##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008oro

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

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

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

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

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




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##### 





Table of
    Contents
  
   PageDescription



NumberPART IItem 1.


Business


2Item 1A.


Risk Factors


7Item 2.


Properties


12Item 3.


Legal Proceedings


12Item 4.


Submission of Matters to a Vote of Security
    Holders


13PART IIItem 5.


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


13Item 6.


Selected Financial Data


15Item 7.


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


17Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


31Item 8.


Financial Statements and Supplementary Data


31Item 9.


Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


31Item 9A.


Controls and Procedures


31Item 9B.


Other Information


31PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


32Item 11.


Executive Compensation


32Item 12.


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


32Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


33Item 14.


Principal Accountant Fees and Services


33PART IVItem 15.


Exhibits and Financial Statement Schedules


34SIGNATURES


37EX-10.8.2 AMENDMENT TO EMPLOYMENT AGREEMENT RICHARD F. LATOUREX-10.9.2 AMENDMENT TO EMPLOYMENT AGREEMENT JAMES R. JACKSONEX-10.10.2 AMENDMENT TO EMPLOYMENT AGREEMENT STEPHEN CONSTANTINOEX-10.11.2 AMENDMENT TO EMPLOYMENT AGREEMENT STEVEN LACRETAEX-10.14.15 SOVEREIGN NOTE DATED JULY 9, 2008EX-10.14.16 TD BANKNORTH NOTE DATED JULY 9, 2008.EX-10.14.17 COMMERCE BANK & TRUST COMPANY NOTE DATED FEBRUARY 10, 2009EX-10.14.18 DANVERSBANK NOTE DATED FEBRUARY 10, 2009EX-10.14.19 WELLS FARGO BANK NOTE DATED FEBRUARY 10, 2009EX-10.15 COMPENSATORY ARRANGEMENTS FOR NON-EMPLOYEE DIRECTORS.EX-21.1 SUBSIDIARIESEX-23.1 CONSENT OF VITALE CATURANO & COMPANY, P.C.EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 3O2 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO   1




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PART I  Item 1.
    Business  General
    start-up
    90-day
     2




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##### Table of Contents



Leasing,
    Servicing and Financing Programs
      Terms
    of Equipment Leases
          Residual
    Interests in Underlying Equipment
   3




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




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##### Table of Contents



Bulk
    and Portfolio Acquisitions
    Servicing
    and Collections
      Competition
   5




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Employees
    Executive
    Officers
  Name and Age of Executive Officers

TitleRichard F. Latour, 55

Director, President, Chief Executive Officer, Treasurer,
    Secretary and ClerkJames R. Jackson, Jr., 47

Vice President and Chief Financial OfficerSteven J. LaCreta, 49

Vice President, Lessee Relations and LegalStephen J. Constantino, 43

Vice President, Human ResourcesThomas Herlihy, 50

Vice President, Sales and Marketing, of TimePayment Corp.   Backgrounds
    of Executive Officers
            Availability
    of Information
  http://www.microfinancial.com. Form 10-K, Form 10-Q, Form 8-K
 6




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##### Table of Contents



Form 10-K. http://www.sec.gov.
  Item 1A.
    Risk
    Factors    We depend
    on external financing to fund leases and contracts, and adequate
    financing may not be available to us in amounts, together with
    our cash flow, sufficient to originate new leases.
            The delay
    in originations caused by our former credit facilitys
    failure to renew in 2002 has decreased the size of our portfolio
    and may continue to adversely affect our financial
    performance.
   7




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A
    protracted economic downturn may cause an increase in defaults
    under our leases and lower demand for the commercial equipment
    we lease.
      We
    experience a significant rate of default under our leases, and a
    higher than expected default rate would have an adverse affect
    on our cash flow and earnings.
      Our
    allowance for credit losses may prove to be inadequate to cover
    future credit losses.
   8




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We are
    vulnerable to changes in the demand for the types of equipment
    we lease or price reductions in such equipment.
      Even if
    we have adequate financing, our expansion strategy may be
    affected by our limited sources for originations and our
    inexperience with leasing new products.
    New Sources.
  New Products.
  We may
    face adverse consequences of litigation, including consequences
    of using litigation as part of our collection policy.
   9




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Increased
    interest rates may make our leases or contracts less
    profitable.
    We may
    not be able to realize our entire investment in the residual
    interests in the equipment covered by our leases.
    We face
    intense competition, which could cause us to lower our lease
    rates, hurt our origination volume and strategic position and
    adversely affect our financial results.
   10




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Government
    regulation could restrict our business.
      We may
    face risks in acquiring other portfolios and companies,
    including risks relating to how we finance any such acquisition
    or how we are able to assimilate any portfolios or operations we
    acquire.
      If we
    were to lose key personnel, our operating results may suffer or
    it may cause a default under our debt facilities.
   11




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Certain
    provisions of our articles and bylaws may have the effect of
    discouraging a change in control or acquisition of the
    company.
    Our stock
    price may be volatile, which could limit our access to the
    equity markets and could cause you to incur losses on your
    investment.
    There is
    no assurance that we will continue to pay dividends on our
    common stock in the future.
    Item 2.
    Properties    Item 3.
    Legal
    Proceedings   12




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Item 4.
    Submission
    Of Matters to a Vote Of Security Holders   PART II  Item 5.
    Market
    For Registrants Common Equity, Related Stockholder Matters
    And Issuer Purchases Of Equity Securities  Market Information
    2008


2007First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


QuarterStock PriceHigh

$
6.25


$
5.15


$
4.93


$
4.00


$
6.34


$
6.52


$
6.45


$
6.50Low

$
4.60


$
3.00


$
3.30


$
1.50


$
3.62


$
4.08


$
5.14


$
4.85   Holders
    Dividends
                Repurchases
   13




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Performance Graph
    Comparison
    of 5 Year Cumulative Total Return
    Assumes Initial Investment of $100
    December 2008
  
   14




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Year Ended December 31,2008


2007


2006


2005


2004(Amounts in thousands, except share and per share data)Income Statement Data:Revenues:Income on financing leases

$
23,095


$
12,302


$
3,917


$
4,140


$
11,970Rental income


9,829



13,612



20,897



25,359



31,009Income on service contracts


925



1,271



1,870



3,467



5,897Other income(1)


5,676



4,486



5,758



6,318



11,491Total revenues


39,525



31,671



32,442



39,284



60,367Expenses:Selling, general and administrative


13,060



12,824



14,499



20,884



26,821Provision for credit losses


15,313



7,855



6,985



10,468



47,918Depreciation and amortization


976



1,344



5,326



9,497



14,010Interest


1,020



143



162



1,148



2,283Total expenses


30,369



22,166



26,972



41,997



91,032Income (loss) before provision (benefit) for income taxes


9,156



9,505



5,470



(2,713
)


(30,665
)Provision (benefit) for income taxes


3,206



3,303



1,555



(1,053
)


(20,449
)(2)Net income (loss)

$
5,950


$
6,202


$
3,915


$
(1,660
)

$
(10,216
)Net income (loss) per common share:Basic

$
0.42


$
0.45


$
0.28


$
(0.12
)

$
(0.77
)Diluted


0.42



0.44



0.28



(0.12
)


(0.77
)Weighted-average shares:Basic


14,002,045



13,922,974



13,791,403



13,567,640



13,182,883Diluted


14,204,105



14,149,634



13,958,759



13,567,640



13,182,883Dividends declared per common share

$
0.20


$
0.20


$
0.20


$
0.50


$
   15




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December 31,2008


2007


2006


2005


2004(Dollars in thousands)Balance Sheet Data:Cash and cash equivalents

$
5,047


$
7,080


$
28,737


$
32,926


$
9,709Restricted cash


528



561











Gross investment in leases(3)


158,138



102,128



44,314



33,004



69,181Unearned income


(49,384
)


(35,369
)


(13,682
)


(3,658
)


(6,313
)Allowance for credit losses


(11,722
)


(5,722
)


(5,223
)


(8,714
)


(14,963
)Investment in service contracts, net


32



203



613



1,626



4,777Investment in rental contracts, net


240



106



313



3,025



1,785Total assets


104,850



70,982



59,721



65,188



71,270Notes payable


33,325



6,531



5



161



34Subordinated notes payable














2,602



4,589Total liabilities


40,512



10,154



3,585



10,501



9,177Total stockholders equity


64,338



60,828



56,136



54,687



62,093   December 31,2008


2007


2006


2005


2004(Dollars in thousands, except statistical data)Other Data:Operating Data:Value of leases originated(4)

$
104,529


$
83,698


$
33,343


$
7,296


$
920Value of rental contracts originated














1,731



77Dealer funding(5)


68,007



54,035



21,498



6,364



668Average yield on leases(6)


28.5
%


29.0
%


30.0
%


30.6
%


30.1
%Cash Flows From (Used In):Operating activities

$
43,310


$
30,440


$
26,870


$
35,228


$
58,694Investing activities


(69,523
)


(55,203
)


(22,114
)


(6,978
)


(813
)Financing activities


24,180



3,106



(8,945
)


(5,033
)


(54,705
)Net change in cash and cash equivalents

$
(2,033
)

$
(21,657
)

$
(4,189
)

$
(23,217
)

$
3,176Selected Ratios:Return on average assets


6.77
%


9.49
%


6.27
%


(2.43
)%


(8.98
)%Return on average stockholders equity


9.51



10.60



7.07



(2.84
)


(15.32
)Operating margin(7)


61.91



54.81



38.39



19.74



28.58Credit Quality Statistics:Net charge-offs

$
9,313


$
7,356


$
10,476


$
16,717


$
75,967Net charge-offs as a percentage of average gross investment(8)


7.15
%


9.99
%


26.34
%


30.79
%


54.71
%Provision for credit losses as a percentage of average gross
    investment(8)


11.76



10.67



17.56



19.28



34.51Allowance for credit losses as a percentage of gross
    investment(9)


7.41



5.59



11.63



25.16



20.23     (1)
    
    Includes loss and damage waiver fees, service fees, interest
    income, and miscellaneous revenue.(2)
    
    Includes an income tax benefit of $7.9 million that
    resulted from a reduction in our estimate of certain tax
    liabilities.(3)
    
    Consists of receivables due in installments and estimated
    residual value.(4)
    
    Represents the amount paid to dealers upon funding of leases
    plus the associated unearned income. 16




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(5)
    
    Represents the net amount paid to dealers upon funding of leases
    and contracts.(6)
    
    Represents the aggregate of the implied interest rate on each
    lease originated during the period weighted by the amount funded.(7)
    
    Represents income before provision (benefit) for income taxes
    and provision for credit losses as a percentage of total
    revenues.(8)
    
    Represents a percentage of average gross investment in leases
    and net investment in service contracts.(9)
    
    Represents allowance for credit losses as a percentage of gross
    investment in leases and net investment in service contracts.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations, Including Selected Quarterly Financial Data
    (Unaudited)    
    the demand for the equipment types we offer, expansion into new
    markets and the development of a sizeable dealer base;
    our significant capital requirements;
    our ability or inability to obtain the financing we need, or to
    use internally generated funds, in order to continue originating
    contracts;
    the risks of defaults on our leases;
    our provision for credit losses;
    our residual interests in underlying equipment;
    possible adverse consequences associated with our collection
    policy;
    the effect of higher interest rates on our portfolio;
    increasing competition;
    increased governmental regulation of the rates and methods we
    use in financing and collecting on our leases and contracts;
    acquiring other portfolios or companies;
    dependence on key personnel;
    adverse results in litigation and regulatory matters, or
    promulgation of new or enhanced legislation or
    regulations; and
    general economic and business conditions.   17




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Overview
    22-month
             18




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##### Table of Contents



Critical
    Accounting Policies
    Revenue
    Recognition
      Allowance
    for Credit Losses
   19




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##### Table of Contents



Income
    Taxes
    Share-Based
    Compensation
    Results
    of Operations
  Revenues
  2008


Change


2007


Change


2006(In thousands)Income on financing leases

$
23,095



87.7
%

$
12,302



214.1
%

$
3,917Rental income


9,829



(27.8
)


13,612



(34.9
)


20,897Income on service contracts


925



(27.2
)


1,271



(32.0
)


1,870Loss and damage waiver fees


3,236



59.2



2,033



7.3



1,895Service fees and other


2,300



45.9



1,576



(35.6
)


2,448Interest income


140



(84.0
)


877



(38.0
)


1,415Total revenues

$
39,525



24.8
%

$
31,671



(2.4
)%

$
32,442  20




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##### Table of Contents



Selling,
    General and Administrative
  2008


Change


2007


Change


2006(Dollars in thousands)Selling, general and administrative

$
13,060



1.8
%

$
12,824



(11.6
)%

$
14,499As a percent of revenue


33.0
%






40.5
%






44.7
%      21




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##### Table of Contents



Provision
    for Credit Losses
  2008


Change


2007


Change


2006(Dollars in thousands)Provision for credit losses

$
15,313



94.9
%

$
7,855



12.5
%

$
6,985As a percent of revenue


38.7
%






24.8
%






21.5
%       Depreciation
    and Amortization
  2008


Change


2007


Change


2006(Dollars in thousands)Depreciation  fixed assets

$
383



36.8
%

$
280



38.6
%

$
202Depreciation  rental equipment


415



(40.3
)


695



(83.1
)


4,108Amortization  service contracts


178



(51.8
)


369



(63.7
)


1,016Total depreciation and amortization

$
976



(27.4
)%

$
1,344



(74.8
)%

$
5,326As a percent of revenue


2.5
%






4.2
%






16.4
%        22




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##### Table of Contents



Interest
    Expense
  2008


Change


2007


Change


2006(Dollars in thousands)Interest

$
1,020



613.3
%

$
143



(11.7
)%

$
162As a percent of revenue


2.6
%






0.5
%






0.5
%       Provision
    for Income Taxes
  2008


Change


2007


Change


2006(In thousands)Provision for income taxes

$
3,206



(2.9
)%

$
3,303



112.4
%

$
1,555As a percent of revenue


8.1
%






10.4
%






4.8
%          23




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##### Table of Contents



Other
    Operating Data
     24




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##### Table of Contents



Selected
    Quarterly Data
  Form 10-K.
  2008


2007First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


QuarterRevenues:Income on leases

$
4,940


$
5,596


$
6,030


$
6,529


$
2,033


$
2,653


$
3,406


$
4,210Rental income


2,752



2,484



2,330



2,263



3,924



3,514



3,268



2,906Income on service contracts


259



240



221



205



361



329



303



278Loss and damage waiver fees


688



768



849



931



444



473



524



592Service fees and other


549



532



632



587



386



330



415



445Interest income


60



27



23



30



323



247



182



125Total revenues


9,248



9,647



10,085



10,545



7,471



7,546



8,098



8,556Expenses:Selling, general and administrative


3,239



3,198



3,260



3,363



3,568



3,158



3,134



2,964Provision for credit losses


3,357



3,060



3,782



5,114



1,523



1,677



1,919



2,736Depreciation and amortization


230



230



245



271



463



347



288



246Interest


152



234



310



324



13



13



13



104Total expenses


6,978



6,722



7,597



9,072



5,567



5,195



5,354



6,050Income before provision for income taxes


2,270



2,925



2,488



1,473



1,904



2,351



2,744



2,506Provision for income taxes


713



1,053



905



535



687



902



941



773Net income

$
1,557


$
1,872


$
1,583


$
938


$
1,217


$
1,449


$
1,803


$
1,733Net income per common share  basic

$
0.11


$
0.13


$
0.11


$
0.07


$
0.09


$
0.10


$
0.13


$
0.12Net income per common share  diluted


0.11



0.13



0.11



0.07



0.09



0.10



0.13



0.12Dividends declared per common share






0.05



0.05



0.10



0.05



0.05



0.05



0.05  25




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##### Table of Contents



Exposure
    to Credit Losses
    December 31, 2008


December 31, 2007


December 31, 2006(Dollars in thousands)Current

$
110,423



77.3
%

$
75,528



81.8
%

$
29,027



71.8
%31-60 days
    past due


6,941



4.8



4,565



5.0



1,607



4.061-90 days
    past due


5,079



3.6



3,016



3.2



825



2.0Over 90 days past due


20,438



14.3



9,205



10.0



8,996



22.2Receivables due in installments

$
142,881



100.0
%

$
92,314



100.0
%

$
40,455



100.0
%   Liquidity
    and Capital Resources
  General
           26




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##### Table of Contents



Borrowings
    December 31, 2008


December 31, 2007Maximum











MaximumAmounts


Interest


Unused


Facility


Amounts


Interest


Unused


FacilityOutstanding


Rate


Capacity


Amount


Outstanding


Rate


Capacity


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

$
33,325



3.25
%

$
26,675


$
60,000


$
6,531



7.25
%

$
23,469


$
30,000     (1)
    
    The unused capacity is subject to limitations based on lease
    eligibility and the borrowing base formula.  90-day
          Financial
    Covenants
   27




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##### Table of Contents



Contractual
    Obligations and Lease Commitments
    Payments Due


Payments


Payments


PaymentsLess than


Due


Due


Due AfterContractual Obligations

Total


1 Year


1-3 Years


4-5 Years


5 YearsRevolving line of credit

$
33,325


$
33,325


$
0


$
0


$
0Operating lease obligations


474



237



237



0



0Capital lease obligations


132



59



73



0



0Total

$
33,391


$
33,621


$
310


$
0


$
0   Contractual
    Obligations
    Lease
    Commitments
    Market
    Risk and Financial Instruments
       28




---



##### Table of Contents



Recently
    Issued Accounting Pronouncements
       29




---



##### Table of Contents



06-11, (EITF 06-11), EITF 06-11 EITF 06-11
  EITF 03-6-1, EITF 03-6-1), EITF 03-6-1
  EITF 07-05, EITF 07-05),
 30




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    controls and procedures
  Rule 13a-15
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
    Change in
    Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   31




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##### Table of Contents



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


Weighted-Average


Future Issuanceto be Issued


Exercise Price of


Under Equityupon Exercise


Outstanding


Compensation Plansof Outstanding


Options,


(Excluding SecuritiesOptions, Warrants


Warrants and


Reflected inPlan Category

and Rights


Rights(2)


Column (a))(a)


(b)


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


1,442,067


$
8.78



969,271Equity compensation plans not approved by security holders










Total


1,442,067


$
8.78



969,271     (1)
    
    Includes our 1998 Equity Incentive Plan (which was approved by
    stockholders at the 2001 special meeting of stockholders in lieu
    of annual meeting) and our 2008 Equity Incentive Plan (which was
    approved by our stockholders at the 2008 special meeting of
    stockholders in lieu of annual meeting). The number of
    securities available for future issuance will be reduced by
    three for each share of restricted stock or other full
    share award made to an employee of the Company, and by one
    for any option granted or for any award made to non-employee
    directors, under the terms of our 2008 Equity Incentive Plan.(2)
    
    Weighted average exercise price of outstanding options; excludes
    restricted stock. 32




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   33




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##### Table of Contents



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

Description3
.1

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

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

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

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

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

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

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

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

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

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

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

Forms of Restricted Stock Agreement grant under 1998 Equity
    Incentive Plan. Incorporated by reference to Exhibit 10.27
    in the Registrants Annual Report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 30, 2004. 34




---



##### Table of Contents



ExhibitNumber

Description10
.6.3*

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

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

MicroFinancial Incorporated 2008 Equity Incentive Plan.
    Incorporated by reference to Exhibit 10.1 in the
    Registrants
    Form 8-K
    filed with the Securities and Exchange Commission on
    May 16, 2008.10
.7*

Second Amended and Restated Employment Agreement between the
    Company and Peter R. Bleyleben dated July 15, 2005.
    Incorporated by reference to Exhibit 10.2 in the
    Registrants Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 12, 2005.10
.8.1*

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

Amendment to Employment Agreement between the Company and
    Richard F. Latour dated December 24, 2008.10
.9.1*

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

Amendment to Employment Agreement between the Company and James
    R. Jackson dated December 24, 2008.10
.10.1*

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

Amendment to Employment Agreement between the Company and
    Stephen Constantino dated December 24, 2008.10
.11.1*

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

Amendment to Employment Agreement between the Company and Steven
    LaCreta dated December 24, 2008.10
.12

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

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

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

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

Unlimited Guaranty of Leasecomm dated August 2, 2007.
    Incorporated by reference to Exhibit 10.3 of the
    Registrants
    Form 8-K
    filed on August 8, 2007.10
.14.4

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

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

Security Agreement between Leasecomm and Agent dated
    August 2, 2007. Incorporated by reference to
    Exhibit 10.6 of the Registrants
    Form 8-K
    filed on August 8, 2007. 35




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##### Table of Contents



ExhibitNumber

Description10
.14.7

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

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

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

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

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

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

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

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

Sovereign Note dated July 9, 2008.10
.14.16

TD Banknorth Note dated July 9, 2008.10
.14.17

Commerce Bank & Trust Company Note dated
    February 10, 2009.10
.14.18

Danversbank Note dated February 10, 2009.10
.14.19

Wells Fargo Bank Note dated February 10, 2009.10
.15*

Compensatory Arrangements for Non-Employee Directors.21
.1

Subsidiaries of Registrant.23
.1

Consent of Vitale, Caturano & Company, P.C.31
.1

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

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

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

Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement required
    to be filed as an exhibit pursuant to Item 14(c) of this
    Report.     36




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##### Table of Contents



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

Title

Date/s/  Peter
    R. BleylebenPeter
    R. Bleyleben

Chairman of the Board of Directors

March 31, 2009/s/  Richard
    F. LatourRichard
    F. Latour

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

March 31, 2009/s/  James
    R. Jackson Jr.James
    R. Jackson Jr.

Vice President and Chief Financial Officer

March 31, 2009/s/  Brian
    E. BoyleBrian
    E. Boyle

Director

March 31, 2009/s/  John
    W. EveretsJohn
    W. Everets

Director

March 31, 2009/s/  Torrence
    C. HarderTorrence
    C. Harder

Director

March 31, 2009/s/  Fritz
    Von MeringFritz
    Von Mering

Director

March 31, 2009/s/  Alan
    J. ZakonAlan
    J. Zakon

Director

March 31, 2009  37




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##### Table of Contents



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


F-2Financial StatementsConsolidated Balance Sheets as of
    December 31, 2008 and 2007


F-3Consolidated Statements of Operations for the
    Years Ended December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2008, 2007 and
    2006


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7  F-1




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##### Table of Contents



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




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2008


2007(In thousands,except shareand per share data)ASSETSCash and cash equivalents

$
5,047


$
7,080Restricted cash


528



561Net investment in leases:Receivables due in installments


142,881



92,314Estimated residual value


15,257



9,814Initial direct costs


1,211



729Less:Advance lease payments and deposits


(982
)


(219
)Unearned income


(49,384
)


(35,369
)Allowance for credit losses


(11,722
)


(5,722
)Net investment in leases


97,261



61,547Investment in service contracts, net


32



203Investment in rental contracts, net


240



106Property and equipment, net


759



782Other assets


983



703Total assets

$
104,850


$
70,982LIABILITIES AND STOCKHOLDERS EQUITYRevolving line of credit

$
33,325


$
6,531Accounts payable


1,648



1,350Capital lease obligation


125



Dividends payable


702



698Other liabilities


1,308



801Income taxes payable


8



228Deferred income taxes


3,396



546Total liabilities


40,512



10,154Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 5,000,000 shares
    authorized; no shares issued at December 31, 2008 and 2007






Common stock, $.01 par value; 25,000,000 shares
    authorized; 14,038,257 and 13,960,778 shares issued and
    outstanding at December 31, 2008 and 2007, respectively


140



140Additional paid-in capital


45,774



45,412Retained earnings


18,424



15,276Total stockholders equity


64,338



60,828Total liabilities and stockholders equity

$
104,850


$
70,982    F-3




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2008


2007


2006(In thousands, except share and per share data)Revenues:Income on financing leases

$
23,095


$
12,302


$
3,917Rental income


9,829



13,612



20,897Income on service contracts


925



1,271



1,870Loss and damage waiver fees


3,236



2,033



1,895Service fees and other


2,300



1,576



2,448Interest income


140



877



1,415Total revenues


39,525



31,671



32,442Expenses:Selling, general and administrative


13,060



12,824



14,499Provision for credit losses


15,313



7,855



6,985Depreciation and amortization


976



1,344



5,326Interest


1,020



143



162Total expenses


30,369



22,166



26,972Income before provision for income taxes


9,156



9,505



5,470Provision for income taxes


3,206



3,303



1,555Net income

$
5,950


$
6,202


$
3,915Net income (loss) per common share  basic

$
0.42


$
0.45


$
0.28Net income (loss) per common share  diluted

$
0.42


$
0.44


$
0.28Weighted average shares outstanding  basic


14,002,045



13,922,974



13,791,403Weighted average shares outstanding  diluted


14,204,105



14,149,634



13,958,759Dividends declared per common share

$
0.20


$
0.20


$
0.20    F-4




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
 Years Ended December 31, 2006, 2007 and 2008
  Additional





TotalCommon Stock


Paid-In


Retained


StockholdersShares


Amount


Capital


Earnings


Equity(In thousands, except share data)Balance at December 31, 2005


13,713,899


$
137


$
43,839


$
10,711


$
54,687Warrant exercises


13,983















Stock issued for deferred compensation


56,141



1



199







200Restricted stock granted


16,169







51







51Stock-based compensation










10







10Amortization of unearned compensation


11,250







37







37Common stock dividends ($0.20 per share)














(2,764
)


(2,764
)Net income














3,915



3,915Balance at December 31, 2006


13,811,442



138



44,136



11,862



56,136Warrant exercises


125,000



1



319







320Purchase and retirement of shares


(75,000
)


(1
)


(398
)






(399
)Stock issued for deferred compensation


77,654



2



307







309Restricted stock granted


11,682







72







72Stock-based compensation










12







12Amortization of unearned compensation


10,000







32







32Conversion of share-based liability awards to equity awards










932







932Common stock dividends ($0.20 per share)














(2,788
)


(2,788
)Net income














6,202



6,202Balance at December 31, 2007


13,960,778



140



45,412



15,276



60,828Stock options exercised


17,500







28







28Stock issued for deferred compensation


53,729







241







241Stock-based compensation










74







74Amortization of unearned compensation


6,250







19







19Common stock dividends ($0.20 per share)














(2,802
)


(2,802
)Net income














5,950



5,950Balance at December 31, 2008


14,038,257


$
140


$
45,774


$
18,424


$
64,338    F-5




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2008


2007


2006(In thousands)Cash flows from operating activities:Cash received from customers

$
59,330


$
42,553


$
39,790Cash paid to suppliers and employees


(14,564
)


(12,653
)


(13,762
)Cash paid for income taxes


(576
)


(230
)


(453
)Interest paid


(1,020
)


(107
)


(120
)Interest received


140



877



1,415Net cash provided by operating activities


43,310



30,440



26,870Cash flows from investing activities:Investment in lease contracts


(68,007
)


(54,035
)


(21,498
)Investment in direct costs


(1,156
)


(761
)


(345
)Investment in property and equipment


(360
)


(407
)


(271
)Net cash used in investing activities


(69,523
)


(55,203
)


(22,114
)Cash flows from financing activities:Proceeds from secured debt


87,541



11,685



179Repayment of secured debt


(60,747
)


(5,159
)


(335
)Decrease (increase) in restricted cash


33



(561
)


Repayment of subordinated debt










(2,602
)Capital leases obligations


163







Repayment of capital leases


(38
)






Proceeds from exercise of common stock warrants






41



Purchase and retirement of common stock warrants






(120
)


Proceeds from the sale of capital stock


28







Payment of dividends


(2,800
)


(2,780
)


(6,187
)Net cash provided by (used in) financing activities


24,180



3,106



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


(2,033
)


(21,657
)


(4,189
)Cash and cash equivalents, beginning


7,080



28,737



32,926Cash and cash equivalents, ending

$
5,047


$
7,080


$
28,737Reconciliation of net income (loss) to net cash provided by
    operating activitites:Net income

$
5,950


$
6,202


$
3,915Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of unearned income, net of initial direct costs


(23,095
)


(12,302
)


(3,917
)Depreciation and amortization


976



1,344



5,326Provision for credit losses


15,313



7,855



6,985Recovery of equipment cost and residual value


40,549



22,909



12,309Stock-based compensation expense


334



549



292Non-cash interest expense






37



46Increase in deferred income taxes payable


2,850



3,636



1,792Changes in assets and liabilities:Deferred income taxes


(220
)


(513
)


310Decrease (increase) in other assets


(280
)


(87
)


678Increase (decrease) in accounts payable


426



691



(61
)Increase (decrease) in other liabilities


507



119



(805
)Net cash provided by operating activities

$
43,310


$
30,440


$
26,870Supplemental disclosure of non-cash activities:Fair value of stock issued for compensation

$
241


$
381


$
251Conversion of share-based liability awards to equity awards






932



    F-6




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##### Table of Contents



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




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Allowance
    for Credit Losses
      Investment
    in Service Contracts
      December 31,2008


2007Investment in service contracts

$
1,819


$
2,482Less accumulated amortization


(1,787
)


(2,279
)Investment in service contracts, net

$
32


$
203    F-8




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Investment
    in Rental Contracts
  point-of-sale
    December 31,2008


2007Investment in rental contracts

$
4,020


$
5,198Less accumulated depreciation


(3,780
)


(5,092
)Investment in rental contracts, net

$
240


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




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Net
    Income Per Common Share
    Year Ended December 31,2008


2007


2006Net income

$
5,950


$
6,202


$
3,915Weighted-average shares outstanding used in computation of net
    income per share  basic


14,002,045



13,922,974



13,791,403Dilutive effect of options, warrants and restricted stock


202,060



226,660



167,356Shares used in computation of net income per common
    share  assuming dilution


14,204,105



14,149,634



13,958,759Net income per common share  basic

$
.42


$
.45


$
.28Net income per common share  diluted

$
.42


$
.44


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




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Recent
    Accounting Pronouncements
         F-11




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        No. 06-11, (EITF 06-11), EITF 06-11 EITF 06-11
  EITF 03-6-1, EITF 03-6-1), EITF 03-6-1
  EITF 07-05, EITF 07-05),
 F-12




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    C.
    Net
    Investment in Leases    Year Ending December 31,2009

$
59,2972010


42,0882011


26,3492012


12,1882013


2,959Total

$
142,881       Year Ended December 31,2008


2007


2006Allowance for credit losses, beginning

$
5,722


$
5,223


$
8,714Provision for credit losses


15,313



7,855



6,985Charge-offs


(13,641
)


(12,119
)


(16,069
)Recoveries


4,328



4,763



5,593Allowance for credit losses, ending

$
11,722


$
5,722


$
5,223     Year Ended December 31,2008


2007


2006Estimated residual value, beginning

$
9,814


$
3,859


$
3,865Lease originations


8,221



7,145



2,954Terminations


(2,778
)


(1,190
)


(2,960
)Estimated residual value, ending

$
15,257


$
9,814


$
3,859    F-13




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##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  D.
    Property
    and Equipment    December 31,2008


2007Computer equipment

$
4,911


$
4,551Office equipment


732



732Leasehold improvements


263



263Total


5,906



5,546Less accumulated depreciation and amortization


(5,147
)


(4,764
)Net

$
759


$
782     E.
    Notes
    Payable    December 31,2008


2007Credit facility  Sovereign

$
33,325


$
6,531       90-day 90-day
 F-14




---



##### Table of Contents



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




---



##### Table of Contents



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


Amortizedof


CompensationShares


ExpenseNon-vested at December 31, 2005


11,250Granted


25,000Vested


(11,250
)

$
37,000Non-vested at December 31, 2006


25,000Granted


Vested


(10,000
)

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


15,000Granted


Vested


(6,250
)

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


8,750      F-16




---



##### Table of Contents



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


Price Per Share

Exercise PriceOutstanding at December 31, 2006


1,242,500


$1.585 to $13.544

$
9.189Granted in 2007


40,188


$5.77

$
5.77Outstanding at December 31, 2007


1,282,688


$1.585 to $13.544

$
9.08Granted in 2008


176,879


$5.85

$
5.85Exercised in 2008


(17,500
)

$1.585

$
1.585Outstanding at December 31, 2008


1,442,067


$1.585 to $13.544

$
8.78    F-17




---



##### Table of Contents



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


ExercisableWeighted-





Weighted-Average


Intrinsic


Average





IntrinsicExercise Price

Shares


Life (Years)


Value


Exercise Price


Shares


Value$12.31


359,391



0.16


$



$
12.31



359,391


$
13.54


40,609



0.16







13.54



40,609



9.78


350,000



1.15







9.78



350,000



13.10


90,000



2.14







13.10



90,000



6.70


235,000



3.16







6.70



235,000



1.59


150,000



3.91



65,000



1.59



150,000



65,0005.77


40,188



8.17







5.77







5.85


176,879



9.10







5.85







1,442,067



2.72


$
65,000



9.30



1,225,000


$
65,000              F-18




---



##### Table of Contents



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


93,289Stock options


1,442,067Restricted stock grants


8,750Reserved for future grants under 2008 Equity Incentive Plan


969,271Total


2,513,377   G.
    Income
    Taxes    Year Ended December 31,2008


2007


2006Current:Federal

$



$
67


$
(416
)State


358



188



179358



255



(237
)Deferred:Federal


2,988



3,269



2,039State


(140
)


(221
)


(247
)2,848



3,048



1,792Total

$
3,206


$
3,303


$
1,555  F-19




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Deferred tax assets:Allowance for credit losses

$
4,713


$
2,289Depreciation and amortization


17,640



18,194Federal alternative minimum tax credit


808



599Federal NOL carryforward


4,146



State NOL and other state attributes


3,440



3,396State valuation allowance


(1,289
)


(2,442
)Total deferred tax assets


29,458



22,036Deferred tax liabilities:Lease receivable and unearned income


(26,109
)


(17,968
)Residual value


(6,131
)


(3,926
)Initial direct costs


(325
)


(291
)Reserve for Contingencies


(289
)


(397
)Total deferred tax liabilities


(32,854
)


(22,582
)Net deferred tax liability

$
(3,396
)

$
(546
)       Year Ended December 31,2008


2007


2006Federal statutory rate


35.00
%


35.00
%


35.00
%State income taxes, net of federal benefit


4.33



7.10



6.36State valuation allowance


(3.33
)


(6.35
)


(7.49
)IRS audit settlement










(7.03
)Reversal of state income tax reserve


(1.17
)


(2.02
)


Nondeductible expenses and other


0.18



1.02



1.58Effective income tax rate


35.01
%


34.75
%


28.42
%      F-20




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Uncertain
    Tax Positions
    Balance at January 1, 2007

$
920,000Additions for tax positions related to current year


25,000Reductions for tax positions as a result of:Settlements


(25,000
)Lapse of statue of limitations


(300,000
)Balance at December 31, 2007

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


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


(44,000
)Lapse of statute of limitations


(163,000
)Balance at December 31, 2008


445,000     H.
    Commitments
    and Contingencies  Operating
    Leases
   F-21




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Capital
    Leases
    For the years Ended December 31,2009

$
59,0002010


59,0002011


14,000Total minimum payments


132,000Less amounts representing interest


(7,000
)Total


125,000   Legal
    Matters
    Lease
    Commitments
    I.
    Employee
    Benefit Plan    J.
    Concentration
    of Credit Risk     F-22




---



##### Table of Contents



MICROFINANCIAL
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      point-of-sale
 F-23