##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  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, 2006
 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
  o o þ
 o þ




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##### 



MICROFINANCIAL INCORPORATED
TABLE OF CONTENTS
 PagePart I- FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed Consolidated Balance Sheets December 31, 2005 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations
Three and six months ended June 30, 2005 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2005 and 2006
    
    
    5Notes 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
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23Part II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 6.
    
    Exhibits
    
    
    25Signatures
    
    
    
    
    26EX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 December 31,
    
    
    June 30,2005
    
    
    2006ASSETSCash and cash equivalents
    
    $
    32,926
    
    
    $
    33,119Net investment in leases and loans:Receivables due in installments
    
    
    29,139
    
    
    
    27,947Estimated residual value
    
    
    3,865
    
    
    
    2,336Initial direct costs
    
    
    98
    
    
    
    137Less:Advance lease payments and deposits
    
    
    (35
    )
    
    
    (38
    )Unearned income
    
    
    (3,658
    )
    
    
    (6,088
    )Allowance for credit losses
    
    
    (8,714
    )
    
    
    (6,859
    )Net investment in leases and loans
    
    
    20,695
    
    
    
    17,435Investment in service contracts, net
    
    
    1,626
    
    
    
    982Investment in rental contracts, net
    
    
    3,025
    
    
    
    1,406Property and equipment, net
    
    
    719
    
    
    
    776Other assets
    
    
    1,315
    
    
    
    1,078Deferred income taxes, net
    
    
    4,882
    
    
    
    4,031Total assets
    
    $
    65,188
    
    
    $
    58,827LIABILITIES AND STOCKHOLDERS EQUITYNotes payable
    
    $
    161
    
    
    $
    19Subordinated notes payable
    
    
    2,602
    
    
    
    300Accounts payable
    
    
    1,099
    
    
    
    660Dividends payable
    
    
    4,114
    
    
    
    689Other liabilities
    
    
    2,094
    
    
    
    2,211Income taxes payable
    
    
    431
    
    
    
    22Total liabilities
    
    
    10,501
    
    
    
    3,901Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued at December 31, 2005 and June 30, 2006
    
    
    
    
    
    
    Common stock, $.01 par value; 25,000,000 shares authorized;
13,713,899 and 13,786,523 shares issued at December 31, 2005
and June 30, 2006, respectively
    
    
    137
    
    
    
    138Additional paid-in capital
    
    
    43,839
    
    
    
    44,185Retained earnings
    
    
    10,711
    
    
    
    10,603Total stockholders equity
    
    
    54,687
    
    
    
    54,926Total liabilities and stockholders equity
    
    $
    65,188
    
    
    $
    58,827
  3




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share data)
 For the Three Months Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2005
    
    2006
    
    2005
    
    2006Revenues:Income on financing leases and loans
    
    $
    1,103
    
    
    $
    724
    
    
    $
    2,611
    
    
    $
    1,396Rental income
    
    
    6,431
    
    
    
    5,594
    
    
    
    12,861
    
    
    
    11,315Income on service contracts
    
    
    938
    
    
    
    488
    
    
    
    2,026
    
    
    
    1,043Loss and damage waiver fees
    
    
    751
    
    
    
    493
    
    
    
    1,570
    
    
    
    1,044Service fees and other
    
    
    947
    
    
    
    858
    
    
    
    1,963
    
    
    
    2,276Total revenues
    
    
    10,170
    
    
    
    8,157
    
    
    
    21,031
    
    
    
    17,074Expenses:Selling, general and administrative
    
    
    5,889
    
    
    
    3,926
    
    
    
    12,238
    
    
    
    8,133Provision for credit losses
    
    
    1,484
    
    
    
    1,627
    
    
    
    7,294
    
    
    
    3,237Depreciation and amortization
    
    
    2,465
    
    
    
    1,674
    
    
    
    4,949
    
    
    
    3,439Interest
    
    
    578
    
    
    
    31
    
    
    
    783
    
    
    
    112Total expenses
    
    
    10,416
    
    
    
    7,258
    
    
    
    25,264
    
    
    
    14,921Income (loss) before provision (benefit) for income taxes
    
    
    (246
    )
    
    
    899
    
    
    
    (4,233
    )
    
    
    2,153Provision (benefit) for income taxes
    
    
    (20
    )
    
    
    361
    
    
    
    (1,342
    )
    
    
    851Net income (loss)
    
    $
    (226
    )
    
    $
    538
    
    
    $
    (2,891
    )
    
    $
    1,302Net income (loss) per common share  basic
    
    $
    (0.02
    )
    
    $
    0.04
    
    
    $
    (0.22
    )
    
    $
    0.09Net income (loss) per common share  diluted
    
    $
    (0.02
    )
    
    $
    0.04
    
    
    $
    (0.22
    )
    
    $
    0.09Weighted-average shares:Basic
    
    
    13,584,524
    
    
    
    13,786,523
    
    
    
    13,420,592
    
    
    
    13,774,816Diluted
    
    
    13,584,524
    
    
    
    13,928,808
    
    
    
    13,420,592
    
    
    
    13,918,788
  4




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MICROFINANCIAL INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 For the Six Months EndedJune 30,2005
    
    2006Cash flows from operating activities:Cash received from customers
    
    $
    30,661
    
    
    $
    21,821Cash paid to suppliers and employees
    
    
    (11,679
    )
    
    
    (8,159
    )Cash received (paid) for income taxes
    
    
    (23
    )
    
    
    (409
    )Interest paid
    
    
    (291
    )
    
    
    (94
    )Interest received
    
    
    120
    
    
    
    638Net cash provided by operating activities
    
    
    18,788
    
    
    
    13,797Cash flows from investing activities:Investment in lease and rental contracts
    
    
    (2,529
    )
    
    
    (6,117
    )Investment in inventory
    
    
    (5
    )
    
    
    Investment in direct costs
    
    
    (18
    )
    
    
    (109
    )Investment in property and equipment
    
    
    (103
    )
    
    
    (127
    )Net cash used in investing activities
    
    
    (2,655
    )
    
    
    (6,353
    )Cash flows from financing activities:Proceeds from secured debt
    
    
    93
    
    
    
    63Repayment of secured debt
    
    
    (85
    )
    
    
    (205
    )Repayment of subordinated debt
    
    
    (1,000
    )
    
    
    (2,302
    )Repayment of capital leases
    
    
    (41
    )
    
    
    Payment of dividends
    
    
    (1,329
    )
    
    
    (4,807
    )Net cash used in financing activities
    
    
    (2,362
    )
    
    
    (7,251
    )Net increase (decrease) in cash and cash equivalents
    
    
    13,771
    
    
    
    193Cash and cash equivalents, beginning of period
    
    
    9,709
    
    
    
    32,926Cash and cash equivalents, end of period
    
    $
    23,480
    
    
    $
    33,119
   5




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MICROFINANCIAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)
 For the Six Months EndedJune 30,2005
    
    
    2006Reconciliation of net income (loss) to net cash provided
by operating activities:Net income (loss)
    
    
    ($2,891
    )
    
    $
    1,302Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Amortization of unearned income, net of initial direct costs
    
    
    (2,611
    )
    
    
    (1,396
    )Depreciation and amortization
    
    
    4,949
    
    
    
    3,439Provision for credit losses
    
    
    7,294
    
    
    
    3,237Recovery of equipment cost and residual value
    
    
    12,067
    
    
    
    6,543Stock-based compensation expense
    
    
    859
    
    
    
    135Non-cash interest expense (amortization of debt discount)
    
    
    492
    
    
    
    22Change in assets and liabilities:Current taxes payable
    
    
    (23
    )
    
    
    (409
    )Deferred income taxes
    
    
    (1,342
    )
    
    
    851Other assets
    
    
    488
    
    
    
    216Accounts payable
    
    
    (575
    )
    
    
    (438
    )Other liabilities
    
    
    81
    
    
    
    295Net cash provided by operating activities
    
    $
    18,788
    
    
    $
    13,797Supplemental disclosure of non-cash activities:Fair market value of stock issued
    
    $
    
    
    
    $
    199Warrants exercised by cancellation of debt
    
    
    779
    
    
    
    
  6




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MICROFINANCIAL INCORPORATED
 
 NOTES TO UNAUDITED CONDENSED 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
   Allowance for Credit Losses
   7




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except share and per share data)
   Allowance for credit losses at December 31, 2005
    
    
    
    
    
    $
    8,714Provision for credit losses
    
    
    
    
    
    
    3,237Charge-offs
    
    
    (8,193
    )Recoveries
    
    
    3,101Charge-offs, net of recoveries
    
    
    
    
    
    
    (5,092
    )Allowance for credit losses at June 30, 2006
    
    
    
    
    
    $
    6,859
 Net Income (Loss) Per Share
  For Three Months Ended
    
    For Six Months EndedJune 30,
    
    June 30,2005
    
    2006
    
    2005
    
    2006Net income (loss)
    
    
    ($226
    )
    
    $
    538
    
    
    
    ($2,891
    )
    
    $
    1,302Shares used in computation:Weighted average common shares
outstanding used in computation
of net income (loss) per common share
    
    
    13,584,524
    
    
    
    13,786,523
    
    
    
    13,420,592
    
    
    
    13,774,816Dilutive effect of common stock
options, warrants and restricted stock
    
    
    
    
    
    
    142,285
    
    
    
    
    
    
    
    143,972Shares used in computation of net
income (loss) per common share 
assuming dilution
    
    
    13,584,524
    
    
    
    13,928,808
    
    
    
    13,420,592
    
    
    
    13,918,788Net income (loss) per common share  basic
    
    
    ($0.02
    )
    
    $
    0.04
    
    
    
    ($0.22
    )
    
    $
    0.09Net income (loss) per common share  diluted
    
    
    ($0.02
    )
    
    $
    0.04
    
    
    
    ($0.22
    )
    
    $
    0.09
 8




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except share and per share data)
 Stock-Based Employee Compensation
 Share-Based Payment
   Outstanding
    
    
    ExercisableWeighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    Intrinsic
    
    
    Average
    
    
    
    
    
    
    IntrinsicExercise Price
    
    
    Shares
    
    
    Life (Years)
    
    
    Value
    
    
    Exercise Price
    
    
    Shares
    
    
    Value$
    12.31
    
    
    
    359,391
    
    
    
    2.66
    
    
    $
    
    
    
    $
    12.31
    
    
    
    359,391
    
    
    $
    $
    13.54
    
    
    
    40,609
    
    
    
    2.66
    
    
    
    
    
    
    $
    13.54
    
    
    
    40,609
    
    
    
    $
    9.78
    
    
    
    350,000
    
    
    
    3.66
    
    
    
    
    
    
    $
    9.78
    
    
    
    350,000
    
    
    
    $
    13.10
    
    
    
    90,000
    
    
    
    4.65
    
    
    
    
    
    
    $
    13.10
    
    
    
    90,000
    
    
    
    $
    6.70
    
    
    
    235,000
    
    
    
    5.67
    
    
    
    
    
    
    $
    6.70
    
    
    
    188,000
    
    
    
    $
    1.59
    
    
    
    167,500
    
    
    
    6.41
    
    
    
    312
    
    
    $
    1.59
    
    
    
    147,500
    
    
    
    2751,242,500
    
    
    
    4.16
    
    
    $
    312
    
    
    $
    9.42
    
    
    
    1,175,500
    
    
    $
    275
    9




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except share and per share data)
   Original grant date
    
    11/25/2002
    
    
    2/28/2002
    
    
    2/20/2001
    
    
    2/24/2000
    
    
    2/25/1999
    
    
    2/25/1999Exercise price
    
    $
    1.59
    
    
    $
    6.70
    
    
    $
    13.10
    
    
    $
    9.78
    
    
    $
    13.54
    
    
    $
    12.31Expected life (in years)
    
    
    3.00
    
    
    
    3.00
    
    
    
    2.50
    
    
    
    2.00
    
    
    
    1.50
    
    
    
    1.50Annualized volatility
    
    
    77
    %
    
    
    77
    %
    
    
    77
    %
    
    
    77
    %
    
    
    77
    %
    
    
    77
    %Dividend yield
    
    
    5.80
    %
    
    
    5.80
    %
    
    
    5.80
    %
    
    
    5.80
    %
    
    
    5.80
    %
    
    
    5.80
    %Risk free rate
    
    
    5.16
    %
    
    
    5.16
    %
    
    
    5.16
    %
    
    
    5.16
    %
    
    
    5.16
    %
    
    
    5.16
    %
  C. Notes Payable and Subordinated Debt
  Interest
    
    December 31,
    
    June 30,Rate
    
    2005
    
    2006Revolving credit facility
    
    prime + 1.5%
    
    $
    161
    
    
    $
    19Subordinated notes
    
    
    8.0%-12.0
    %
    
    
    2,602
    
    
    
    300$
    2,763
    
    
    $
    319
  D. Commitments and Contingencies
   10




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MICROFINANCIAL INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except share and per share data)
   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, 2006 as compared to the three months ended June 30, 2005
 Revenue
 For the Three Months EndedJune 30,2005
    
    
    Change
    
    
    2006(Dollars in thousands)Income on financing leases and loans
    
    $
    1,103
    
    
    
    (34.4
    )%
    
    $
    724Rental income
    
    
    6,431
    
    
    
    (13.0
    )%
    
    
    5,594Income on service contracts
    
    
    938
    
    
    
    (48.0
    )%
    
    
    488Service fees and other
    
    
    1,698
    
    
    
    (20.4
    )%
    
    
    1,351Total revenues
    
    $
    10,170
    
    
    
    (19.8
    )%
    
    $
    8,157
   13




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Selling, General and Administrative
 For the Three Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Selling, general and administrative
    
    $
    5,889
    
    
    
    (33.3
    )%
    
    $
    3,926As a percent of revenue
    
    
    57.9
    %
    
    
    
    
    
    
    48.1
    %
  Provision for Credit Losses
 For the Three Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Provision for credit losses
    
    $
    1,484
    
    
    
    9.6
    %
    
    $
    1,627As a percent of revenue
    
    
    14.6
    %
    
    
    
    
    
    
    19.9
    %
  Depreciation and Amortization
 For the Three Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Depreciation  fixed assets
    
    $
    95
    
    
    
    (49.5
    )%
    
    $
    48Depreciation and amortization  rentals
    
    
    1,533
    
    
    
    (10.6
    )%
    
    
    1,370Depreciation and amortization  contracts
    
    
    837
    
    
    
    (69.4
    )%
    
    
    256Total depreciation and amortization
    
    
    2,465
    
    
    
    (32.1
    )%
    
    
    1,674As a percent of revenue
    
    
    24.2
    %
    
    
    
    
    
    
    20.5
    %
  14




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Interest Expense
 For the Three Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Interest
    
    $
    578
    
    
    
    (94.6
    )%
    
    $
    31As a percent of revenue
    
    
    5.7
    %
    
    
    
    
    
    
    0.4
    %
  Provision (Benefit) for Income Taxes
 For the Three Months EndedJune 30,2005
    
    2006(Dollars in thousands)Provision (benefit) for income taxes
    
    
    ($20
    )
    
    $
    361As a percent of revenue
    
    
    (0.2
    )%
    
    
    4.4
    %As a percent of income (loss) before taxes
    
    
    (8.1
    )%
    
    
    40.2
    %
  15




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Other Operating Data
  Results of Operations  Six months ended June 30, 2006 as compared to the six months ended June 30,
2005
 Revenue
 For the Six Months EndedJune 30,2005
    
    
    Change
    
    
    2006(Dollars in thousands)Income on financing leases and loans
    
    $
    2,611
    
    
    
    (46.5
    )%
    
    $
    1,396Rental income
    
    
    12,861
    
    
    
    (12.0
    )%
    
    
    11,315Income on service contracts
    
    
    2,026
    
    
    
    (48.5
    )%
    
    
    1,043Service fees and other
    
    
    3,533
    
    
    
    (6.0
    )%
    
    
    3,320Total revenues
    
    $
    21,031
    
    
    
    (18.8
    )%
    
    $
    17,074
   16




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Selling, General and Administrative
 For the Six Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Selling, general and administrative
    
    $
    12,238
    
    
    
    (33.5
    )%
    
    $
    8,133As a percent of revenue
    
    
    58.2
    %
    
    
    
    
    
    
    47.6
    %
  Provision for Credit Losses
 For the Six Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Provision for credit losses
    
    $
    7,294
    
    
    
    (55.6
    )%
    
    $
    3,237As a percent of revenue
    
    
    34.7
    %
    
    
    
    
    
    
    19.0
    %
  Depreciation and Amortization
 For the Six Months EndedJune 30,2005
    
    
    Change
    
    
    2006(Dollars in thousands)Depreciation  fixed assets
    
    $
    213
    
    
    
    (50.7
    )%
    
    $
    105Depreciation and amortization  rentals
    
    
    2,962
    
    
    
    (9.3
    )%
    
    
    2,687Depreciation and amortization  contracts
    
    
    1,774
    
    
    
    (63.5
    )%
    
    
    647Total depreciation and amortization
    
    
    4,949
    
    
    
    (30.5
    )%
    
    
    3,439As a percent of revenue
    
    
    23.5
    %
    
    
    
    
    
    
    20.1
    %
  17




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Interest Expense
 For the Six Months EndedJune 30,2005
    
    Change
    
    2006(Dollars in thousands)Interest
    
    $
    783
    
    
    
    (85.7
    )%
    
    $
    112As a percent of revenue
    
    
    3.7
    %
    
    
    
    
    
    
    0.7
    %
  Provision (Benefit) for Income Taxes
 For the Six Months EndedJune 30,2005
    
    2006(Dollars in thousands)Provision (benefit) for income taxes
    
    
    ($1,342
    )
    
    $
    851As a percent of revenue
    
    
    (6.4
    )%
    
    
    5.0
    %As a percent of income (loss) before taxes
    
    
    (31.7
    )%
    
    
    39.5
    %
  18




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##### Table of Contents



Other Operating Data
  Exposure to Credit Losses
  (dollars in thousands)
    
    December 31, 2005
    
    June 30, 2006Cumulative amounts billed
    
    $
    220,796
    
    
    
    
    
    
    $
    187,3943160 days past due
    
    $
    991
    
    
    
    0.4
    %
    
    $
    774
    
    
    
    0.4
    %6190 days past due
    
    
    997
    
    
    
    0.5
    %
    
    
    757
    
    
    
    0.4
    %Over 90 days past due
    
    
    16,101
    
    
    
    7.3
    %
    
    
    11,583
    
    
    
    6.2
    %Total past due
    
    $
    18,089
    
    
    
    8.2
    %
    
    $
    13,114
    
    
    
    7.0
    %
  19




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##### Table of Contents



(dollars in thousands)
    
    December 31, 2005
    
    June 30, 2006Current
    
    $
    8,486
    
    
    
    29.1
    %
    
    $
    12,414
    
    
    
    44.4
    %3160 days past due
    
    
    637
    
    
    
    2.2
    %
    
    
    760
    
    
    
    2.7
    %6190 days past due
    
    
    601
    
    
    
    2.1
    %
    
    
    607
    
    
    
    2.2
    %Over 90 days past due
    
    
    19,415
    
    
    
    66.6
    %
    
    
    14,166
    
    
    
    50.7
    %Gross receivables due in installments
    
    $
    29,139
    
    
    
    100.0
    %
    
    $
    27,947
    
    
    
    100.0
    %
 Liquidity and Capital Resources
 General
      Borrowings
  20




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##### Table of Contents



December 31, 2005
    
    
    June 30, 2006MaximumAmounts
    
    
    Interest
    
    
    Amounts
    
    
    Interest
    
    
    Unused
    
    
    Facility(dollars in thousands)
    
    Outstanding
    
    
    Rate
    
    
    Outstanding
    
    
    Rate
    
    
    Capacity
    
    
    AmountRevolving credit facility (1)
    
    $
    161
    
    
    
    8.75
    %
    
    $
    19
    
    
    
    9.75
    %
    
    $
    29,981
    
    
    $
    30,000Subordinated notes payable
    
    
    2,602
    
    
    
    8.0%12.5
    %
    
    
    300
    
    
    
    12.0
    %
    
    
    
    
    
    
    $
    2,763
    
    
    
    
    
    
    $
    319
    
    
    
    
    
    
    $
    29,981
    
    
    $
    30,000
 
 (1)
    
    The unused capacity is subject to lease eligibility and the borrowing
base formula.   Dividends
   Contractual Obligations, Commercial Commitments and Contingencies
 Contractual Obligations
  21




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##### Table of Contents



RevolvingCredit
    
    Long-Term
    
    OperatingYear Ending December 31,
    
    Facility(1)
    
    Debt
    
    Leases
    
    Total2006
    
    $
    19
    
    
    $
    300
    
    
    $
    119
    
    
    $
    4382007
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    2372008
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    2372009
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    2372010
    
    
    
    
    
    
    
    
    
    
    237
    
    
    
    237Thereafter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19
    
    
    $
    300
    
    
    $
    1,067
    
    
    $
    1,386
 
 (1)
    
    The Companys obligation to repay the revolving credit facility in the
current year is subject to lease collateral availability and the borrowing base formula.
The credit facility expires on September 29, 2007. Commitments
  Contingencies
  22




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
     
 ITEM 4. Controls and Procedures
   23




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##### Table of Contents



Part II  Other Information
 
 ITEM 1. Legal Proceedings
     24




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##### Table of Contents



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 WithheldBrian E. Boyle
    
    
    10,615,994
    
    
    
    1,559,256Alan J. Zakon
    
    
    11,112,710
    
    
    
    1,062,540
 B.
    
    For the proposal to ratify the appointment of Vitale, Caturano & Co. as the Companys
independent registered public accounting firm for the year ending December 31, 2006:
 For
    
    Against
    
    Abstain11,967,169
    
    200,100
    
    7,981
 
 ITEM 6. Exhibits
 (a)
    
    Exhibits index
 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 200232.2*
    
    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 25




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##### Table of Contents



SIGNATURES
  MicroFinancial IncorporatedBy:
    /s/ Richard F. LatourPresident and Chief Executive Officer By:
    /s/ James R. Jackson Jr.Vice President and Chief Financial Officer  26