        -------

Income before provision for income taxes.....       $13,538      $20,134      $18,237     $36,109        $26,421
                                                    =======      =======      =======     =======        =======
Net income...................................       $ 7,652      $11,924      $10,728     $20,860        $16,317
                                                    =======      =======      =======     =======        =======

Net income per common share
     Basic (4)...............................        $0.78         $1.21        $0.84       $1.64          $1.28
     Diluted (5).............................         0.76          1.19         0.83        1.63           1.26
Dividends per common share...................         0.12          0.14         0.16        0.18           0.20
</TABLE>

<TABLE>
<CAPTION>
                                                                            December 31,
                                                   -------------------------------------------------------------
                                                     1997         1998         1999          2000         2001
                                                   --------     --------     --------      --------     --------
Balance Sheet Data:                                                  (Dollars in thousands)
<S>                                                <C>          <C>          <C>           <C>          <C>
Gross investment in leases and loans (6).....      $258,230     $280,875     $362,721      $452,885     $438,723
Unearned income..............................       (73,060)     (74,520)    (100,815)     (132,687)    (104,538)
Allowance for credit losses..................       (26,319)     (24,850)     (41,719)      (40,924)     (45,026)
Investment in service contracts (1)..........         2,145        8,920       14,250        12,553       14,126
     Total assets............................       179,701      210,254      265,856       342,602      361,728
Notes payable................................       116,830      130,421      144,871       201,991      203,053
Subordinated notes payable...................        26,382       24,421        9,238         4,785        3,262
     Total liabilities.......................       160,935      180,771      187,018       246,579      251,172
     Total stockholders' equity..............        18,766       29,483       78,838        96,023      110,556
</TABLE>


                                      -13-

<PAGE>
<TABLE>
<CAPTION>
                                                                             December 31,
                                                   ---------------------------------------------------------------
                                                     1997           1998         1999          2000         2001
                                                   --------       --------     --------      --------     --------
Other Data:                                                (Dollars in thousands, except statistical data)
<S>                                                <C>            <C>          <C>           <C>          <C>
Operating Data:
     Total leases and loans originated (7)...      $129,064       $153,819     $223,446      $236,763     $155,308
     Total service contracts acquired (8)....         2,972          8,080        9,105         4,138        6,658
     Total rental contracts originated.......         2,893          4,306          220         5,686       12,379
     Dealer fundings (9).....................        77,590        105,200      137,300       145,400      111,100
     Average yield on leases and loans (10)..          33.9%          35.2%        36.8%         38.0%        38.1%

Cash Flows From (used in):

     Operating activities....................        77,393         95,973      114,723       116,360      122,280
     Investing activities....................       (80,127)      (108,111)    (147,587)     (157,947)    (116,860)
     Financing activities....................        (1,789)         9,703       37,109        48,482       (2,732)
                                                   --------       --------     --------      --------     --------

     Total...................................        (4,523)        (2,435)       4,245         6,895        2,688

Selected Ratios:
     Return on average assets................          4.37%          6.12%        4.51%         6.86%        4.63%
     Return on average stockholders'
        equity...............................         49.46          49.43        19.81         23.86        15.80
     Operating margin (11)...................         47.99          46.53        51.79         53.79        52.25

Credit Quality Statistics:
     Net charge-offs.........................       $19,220(12)    $20,544      $20,967       $36,824      $49,991
     Net charge-offs as a percentage of
        average gross investment (13)........          7.57%(12)      7.47%        6.29%         8.74%       10.89%
     Provision for credit losses as a
        percentage of average gross
        investment (14)......................          8.55           6.93        11.35          9.24        11.78
     Allowance for credit losses as a
        percentage of gross investment (15)..         10.14           8.58        11.07          8.79         9.94
</TABLE>

----------

(1)      The Company began acquiring fixed-term service contracts in 1995. Until
         December 1996, the Company treated these fixed-term contracts as leases
         for accounting purposes. Accordingly, income from these service
         contracts is included in income on financing leases and loans for all
         periods prior to December 1996 and investments in service contracts
         were recorded as receivables due in installments on the balance sheet
         at December 31, 1996. Beginning in December 1996, the Company began
         acquiring month-to-month service contracts, the income from which is
         included as a separate category in the Consolidated Statements of
         Operations and the investment in which is recorded separately on the
         balance sheet.

(2)      Includes loss and damage waiver fees, service fees, interest income,
         and equipment sales revenue.

(3)      The provision for 1997 includes a one-time write-off of securitized
         receivables of $9.5 million and $5.1 million in write-offs of satellite
         television equipment receivables. The provision for 1999 includes a
         special provision of $12.7 million for a loan made to one company,
         collateralized by approximately 3,500 microticket consumer contracts,
         and guaranteed by, among other security, an insurance performance bond.
         MicroFinancial is currently involved in litigation with the Company and
         the insurance company. Charge-offs against the special reserve were
         $6.4 and $7.1 million for the years ended December 31, 2000 and 2001,
         respectively.

(4)      Net income per common share (basic) is calculated based on
         weighted-average common shares outstanding of 9,793,140, 9,859,127,
         12,795,809, 12,728,441and 12,789,605 for the years ended December 31,
         1997, 1998, 1999, 2000 and 2001, respectively.


                                      -14-
<PAGE>
(5)      Net income per common share (diluted) is calculated based on
         weighted-average common shares outstanding on a diluted basis of
         9,925,329, 10,031,975, 12,904,231, 12,807,814, and 12,945,243 for the
         years ended December 31, 1997, 1998, 1999, 2000 and 2001, respectively.

(6)      Consists of receivables due in installments, estimated residual value,
         and loans receivable.

(7)      Represents the amount paid to Dealers upon funding of leases and loans,
         plus the associated unearned income.

(8)      Represents the amount paid to Dealers upon the acquisition of service
         contracts, including both noncancelable service contracts and
         month-to-month service contracts.

(9)      Represents the amount paid to Dealers upon funding of leases, contracts
         and loans.

(10)     Represents the aggregate of the implied interest rate on each lease and
         loan originated during the period weighted by the amount funded at
         origination for each such lease and loan.

(11)     Represents income before provision for income taxes and provision for
         credit losses as a percentage of total revenues.

(12)     Charge-offs in 1997 were higher due to write-offs related to satellite
         television equipment lease receivables and due to a change in the
         write-off period from 360 to 240 days in the third quarter of 1996. The
         write-off period was changed back to 360 days in January 1998.

(13)     Represents net charge-offs as a percentage of average gross investment
         in leases and loans and investment in service contracts.

(14)     Represents provision for credit losses as a percentage of average gross
         investment in leases and loans and investment in service contracts.

(15)     Represents allowance for credit losses as a percentage of gross
         investment in leases and loans and investment in service contracts.


         ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

         The following discussion includes forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995). When
used in this discussion, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: the Company's dependence on POS authorization
systems and expansion into new markets; the Company's significant capital
requirements; the risks of defaults on the Company's leases; adverse
consequences associated with the Company's collection policy; risks associated
with economic downturns; the effect on the Company's portfolio of higher
interest rates; intense competition; increased governmental regulation of the
rates and methods used by the Company in financing and collecting its leases and
loans; risks associated with acquiring other portfolios and companies;
dependence on key personnel; and other factors, many of which are beyond the
Company's control. The Company expressly disclaims any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein will in fact
transpire.


                                      -15-
<PAGE>
         OVERVIEW

         The Company is a specialized commercial finance company that provides
"microticket" equipment leasing and other financing services in amounts
generally ranging from $400 to $3,000, with an average amount financed of
approximately $1,100. The Company primarily leases POS authorization systems and
other small business equipment to small commercial enterprises. For the years
ended December 31, 2000 and 2001, the Company had fundings to Dealers upon
origination of leases, contracts and loans ("Dealer Fundings") of $145.4 million
and $111.1 million, respectively, and revenues of $139.5 million and $154.0
million, respectively.

         The Company derives the majority of its revenues from leases originated
and held by the Company, payments on service contracts, rental payments, and fee
income. The Company funds the majority of leases, contracts and loans through
its revolving-credit and term loan facilities (the "Credit Facilities") and
on-balance sheet securitizations, and to a lesser extent, its subordinated debt
program ("Subordinated Debt") and internally generated funds.

         In a typical lease transaction, the Company originates leases through
its network of independent Dealers. Upon approval of a lease application by the
Company and verification that the lessee has both received the equipment and
signed the lease, the Company pays the Dealer the cost of the equipment, plus
the Dealer's profit margin. In a typical transaction for the acquisition of
service contracts, a homeowner purchases a security system and simultaneously
signs a contract with the Dealer for the monitoring of that system for a monthly
fee. Upon credit approval of the monitoring application and verification with
the homeowner that the system is installed, the Company purchases from the
Dealer the right to the payment stream under that monitoring contract at a
negotiated multiple of the monthly payments.

         Substantially all leases originated or acquired by the Company are
noncancelable. During the term of the lease, the Company is scheduled to receive
payments sufficient, in the aggregate, to cover the Company's borrowing costs
and the costs of the underlying equipment, and to provide the Company with an
appropriate profit. The Company enhances the profitability of its leases,
contracts and loans by charging late fees, prepayment penalties, loss and damage
waiver fees and other service fees, when applicable. The initial noncancelable
term of the lease is equal to or less than the equipment's estimated economic
life and often provides the Company with additional revenues based on the
residual value of the equipment financed at the end of the initial term of the
lease. Initial terms of the leases in the Company's portfolio generally range
from 12 to 48 months, with an average initial term of 43 months as of December
31, 2001. Substantially all service and rental contracts are month-to-month
contracts with expected terms of 7 years for service contracts, 15 months for
lessees that continue to rent their equipment beyond the original term, and 22
months for other types of rental contracts.

         CRITICAL ACCOUNTING POLICIES

         In response to the SEC's release No. 33-8040, "Cautionary Advice
regarding Disclosure About Critical Accounting Policies," Management identified
the most critical accounting principles upon which our financial status depends.
The Company determined the critical principles by considering accounting
policies that involve the most complex or subjective decisions or assessments.
We identified our most critical accounting policies to be those related to
revenue recognition and maintaining the


                                      -16-
<PAGE>
allowance for credit losses. These accounting policies are discussed below as
well as within the notes to the consolidated financial statements.

         The Company's lease contracts are accounted for as financing leases. At
origination, the Company records the gross lease receivable, the estimated
residual value of the leased equipment, initial direct costs incurred and the
unearned lease income. Unearned lease income is the amount by which the gross
lease receivable plus the estimated residual value exceeds the cost of the
equipment. Unearned lease income and initial direct costs incurred are amortized
over the related lease term using the interest method. Amortization of unearned
lease income and initial direct costs is suspended if, in the opinion of
management, full payment of the contractual amount due under the lease agreement
is doubtful. 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. Other revenues such as loss and damage
waiver fees, service fees relating to the leases, contracts and loans, and
rental revenues are recognized as they are earned.

         The Company's investments in cancelable service contracts are recorded
at cost and amortized over the expected life of the service period. Income on
service contracts from monthly billings is recognized as the related services
are provided. The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or recoverability of the
investment in service contracts. Rental equipment is either recorded at
estimated residual value and depreciated using the straight-line method over a
period of 12 months or at the acquisition cost and depreciated using the
straight line method over a period of 36 months. Loans are reported at their
outstanding principal balance. Interest income on loans is recognized as it is
earned.

         The Company maintains an allowance for credit losses on its investment
in leases, service contracts, rental 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, rental 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, rental contracts and loans. Such provisions generally represent a
percentage of funded amounts of leases, contracts and loans. The resulting
charge is included in the provision for credit losses.

         Leases, service contracts, rental contracts and loans are charged
against the allowance for credit losses and are put on non-accrual when they are
deemed to be uncollectable. Generally, the Company deems leases, service
contracts, rental contracts and loans to be uncollectable when one of the
following occurs: (i) the obligor files for bankruptcy; (ii) the obligor dies,
and the equipment is returned; or (iii) when an account has become 360 days
delinquent. The typical monthly payment under the Company's leases is between
$30 and $50 per month. As a result of these small monthly payments, the
Company's experience is that lessees will pay past due amounts later in the
process because of the small amount necessary to bring an account current (at
360 days past due, a lessee will only owe lease payments of between $360 and
$600).


                                      -17-
<PAGE>
         The Company has developed and regularly updates proprietary credit
scoring systems designed to improve its risk-based pricing. The Company uses
credit scoring in most, but not all, of its extensions of credit. In addition,
the Company aggressively employs collection procedures and a legal process to
resolve any credit problems.

         RESULTS OF OPERATIONS

         Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

         Total revenues for the year ended December 31, 2001 were $154.1
million, an increase of $14.6 million, or 10.5%, from the year ended December
31, 2000, due primarily to increases of $1.1 million, or 1.6%, in income on
financing leases and loans; $10.0 million, or 27.5%, in rental and service
contract income, and $3.2 million, or 11.8%, in service fee and other income
over such amounts in the previous year's period. The increase in income on
financing leases and loans was due to the increased number of leases originated.
The increase in rental and service contract income is a result of the increased
number of lessees that have continued to rent their equipment beyond their
original lease term, the acquisition of the rental portfolio of Resource Leasing
Corporation, and increased originations in rental and service contracts. The
increase in fee income and other income is the result of increased fees from the
lessees related to the collection and legal process employed by the Company, and
the addition of a new line of business of selling equipment out of existing
inventory.

         Selling, general and administrative expenses increased by $6.5 or 17%,
for the year ended December 31, 2001 as compared to the year ended December 31,
2000. Compensation and personnel-related expenses increased by $3.4 million, due
to an increase in overall compensation levels and an increase in the number of
employees needed to maintain the Company's portfolio, including the addition of
the personnel employed by Resource Leasing Corporation. Management expects that
salaries and employee-related expenses, marketing expenses and other selling,
general and administrative expenses will continue to increase as the portfolio
grows because of the requirements of maintaining the Company's microticket
portfolio and the Company's focus on collections. Also, cost of goods sold
increased by $3.6 million, or 100%, due to the Company's acquisition of the
assets of Resource Leasing Corporation, and the addition of a new line of
business of selling equipment.

         The Company's provision for credit losses increased by $15.2 million,
or 39.0%, for the year ended December 31, 2001 as compared to the year ended
December 31, 2000. This increase is a result of the Company's historical policy,
based on experience, of providing a provision for credit losses based upon the
dealer fundings and revenue recognized in any period and reflects management's
judgement of loss potential considering current economic conditions and the
nature of the underlying receivables.

         Depreciation and amortization increased by $4.2 million, or 40.6%, due
to the increased number of rental contracts, including the addition of the
Resource Leasing portfolio of rental contracts, and amortization of the
Company's investment in service contracts.


                                      -18-
<PAGE>
         Interest expense decreased by $1.6 million, or 10.1%, for the year
ended December 31, 2001 as compared to the year ended December 31, 2000. This
decrease resulted primarily from the Company's declining cost of funds, offset
by an increased level of borrowings.

         Dealer Fundings were $111.1 million during the year ended December 31,
2001, an decrease of $34.3 million, or 23.6%, compared to the year ended
December 31, 2000. This decrease is a result of the Company's decision during
the second quarter of 2000 to increase pricing and tighten its credit approval
standards. The new credit policies were put into place in August of 2000. This
is an ongoing effort, and is expected to continue going forward. Receivables due
in installments, estimated residual values, loans receivable, investment in
service contracts, and investment in rental equipment also decreased from $477.4
million for the year ended December 31, 2000 to $470.6 million for the year
ended December 31, 2001, representing an decrease of $6.8 million, or 1.4%. Net
cash provided by operating activities increased by $5.9 million to $122.3
million during the year ended December 31, 2001, or 5.1%, from the year ended
December 31, 2000 because of the increase in the size of the Company's overall
portfolio as well as the Company's continued emphasis on collections. Unearned
income decreased by $28.2 million, or 21.2%, from $132.7 million at December 31,
2000 to $104.5 million at December 31, 2001. This decrease was primarily due to
the 23.6% decrease in dealer fundings during 2001.

         The terrorist attacks of September 11, 2001 caused a significant loss
of life and property. Fortunately, the Company has not experienced any
significant losses as a direct result of the September 11 events. There can be
no assurance that any potential impact associated with the September 11 events
would not have a material adverse effect on the Company's business, financial
condition, or results of operations.

         Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Total revenues for the year ended December 31, 2000 were $139.5
million, an increase of $30.9 million, or 28.5%, from the year ended December
31, 1999, due primarily to increases of $14.3 million, or 25.8%, in income on
financing leases and loans; $8.4 million, or 30.1%, in rental and service
contract income, and $8.2 million, or 32.8%, in service fee income over such
amounts in the previous year's period. The increase in income on financing
leases and loans was due to the increased number of leases originated. The
increase in rental and service contract income is a result of the increased
number of lessees that have continued to rent their equipment beyond their
original lease term, a rental portfolio of 7,085 accounts purchased during the
second quarter of 2000, and the increased number of service contracts
originated. The increase in fee income is the result of increased fees from the
lessees related to the collection and legal process employed by the Company.

         Selling, general and administrative expenses increased $4.3 million, or
12.6%, for the year ended December 31, 2000 as compared to the year ended
December 31, 1999. The increase was primarily attributable to an increase in
personnel, resulting in a 21.1% increase in employee-related expenses, as the
number of employees needed to maintain and manage the Company's growing
portfolio and the general expansion of the Company's operations grew.
Additionally, the Company accrued approximately $1.1 million for Company
contributions to the employee 401(k) plan and discretionary management bonuses
which are contingent upon the Board of Directors' approval after the close of
the fiscal year. Management expects that salaries and employee-related expenses,
marketing expenses and


                                      -19-
<PAGE>
other selling, general and administrative expenses will continue to increase as
the portfolio grows because of the requirements of maintaining the Company's
microticket portfolio and the Company's focus on collections.

         The Company's provision for credit losses increased $1.1 million from
the year ended December 31, 1999 to $38.9 million for the year ended December
31, 2000. The provision for 1999 included a special provision of $12.7 million
for a loan made to one company, collateralized by approximately 3,500
microticket consumer contracts and guaranteed by an insurance performance bond.
The Company is currently involved in litigation with the company and the
insurance company, see "Legal Proceedings." Charge-offs against the special
reserve were $6.4 million for the year ended December 31, 2000. Excluding the
special provision, the Company's provision for credit losses increased $13.8
million from the year ended December 31, 1999 to $38.9 million for the year
ended December 31, 2000. This increase is a result of the Company's historical
policy of providing a provision for credit losses based upon the dealer fundings
and revenue recognized in any period and reflects management's judgement of loss
potential considering economic conditions and the nature of the underlying
receivables. Dealer fundings increased $8.1 million, or 5.9%, and total revenues
increased by $28.8 million, or 29.2%, for the year ended December 31, 2000 as
compared to the year ended December 31, 1999.

         Depreciation and amortization expense increased by $2.6 million, or
34.2%, due to the increased number of rental contracts and amortization of the
Company's investment in service contracts.

         Interest expense increased by $5.1 million, or 47.1%, from $10.8
million for the year ended December 31, 1999 to $15.9 million for the year ended
December 31, 2000. This increase resulted from an increase in the average
outstanding balance of the Company's credit facilities as well as rising
interest rates.

         As a result of the foregoing, the Company's net income increased by
$10.2 million, or 95.3%, from $10.7 million for the year ended December 31, 1999
to $20.9 million for the year ended December 31, 2000.

         Dealer Fundings were $145.4 million during the year ended December 31,
2000, an increase of $8.1 million, or 5.9%, compared to the year ended December
31, 1999. This increase primarily resulted from continued growth in leases of
POS authorization systems. Receivables due in installments, estimated residual
values, loans receivable and investment in service contracts also increased from
$377.0 million for the year ended December 31, 1999 to $465.5 million for the
year ended December 31, 2000, representing an increase of $88.4 million, or
23.5%. Net cash provided by operating activities increased by $1.6 million to
$116.4 million during the year ended December 31, 2000, or 1.4%, from the year
ended December 31, 1999 because of the increase in the size of the Company's
overall portfolio as well as the Company's continued emphasis on collections.
Unearned income increased $31.9 million, or 31.6%, from $100.8 million at
December 31, 1999 to $132.7 million at December 31, 2000. This increase was due
to the increased number of leases originated during 2000.


                                      -20-
<PAGE>
         LIQUIDITY AND CAPITAL RESOURCES

         General

         The Company's lease and finance business is capital-intensive and
requires access to substantial short-term and long-term credit to fund new
leases, contracts and loans. Since inception, the Company has funded its
operations primarily through borrowings under its credit facilities, its
on-balance sheet securitizations, the issuance of subordinated debt and an
initial public offering completed in February of 1999. The Company will continue
to require significant additional capital to maintain and expand its volume of
leases, contracts and loans funded, as well as to fund any future acquisitions
of leasing companies or portfolios.

         The Company's uses of cash include the origination and acquisition of
leases, contracts and loans, payment of interest expenses, repayment of
borrowings under its credit facilities, subordinated debt and securitizations,
payment of selling, general and administrative expenses, income taxes and
capital expenditures.

         The Company utilizes its credit facilities to fund the origination and
acquisition of leases that satisfy the eligibility requirements established
pursuant to each facility. On August 22, 2000, the Company entered into a new
$192 million credit facility with seven banks, expiring on September 30, 2002.
At December 31, 2001, the Company had approximately $104.6 million outstanding
under the facility. The Company also may use its subordinated debt program as a
source of funding for potential acquisitions of portfolios and leases which
otherwise are not eligible for funding under the credit facilities and for
potential portfolio purchases. To date, cash flows from its portfolio and other
fees have been sufficient to repay amounts borrowed under the credit facilities
and subordinated debt.

         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.

         The Company believes that cash flows from its operations and amounts
available under its credit facilities will be sufficient to fund the Company's
operations for the foreseeable future.

         CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         The Company has entered into various agreements, such as the long-term
debt agreements, capital lease agreements and operating lease agreements that
require future payments be made. Long-term debt agreements include all debt
outstanding under the revolving credit line, securitizations, subordinated
notes, demand notes and other notes payable.

         At December 31, 2001 the repayment schedules for outstanding long-term
debt, minimum lease payments under noncancelable operating leases and future
minimum lease payments under capital leases were as follows:


                                      -21-
<PAGE>
<TABLE>
<CAPTION>
For the year ended                                         Long Term    Operating    Capital
   December 31,                                               Debt       Leases       Leases        Total
------------------                                         --------     --------     --------     --------
<S>                                                        <C>          <C>          <C>          <C>
      2002                                                 $ 55,583     $  1,787     $    468     $ 57,838
      2003                                                   37,550        1,754          267       39,571
      2004                                                    5,126          835          154        6,115
      2005                                                       --          214           44          258
      Thereafter                                              3,416           --           --        3,416
                                                           --------     --------     --------     --------
                                                            101,675        4,590          933      107,198
      Outstanding balance of revolving credit facility      104,640           --           --      104,640
                                                           --------     --------     --------     --------
      Total                                                $206,315     $  4,590     $    933     $211,838
                                                           ========     ========     ========     ========
</TABLE>

         Recently Issued Accounting Pronouncements

         See Note B of the notes to the consolidated financial statements
included herein for a discussion of the impact of recently issued accounting
pronouncements.

         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market-Rate-Sensitive Instruments and Risk Management

         The following discussion about the Company's risk management activities
includes forward-looking statements that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.

         This analysis presents the hypothetical loss in earnings, cash flows,
and fair value of the financial instruments held by the Company at December 31,
2001 that are sensitive to changes in interest rates. The Company has used
interest-rate swaps to manage the primary market exposures associated with
underlying liabilities and anticipated transactions. The Company used these
instruments to reduce risk by creating offsetting market exposures. The
instruments held by the Company are not held for trading purposes.

         In the normal course of operations, the Company also faces risks that
are either nonfinancial or nonquantifiable. Such risks principally include
country risk, credit risk, and legal risk, and are not represented in the
analysis that follows.

         Interest Rate Risk Management

         The implicit yield to the Company on all of its leases, contracts and
loans is on a fixed interest rate basis due to the leases, contracts and loans
having scheduled payments that are fixed at the time of origination of the
lease. When the Company originates or acquires leases, contracts, and loans it
bases its pricing in part on the spread it expects to achieve between the
implicit yield rate to the Company on each lease and the effective interest cost
it will pay when it finances such leases, contracts and loans


                                      -22-
<PAGE>
through its credit facility. Increases in interest rates during the term of each
lease, contract or loan could narrow or eliminate the spread, or result in a
negative spread. The Company has adopted a policy designed to protect itself
against interest rate volatility during the term of each lease, contract or
loan.

         Given the relatively short average life of the Company's leases,
contracts and loans, the Company's goal is to maintain a blend of fixed and
variable interest rate obligations. As of December 31, 2001, the Company's
outstanding fixed-rate indebtedness outstanding under the Company's
securitizations and subordinated debt represented 49.1% of the Company's total
outstanding indebtedness. In July 1997, the Company entered into an interest
rate swap arrangement with one of its banks. This arrangement expired in July
2000.

         The Company's credit facility bears interest at rates, which fluctuate
with changes in the prime rate or the 90-day LIBOR. The majority of the
Company's long term debt is at fixed interest rates. The Company's interest
expense on its credit facility and the fair value of its fixed rate debt is
sensitive to changes in market interest rates. The effect of a 10% adverse
change in market interest rates, sustained for one year, on the Company's
interest expense and the fair value of its fixed rate debt would be $410,000 and
$714,000, respectively.

         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, INCLUDING
                  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

         Included in Exhibit 99 and incorporated by reference herein.

         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         Not applicable.


                                      -23-
<PAGE>
                                    PART III

         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The sections, "Election of Directors," "Certain Information Regarding
the MicroFinancial Board," and "Section 16(a) Beneficial Ownership Reporting
Compliance," included in the Company's proxy statement for its 2002 Special
Meeting in lieu of the Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2002, are hereby
incorporated by reference.

         ITEM 11. EXECUTIVE COMPENSATION

         The sections "Compensation of Executive Officers," and "Certain
Information Regarding the MicroFinancial Board," included in the Company's proxy
statement for its 2002 Special Meeting in lieu of the Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 30, 2002, are hereby incorporated by reference.

         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The section "Security Ownership of Certain Beneficial Owners and
Management," included in the Company's proxy statement for its 2002 Special
Meeting in lieu of the Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2002, is hereby
incorporated by reference.

         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The section "Other Information Relating to Directors, Nominees and
Executive Officers," included in the Company's proxy statement for its 2002
Special Meeting in lieu of the Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission on or before April 30, 2002, is hereby
incorporated by reference.


                                      -24-
<PAGE>
                                    PART IV

         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                  8-K

         (a) (1)  Financial Statements
                  Included in Exhibit 99 and incorporated by reference herein

             (2)  None

             (3)  Exhibits Index

         Exhibit
         Number   Description
         ------   -----------
         3.1      Restated Articles of Organization, as amended (1)

         3.2      Bylaws (1)

         10.1     Standard Terms and Condition of Indenture, dated as of March
                  21, 2000 governing the MFI Finance Corp. I 7.375% Lease-Backed
                  Notes, Series 2000-1 (the "2000-1 Notes") and the MFI Finance
                  Corp. I 6.939% Lease-Backed Notes, Series 2000-2 (the "2000-2
                  Notes") (6)

         10.2     Supplement to Indenture, dated March 21, 2000, governing the
                  2000-1 Notes (6)

         10.3     Specimen 2000-1 Note (6)

         10.4     Standard Terms and Conditions of Servicing governing the
                  2000-1 Notes (6)

         10.5     Office Lease Agreement by and between WXI/AJP Real Estate
                  Limited Partnership and Leasecomm Corporation dated, May 3,
                  2000, for facilities in Newark, California (7)

         10.6     Fourth Amended and Restated Revolving Credit Agreement, dated
                  August 22, 2000, among Leasecomm Corporation, the lenders
                  parties thereto, and Fleet National Bank as agent (8)

         10.8     Office Lease Agreement by and between MicroFinancial
                  Incorporated and Desmond Taljaard and Howard Friedman,
                  Trustees of London and Leeds Bay Colony I Realty Trust, dated
                  April 14, 1994, for facilities in Waltham, Massachusetts (1)

         10.9**   1987 Stock Option Plan (1)

         10.10**  Forms of Grant under 1987 Stock Option Plan  (1)

         10.12**  1998 Equity Incentive Plan (3)


                                      -25-
<PAGE>
         10.13**  Employment Agreement between the Company and Peter R.
                  Bleyleben (3)

         10.14**  Employment Agreement between the Company and Richard F. Latour
                  (3)

         10.15    Amended and Restated Standard Terms and Condition of Indenture
                  dated as of September 2001 governing the MFI Finance Corp. I,
                  5.5800% Lease-Backed Notes, Series 2000-3 (the "2001-3 Notes")
                  (9)

         10.16    Supplement to Indenture dated September 2001 governing the
                  2001-3 Notes. (9)

         10.17    Specimen 2001-3 Note. (9)

         10.18    Standard Terms and Conditions of Servicing governing the
                  2001-3 Notes. (9)

         10.19    Standard Terms and Condition of Indenture dated as of
                  September 2001 governing the MFI Finance Corp. II, LLC,
                  8.0000% Lease-Backed Notes, Series 2001-1 (the "2001-1 Notes")
                  (9)

         10.20    Supplement to Indenture dated September 2001 governing the
                  2001-1 Notes. (9)

         10.21    Specimen 2001-1 Note. (9)

         10.22    Standard Terms and Conditions of Servicing governing the
                  2001-1 Notes. (9)

         10.25    Commercial Lease, dated November 3, 1998, between Cummings
                  Properties Management, Inc. and MicroFinancial Incorporated
                  (3)

         10.26    Amendment to Lease #1, dated November 3, 1998, between
                  Cummings Properties Management, Inc. and MicroFinancial
                  Incorporated (3)

         10.28    Employment Agreement between the Company and John Plumlee (3)

         10.29    Employment Agreement between the Company and Carol Salvo  (3)

         10.30    Supplement to Indenture, dated December 1, 2000, governing the
                  2000-2 Notes (9)

         10.31    Specimen, 2000-2 Notes (9)

         10.33    Third Amended and Restated Revolving Credit Agreement, dated
                  December 21, 1999, among Leasecomm Corporation, the lenders
                  parties thereto, and BankBoston, N.A. as agent (5)

         10.34    Fifth Amendment to Office Lease Agreement by and between
                  MicroFinancial Incorporated and Leasecomm Corporation and Bay
                  Colony Corporate Center LLC, dated June 29, 1999, for
                  facilities in Waltham, Massachusetts (5)


                                      -26-
<PAGE>
         21.1*    Subsidiaries of Registrant

         23.1*    Consent of Deloitte & Touche LLP

         23.2*    Consent of PricewaterhouseCoopers LLP

         99*      Consolidated Financial Statements and Notes to Consolidated
                  Financial Statements


----------

*        Filed herewith.

**       Management contract or compensatory plan or arrangement required to be
         filed as an exhibit pursuant to Item 14(c) of this Report.

(1)      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.

(2)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Amendment No. 1 to Registration Statement on Form
         S-1 (Registration Statement No. 333-56639) filed with the Securities
         and Exchange Commission on August 3, 1998.

(3)      Incorporated by reference to the Exhibit with the same exhibit number
         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.

(4)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Amendment No. 3 to Registration Statement on Form
         S-1 (Registration Statement No. 333-56639) filed with the Securities
         and Exchange Commission on February 4, 1999.

(5)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Annual Report on Form 10-K filed with the
         Securities and Exchange Commission on March 30, 2000.

(6)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Quarterly Report on Form 10-Q filed with the
         Securities and Exchange Commission on May 22, 2000.

(7)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Quarterly Report on Form 10-Q filed with the
         Securities and Exchange Commission on August 14, 2000.

(8)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Quarterly Report on Form 10-Q filed with the
         Securities and Exchange Commission on November 14, 2000.


                                      -27-
<PAGE>
(9)      Incorporated by reference to the Exhibit with the same exhibit number
         in the Registrant's Quarterly Report on Form 10-Q filed with the
         Securities and Exchange Commission on November 14, 2001.

(b)      One report on Form 8-K was filed on October 16, 2001 to discuss the
         third quarter results and a second report on Form 8-K was filed on
         February 13, 2002, to announce the results for the year ended December
         31, 2001.

(c)      See (a)(3) above.

(d)      None.


                                      -28-
<PAGE>
                                   SIGNATURES

         Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                         MICROFINANCIAL INCORPORATED

                                         By: /s/ PETER R. BLEYLEBEN
                                             -----------------------------------
                                             Peter R. Bleyleben
                                             Chairman of the Board of Directors,
                                               and Chief Executive Officer

                                             Date:  March 29, 2002

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
       SIGNATURE                             TITLE                               DATE
       ---------                             -----                               ----
<S>                             <C>                                         <C>
/s/ PETER R. BLEYLEBEN          Chairman of the Board of Directors          March 29, 2002
------------------------          and Chief Executive Officer
Peter R. Bleyleben


/s/ RICHARD F. LATOUR           President, Chief Operating Officer,         March 29, 2002
------------------------          Chief Financial Officer, Treasurer,
Richard F. Latour                 Clerk, Secretary and Director


/s/ BRIAN E. BOYLE              Director                                    March 29, 2002
------------------------
Brian E. Boyle


/s/ TORRENCE C. HARDER          Director                                    March 29, 2002
------------------------
Torrence C. Harder


/s/ JEFFREY P. PARKER           Director                                    March 29, 2002
------------------------
Jeffrey P. Parker


/s/ ALAN J. ZAKON               Director                                    March 29, 2002
------------------------
Alan J. Zakon
</TABLE>


                                      -29-