##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 Commission File No. 1-14771
 MICROFINANCIAL INCORPORATED
  Massachusetts
    
    04-2962824(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 
 
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
 o þ




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##### 



MICROFINANCIAL INCORPORATED
TABLE OF CONTENTS
 PagePart I- FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed Consolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income  Three and six months ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Stockholders Equity for the Six months ended June 30, 2008 and the twelve months ended December 31, 2007
    
    
    5Condensed Consolidated Statements of Cash Flows  Six months ended June 30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22Part II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 6.
    
    Exhibits
    
    
    23Signatures
    
    
    24EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCash and cash equivalents
    
    $
    5,387
    
    
    $
    7,080Restricted cash
    
    
    570
    
    
    
    561Net investment in leases:Receivables due in installments
    
    
    123,618
    
    
    
    92,314Estimated residual value
    
    
    13,117
    
    
    
    9,814Initial direct costs
    
    
    997
    
    
    
    729Less:Advance
lease payments and deposits
    
    
    (572
    )
    
    
    (219
    )Unearned income
    
    
    (45,234
    )
    
    
    (35,369
    )Allowance
for credit losses
    
    
    (9,499
    )
    
    
    (5,722
    )Net investment in leases
    
    
    82,427
    
    
    
    61,547Investment in service contracts, net
    
    
    90
    
    
    
    203Investment in rental contracts, net
    
    
    117
    
    
    
    106Property and equipment, net
    
    
    850
    
    
    
    782Other assets
    
    
    842
    
    
    
    703Total assets
    
    $
    90,283
    
    
    $
    70,982LIABILITIES AND STOCKHOLDERS EQUITYNotes payable
    
    $
    21,377
    
    
    $
    6,531Accounts payable
    
    
    1,247
    
    
    
    1,350Capital lease obligation
    
    
    150
    
    
    
    Dividends payable
    
    
    
    
    
    
    698Other liabilities
    
    
    1,419
    
    
    
    801Income taxes payable
    
    
    378
    
    
    
    228Deferred income taxes
    
    
    1,980
    
    
    
    546Total liabilities
    
    
    26,551
    
    
    
    10,154Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued at June 30, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $.01 par value; 25,000,000 shares authorized;
13,987,528 and 13,960,778 shares issued at June 30, 2008 and December
31, 2007, respectively
    
    
    140
    
    
    
    140Additional paid-in capital
    
    
    45,586
    
    
    
    45,412Retained earnings
    
    
    18,006
    
    
    
    15,276Total
stockholders equity
    
    
    63,732
    
    
    
    60,828Total
liabilities and stockholders equity
    
    $
    90,283
    
    
    $
    70,982
  3




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Income on financing leases
    
    $
    5,596
    
    
    $
    2,653
    
    
    $
    10,536
    
    
    $
    4,686Rental income
    
    
    2,484
    
    
    
    3,514
    
    
    
    5,236
    
    
    
    7,438Income on service contracts
    
    
    240
    
    
    
    329
    
    
    
    499
    
    
    
    690Loss and damage waiver fees
    
    
    768
    
    
    
    473
    
    
    
    1,456
    
    
    
    917Service fees and other
    
    
    532
    
    
    
    330
    
    
    
    1,080
    
    
    
    716Interest income
    
    
    27
    
    
    
    247
    
    
    
    87
    
    
    
    570Total revenues
    
    
    9,647
    
    
    
    7,546
    
    
    
    18,894
    
    
    
    15,017Expenses:Selling, general and administrative
    
    
    3,198
    
    
    
    3,158
    
    
    
    6,437
    
    
    
    6,726Provision for credit losses
    
    
    3,060
    
    
    
    1,677
    
    
    
    6,417
    
    
    
    3,200Depreciation and amortization
    
    
    230
    
    
    
    347
    
    
    
    460
    
    
    
    810Interest
    
    
    234
    
    
    
    13
    
    
    
    386
    
    
    
    26Total expenses
    
    
    6,722
    
    
    
    5,195
    
    
    
    13,700
    
    
    
    10,762Income before provision for income taxes
    
    
    2,925
    
    
    
    2,351
    
    
    
    5,194
    
    
    
    4,255Provision for income taxes
    
    
    1,053
    
    
    
    902
    
    
    
    1,765
    
    
    
    1,589Net income
    
    $
    1,872
    
    
    $
    1,449
    
    
    $
    3,429
    
    
    $
    2,666Net income per common share  basic
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.25
    
    
    $
    0.19Net income per common share  diluted
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.19Weighted-average shares:Basic
    
    
    13,987,528
    
    
    
    13,912,228
    
    
    
    13,981,216
    
    
    
    13,886,524Diluted
    
    
    14,137,300
    
    
    
    14,129,399
    
    
    
    14,151,034
    
    
    
    14,101,436
  4




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (In thousands, except share and per share data)
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    EquityBalance 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 accrued compensation
    
    
    77,654
    
    
    
    2
    
    
    
    307
    
    
    
    
    
    
    
    309Restricted stock granted
    
    
    11,682
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    72Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Conversion of share-based liability
awards
to equity awards
    
    
    
    
    
    
    
    
    
    
    932
    
    
    
    
    
    
    
    932Amortization of unearned compensation
    
    
    10,000
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Common 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 issued for accrued compensation
    
    
    23,000
    
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    127Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    35Amortization of unearned compensation
    
    
    3,750
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Common stock dividends ($0.05 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (699
    )
    
    
    (699
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,429
    
    
    
    3,429Balance at June 30, 2008
    
    
    13,987,528
    
    
    $
    140
    
    
    $
    45,586
    
    
    $
    18,006
    
    
    $
    63,732
  5




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
 (In thousands)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Cash received from customers
    
    $
    27,866
    
    
    $
    19,621Cash paid to suppliers and employees
    
    
    (7,215
    )
    
    
    (6,453
    )Income taxes paid
    
    
    (182
    )
    
    
    (129
    )Interest paid
    
    
    (386
    )
    
    
    (1
    )Interest received
    
    
    87
    
    
    
    570Net cash provided by operating activities
    
    
    20,170
    
    
    
    13,608Cash flows from investing activities:Investment in lease and rental contracts
    
    
    (34,644
    )
    
    
    (22,431
    )Investment in direct costs
    
    
    (557
    )
    
    
    (317
    )Investment in property and equipment
    
    
    (252
    )
    
    
    (183
    )Net cash used in investing activities
    
    
    (35,453
    )
    
    
    (22,931
    )Cash flows from financing activities:Proceeds from notes payable
    
    
    37,860
    
    
    
    39Repayment of notes payable
    
    
    (23,014
    )
    
    
    Increase in restricted cash
    
    
    (9
    )
    
    
    Proceeds from capital lease obligation
    
    
    163
    
    
    
    Repayment of capital lease obligations
    
    
    (13
    )
    
    
    Proceeds from exercise of common stock warrants
    
    
    
    
    
    
    41Payment of dividends
    
    
    (1,397
    )
    
    
    (1,385
    )Net cash provided by (used in) financing activities
    
    
    13,590
    
    
    
    (1,305
    )Net change in cash and cash equivalents
    
    
    (1,693
    )
    
    
    (10,628
    )Cash and cash equivalents, beginning of period
    
    
    7,080
    
    
    
    28,737Cash and cash equivalents, end of period
    
    $
    5,387
    
    
    $
    18,109Reconciliation of net income to net cash provided by operating activities:Net income
    
    $
    3,429
    
    
    
    2,666Adjustments to reconcile net income to net
cash provided by operating activities:Amortization of unearned income, net of initial direct costs
    
    
    (10,536
    )
    
    
    (4,686
    )Depreciation and amortization
    
    
    460
    
    
    
    810Provision for credit losses
    
    
    6,417
    
    
    
    3,200Recovery of equipment cost and residual value
    
    
    18,265
    
    
    
    9,405Stock-based compensation expense
    
    
    47
    
    
    
    525Non-cash interest expense (amortization of debt discount)
    
    
    0
    
    
    
    24Changes in assets and liabilities:Current taxes payable
    
    
    150
    
    
    
    (94
    )Deferred income taxes
    
    
    1,434
    
    
    
    1,554Other assets
    
    
    (139
    )
    
    
    (14
    )Accounts payable
    
    
    25
    
    
    
    98Other liabilities
    
    
    618
    
    
    
    120Net cash provided by operating activities
    
    $
    20,170
    
    
    $
    13,608Supplemental disclosure of non-cash activities:Fair market value of stock issued for compensation
    
    $
    127
    
    
    $
    308Conversion of share-based liability awards to equity awards
    
    
    
    
    
    
    932
  6




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MICROFINANCIAL INCORPORATED
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 A. Nature of Business
  B. Summary of Significant Accounting Policies
 Basis of Presentation
   Allowance for Credit Losses
   7




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except share and per share data)
   Six Months EndedJune 30,2008
    
    
    2007Allowance for credit losses, beginning
    
    $
    5,722
    
    
    $
    5,223Provision for credit losses
    
    
    6,417
    
    
    
    3,200Charge-offs
    
    
    (4,801
    )
    
    
    (5,986
    )Recoveries
    
    
    2,161
    
    
    
    2,447Allowance for credit losses, ending
    
    $
    9,499
    
    
    $
    4,884
 Net Income Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    1,872
    
    
    $
    1,449
    
    
    $
    3,429
    
    
    $
    2,666Weighted average common shares outstanding
    
    
    13,987,528
    
    
    
    13,912,228
    
    
    
    13,981,216
    
    
    
    13,886,524Dilutive effect of common stock
options, warrants and restricted stock
    
    
    149,772
    
    
    
    217,171
    
    
    
    169,818
    
    
    
    214,912Shares used in computation of net income
per common share  diluted
    
    
    14,137,300
    
    
    
    14,129,399
    
    
    
    14,151,034
    
    
    
    14,101,436Net income per common share  basic
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.25
    
    
    $
    0.19Net income per common share  diluted
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.19
 Stock-Based Employee Compensation
  8




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except share and per share data)
    Outstanding
    
    
    
    
    ExercisableWeighted-
    
    
    
    
    
    
    
    
    Weighted-Exercise
    
    
    
    
    
    
    Average
    
    
    Intrinsic
    
    
    
    
    Average
    
    
    
    
    
    
    IntrinsicPrice
    
    
    Shares
    
    
    Life (Years)
    
    
    Value
    
    
    
    
    Exercise Price
    
    
    Shares
    
    
    Value$
    12.31
    
    
    
    359,391
    
    
    
    .66
    
    
    $
    
    
    
    
    
    $
    12.31
    
    
    
    359,391
    
    
    $
    13.54
    
    
    
    40,609
    
    
    
    .66
    
    
    
    
    
    
    
    
    
    13.54
    
    
    
    40,609
    
    
    
    9.78
    
    
    
    350,000
    
    
    
    1.65
    
    
    
    
    
    
    
    
    
    9.78
    
    
    
    350,000
    
    
    
    13.10
    
    
    
    90,000
    
    
    
    2.64
    
    
    
    
    
    
    
    
    
    13.10
    
    
    
    90,000
    
    
    
    6.70
    
    
    
    235,000
    
    
    
    3.66
    
    
    
    
    
    
    
    
    
    6.70
    
    
    
    235,000
    
    
    
    1.59
    
    
    
    167,500
    
    
    
    4.41
    
    
    
    348,000
    
    
    
    
    
    1.59
    
    
    
    167,500
    
    
    
    348,0005.77
    
    
    
    40,188
    
    
    
    8.67
    
    
    
    
    
    
    
    
    
    5.77
    
    
    
    
    
    
    
    5.85
    
    
    
    176,879
    
    
    
    9.58
    
    
    
    
    
    
    
    
    
    5.85
    
    
    
    
    
    
    
    1,459,567
    
    
    
    3.23
    
    
    $
    348,000
    
    
    
    
    
    9.19
    
    
    
    1,242,500
    
    
    $
    348,000
     9




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##### Table of Contents



MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except share and per share data)
  C. Notes Payable
    D. Commitments and Contingencies
 Legal Matters
  Lease Commitments
  E. Recent Accounting Pronouncements
 Fair Value Measurements
 10




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except share and per share data)
  The Fair Value Option for Financial Assets and Financial Liabilities
   11




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Forward-Looking Information
  Overview
     12




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Critical Accounting Policies
   Results of Operations  Three months ended June 30, 2008 compared to the three months ended June
30, 2007
 Revenue
 Three Months Ended June 30,2008
    
    
    Change
    
    
    2007(Dollars in thousands)Income on financing leases
    
    $
    5,596
    
    
    
    110.9
    %
    
    $
    2,653Rental income
    
    
    2,484
    
    
    
    (29.3
    )
    
    
    3,514Income on service contracts
    
    
    240
    
    
    
    (27.1
    )
    
    
    329Loss and damage waiver fees
    
    
    768
    
    
    
    62.4
    
    
    
    473Service fees and other income
    
    
    532
    
    
    
    61.2
    
    
    
    330Interest income
    
    
    27
    
    
    
    (89.1
    )
    
    
    247Total revenues
    
    $
    9,647
    
    
    
    27.8
    %
    
    $
    7,546
  13




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Selling, General and Administrative
 Three Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Selling, general and administrative
    
    $
    3,198
    
    
    
    1.3
    %
    
    $
    3,158As a percent of revenue
    
    
    33.2
    %
    
    
    
    
    
    
    41.8
    %
  Provision for Credit Losses
 Three Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Provision for credit losses
    
    $
    3,060
    
    
    
    82.5
    %
    
    $
    1,677As a percent of revenue
    
    
    31.7
    %
    
    
    
    
    
    
    22.2
    %
  Depreciation and Amortization
 Three Months Ended June 30,2008
    
    
    Change
    
    
    2007(Dollars in thousands)Depreciation  fixed assets
    
    $
    96
    
    
    
    41.2
    %
    
    $
    68Depreciation  rental equipment
    
    
    82
    
    
    
    (52.3
    )
    
    
    172Amortization  service contracts
    
    
    52
    
    
    
    (51.4
    )
    
    
    107Total depreciation and amortization
    
    $
    230
    
    
    
    (33.7
    )%
    
    $
    347As a percent of revenue
    
    
    2.4
    %
    
    
    
    
    
    
    4.6
    %
 14




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##### Table of Contents



Interest Expense
 Three Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Interest
    
    $
    234
    
    
    
    1,700.0
    %
    
    $
    13As a percent of revenue
    
    
    2.4
    %
    
    
    
    
    
    
    0.2
    %
  Provision for Income Taxes
 Three Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Provision for income taxes
    
    $
    1,053
    
    
    
    16.7
    %
    
    $
    902As a percent of revenue
    
    
    10.9
    %
    
    
    
    
    
    
    12.0
    %As a percent of income before taxes
    
    
    36.0
    %
    
    
    
    
    
    
    38.4
    %
  15




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##### Table of Contents



Other Operating Data
  Results of Operations  Six months ended June 30, 2008 compared to the six months ended June 30,
2007
 Revenue
 Six Months Ended June 30,2008
    
    
    Change
    
    
    2007(Dollars in thousands)Income on financing leases
    
    $
    10,536
    
    
    
    124.8
    %
    
    $
    4,686Rental income
    
    
    5,236
    
    
    
    (29.6
    )
    
    
    7,438Income on service contracts
    
    
    499
    
    
    
    (27.7
    )
    
    
    690Loss and damage waiver fees
    
    
    1,456
    
    
    
    58.8
    
    
    
    917Service fees and other income
    
    
    1,080
    
    
    
    50.8
    
    
    
    716Interest income
    
    
    87
    
    
    
    (84.7
    )
    
    
    570Total revenues
    
    $
    18,894
    
    
    
    25.8
    %
    
    $
    15,017
   16




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##### Table of Contents



Selling, General and Administrative
 Six Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Selling, general and administrative
    
    $
    6,437
    
    
    
    (4.3
    )%
    
    $
    6,726As a percent of revenue
    
    
    34.1
    %
    
    
    
    
    
    
    44.8
    %
  Provision for Credit Losses
 Six Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Provision for credit losses
    
    $
    6,417
    
    
    
    100.5
    %
    
    $
    3,200As a percent of revenue
    
    
    34.0
    %
    
    
    
    
    
    
    21.3
    %
  Depreciation and Amortization
 Six Months Ended June 30,2008
    
    
    Change
    
    
    2007(Dollars in thousands)Depreciation  fixed assets
    
    $
    184
    
    
    
    44.9
    %
    
    $
    127Depreciation  rental equipment
    
    
    162
    
    
    
    (63.4
    )
    
    
    443Amortization  service contracts
    
    
    114
    
    
    
    (52.5
    )
    
    
    240Total depreciation and amortization
    
    $
    460
    
    
    
    (43.2
    )%
    
    $
    810As a percent of revenue
    
    
    2.4
    %
    
    
    
    
    
    
    5.4
    %
  17




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##### Table of Contents



Interest Expense
 Six Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Interest
    
    $
    386
    
    
    
    1,384.6
    %
    
    $
    26As a percent of revenue
    
    
    2.0
    %
    
    
    
    
    
    
    0.2
    %
  Provision for Income Taxes
 Six Months Ended June 30,2008
    
    Change
    
    2007(Dollars in thousands)Provision for income taxes
    
    $
    1,765
    
    
    
    11.1
    %
    
    $
    1,589As a percent of revenue
    
    
    9.3
    %
    
    
    
    
    
    
    10.6
    %As a percent of income before taxes
    
    
    34.0
    %
    
    
    
    
    
    
    37.3
    %
  18




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##### Table of Contents



Other Operating Data
  Exposure to Credit Losses
  (dollars in thousands)
    
    June 30, 2008
    
    
    December 31, 2007Current
    
    $
    98,576
    
    
    
    79.7
    %
    
    $
    75,528
    
    
    
    81.8
    %31-60 days past due
    
    
    5,382
    
    
    
    4.4
    
    
    
    4,565
    
    
    
    5.061-90 days past due
    
    
    3,750
    
    
    
    3.0
    
    
    
    3,016
    
    
    
    3.2Over 90 days past due
    
    
    15,910
    
    
    
    12.9
    
    
    
    9,205
    
    
    
    10.0Gross receivables due in installments
    
    $
    123,618
    
    
    
    100.0
    %
    
    $
    92,314
    
    
    
    100.0
    %
 Liquidity and Capital Resources
 General
    19




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##### Table of Contents



Borrowings
  June 30, 2008
    
    
    December 31, 2007Maximum
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MaximumAmounts
    
    
    Interest
    
    
    Unused
    
    
    Facility
    
    
    Amounts
    
    
    Interest
    
    
    Unused
    
    
    Facility(dollars in 000)
    
    Outstanding
    
    
    Rate
    
    
    Capacity
    
    
    Amount
    
    
    Outstanding
    
    
    Rate
    
    
    Capacity
    
    
    AmountRevolving credit
facility
(1)
    
    $
    21,377
    
    
    
    5.0
    %
    
    $
    8,623
    
    
    $
    30,000
    
    
    $
    6,531
    
    
    
    7.25
    %
    
    $
    23,469
    
    
    $
    30,000$
    21,377
    
    
    
    
    
    
    $
    8,623
    
    
    $
    30,000
    
    
    $
    6,531
    
    
    
    
    
    
    $
    23,469
    
    
    $
    30,000
 
 (1)
    
    The unused capacity is subject to the borrowing base formula.    Dividends
   20




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##### Table of Contents



Contractual Obligations and Lease Commitments
     Recent Accounting Pronouncements
  21




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
      
 ITEM 4. Controls and Procedures
   22




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##### Table of Contents



Part II  Other Information
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  A.
    
    For the election of nominees for the Board of Directors:
 Name of Director
    
    For
    
    Authority WithheldTorrence C. Harder
    
    
    11,710,156
    
    
    
    687,856Fritz von Mering
    
    
    11,700,777
    
    
    
    697,235
 B.
    
    For the approval of Microfinancial Incorporated 2008 Equity Incentive Plan:
 For
    
    Against
    
    Abstain
    
    Broker Non-Vote8,900,193
    
    470,621
    
    850
    
    3,026,348
 C.
    
    For the proposal to ratify the appointment of Vitale, Caturano & Co. as our independent
registered public accounting firm for the year ending December 31, 2008:
 For
    
    Against
    
    Abstain12,346,893
    
    36,982
    
    14,135
 
 ITEM 6. Exhibits
 (a)
    
    Exhibits index
 10.1
    
    MicroFinancial Incorporated 2008 Equity Incentive Plan (incorporated by reference to
Exhibit 10.1 of the Registrants Form 8-K filed on May 16, 2008).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 23




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##### Table of Contents



SIGNATURES
  MicroFinancial IncorporatedBy: /s/ Richard F. LatourPresident and Chief Executive OfficerBy: 
/s/ James R. Jackson Jr.Vice President and Chief Financial Officer  24