<PAGE>
                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

      (Mark One)
         [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934
                  For the Quarterly Period Ended June 30, 2002

                                       OR

         [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

                           Commission File No. 1-14771

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

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

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

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

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

     As of August 9, 2002, 12,821,946 shares of the registrant's common stock
were outstanding.

<PAGE>

                           MICROFINANCIAL INCORPORATED
                                TABLE OF CONTENTS

                                                                            Page

Part I               FINANCIAL INFORMATION

   Item 1      Financial Statements (unaudited):
                 Condensed Consolidated Balance Sheets
                   December 31, 2001 and June 30, 2002                        3
                 Condensed Consolidated Statements of Operations
                   Three and six months ended June 30, 2001 and 2002          4
                 Condensed Consolidated Statements of Cash Flows
                   Three and six months ended June 30, 2001 and 2002          5

                 Notes to Condensed Consolidated Financial Statements         7

   Item 2      Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                         12

   Item 3      Quantitative and Qualitative Disclosures about Market Risk    16

Part II              OTHER INFORMATION

   Item 1      Legal Proceedings                                             18
   Item 6      Exhibits and Reports on Form 8-K                              21

   Signatures                                                                22

<PAGE>

                           MICROFINANCIAL INCORPORATED
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     December 31,      June 30,
                                                                     ------------     ---------
                                                                         2001           2002
                                                                      ---------       ---------
<S>                                                                   <C>             <C>
                               ASSETS

Net investment in leases and loans:
   Receivables due in installments                                    $ 399,361       $ 383,481
   Estimated residual value                                              37,114          36,603
   Initial direct costs                                                   7,090           6,569
   Loans receivable                                                       2,248           2,028
   Less:
      Advance lease payments and deposits                                  (287)           (254)
      Unearned income                                                  (104,538)        (94,466)
      Allowance for credit losses                                       (45,026)        (40,829)
                                                                      ---------       ---------
Net investment in leases and loans                                    $ 295,962       $ 293,132
Investment in service contracts                                          14,126          15,475
Cash and cash equivalents                                                20,645          21,517
Property and equipment, net                                              16,034          13,225
Other assets                                                             14,961          15,744
                                                                      ---------       ---------
          Total assets                                                $ 361,728       $ 359,093
                                                                      =========       =========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Notes payable                                                         $ 203,053       $ 196,045
Subordinated notes payable                                                3,262           3,262
Capitalized lease obligations                                               833             695
Accounts payable                                                          2,517           2,540
Dividends payable                                                           642             641
Other liabilities                                                         6,182           6,542
Income taxes payable                                                      4,211           1,699
Deferred income taxes payable                                            30,472          33,173
                                                                      ---------       ---------
          Total liabilities                                             251,172         244,597
                                                                      ---------       ---------

Commitments and contingencies                                                --              --
Stockholders' equity:
   Preferred stock, $.01 par value; 5,000,000 shares authorized;
      no shares issued at 12/31/01 and 6/30/02                               --              --
   Common stock, $.01 par value; 25,000,000 shares authorized;
     13,410,646 shares issued at 12/31/01 and 6/30/02                       134             134
   Additional paid-in capital                                            47,723          47,740
   Retained earnings                                                     69,110          73,000
   Treasury stock (588,700 shares of common stock at 12/31/01,
      588,700 shares of common stock at 6/30/02), at cost                (6,343)         (6,343)
   Notes receivable from officers and employees                             (68)            (35)
                                                                      ---------       ---------
          Total stockholders' equity                                    110,556         114,496
                                                                      ---------       ---------
          Total liabilities and stockholders' equity                  $ 361,728       $ 359,093
                                                                      =========       =========
</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       3
<PAGE>

                           MICROFINANCIAL INCORPORATED
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                            For the three months ended     For the six months ended
                                                     June 30,                       June 30,
                                            --------------------------    ---------------------------
                                                2001          2002            2001          2002
                                            -----------    -----------    -----------    -----------

<S>                                         <C>            <C>            <C>            <C>
Revenues:
   Income on financing leases and loans     $    18,060    $    13,791    $    36,791    $    29,026
   Income on service contracts                    2,099          2,458          4,234          4,853
   Rental income                                  9,252          9,220         18,387         19,083
   Loss and damage waiver fees                    1,568          1,532          3,148          3,058
   Service fees and other                         7,572          5,960         15,335         12,226
                                            -----------    -----------    -----------    -----------
         Total revenues                          38,551         32,961         77,895         68,246
                                            -----------    -----------    -----------    -----------

Expenses:
   Selling general and administrative            10,658         11,409         22,563         23,983
   Provision for credit losses                   11,819         10,824         22,085         21,788
   Depreciation and amortization                  3,640          4,851          7,083          8,490
   Interest                                       3,493          2,618          7,862          5,365
                                            -----------    -----------    -----------    -----------
         Total expenses                          29,610         29,702         59,593         59,626
                                            -----------    -----------    -----------    -----------

Income before provision for income taxes          8,941          3,259         18,302          8,620
Provision for income taxes                        3,762          1,304          7,704          3,448
                                            -----------    -----------    -----------    -----------

Net income                                  $     5,179    $     1,955    $    10,598    $     5,172
                                            ===========    ===========    ===========    ===========

Net income per common share -- basic        $      0.41    $      0.15    $      0.83    $      0.40
                                            ===========    ===========    ===========    ===========

Net income per common share -- diluted      $      0.40    $      0.15    $      0.82    $      0.40
                                            ===========    ===========    ===========    ===========

Weighted-average shares used to compute:
      Basic net income per share             12,759,548     12,821,946     12,750,299     12,821,946
                                            -----------    -----------    -----------    -----------
      Fully diluted net income per share     12,981,450     12,901,149     12,933,339     12,877,839
                                            -----------    -----------    -----------    -----------
</TABLE>


   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       4
<PAGE>
                           MICROFINANCIAL INCORPORATED
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                          For the three months ended     For the six months ended
                                                                 June 30,                         June 30,
                                                          --------------------------     ------------------------
                                                             2001             2002         2001           2002
                                                          ---------         --------     ---------      ---------
<S>                                                       <C>               <C>          <C>            <C>
Cash flows from operating activities:
   Cash received from customers                           $  47,500         $ 45,003     $  95,127      $  91,732
   Cash paid to suppliers and employees                     (11,683)         (10,149)      (20,969)       (21,791)
   Cash paid for income taxes                                (4,572)          (2,270)       (4,708)        (3,259)
   Interest paid                                             (3,605)          (2,579)       (8,040)        (4,889)
   Interest received                                            365               87           769            242
                                                          ---------         --------     ---------      ---------
      Net cash provided by operating activities              28,005           30,092        62,179         62,035
                                                          ---------         --------     ---------      ---------

Cash flows from investing activities:
   Investment in lease contracts                            (24,813)         (23,358)      (48,651)       (43,385)
   Investment in inventory                                   (1,740)          (1,057)       (2,490)        (2,076)
   Investment in direct costs                                (1,399)          (1,417)       (2,883)        (2,713)
   Investment in service contracts                           (1,631)          (2,081)       (2,959)        (4,407)
   Investment in Resource Leasing Corporation                     0                0        (6,900)             0
   Investment in fixed assets                                  (432)              19          (857)          (118)
   Repayment of notes from officers                               0               23             0             33
   Investment in notes receivable                               (24)               0           (47)             0
   Repayment of notes receivable                                  2                0             6              0
                                                          ---------         --------     ---------      ---------
      Net cash used in investing activities                 (30,037)         (27,871)      (64,781)       (52,666)
                                                          ---------         --------     ---------      ---------

Cash flows from financing activities:
   Proceeds from secured debt                                22,473           11,929        57,852         21,229
   Repayment of secured debt                                (22,565)         (13,733)      (53,689)       (27,952)
   Proceeds from refinancing of secured debt                104,500           90,000       209,000        210,000
   Prepayment of secured debt                              (104,500)         (90,000)     (209,000)      (210,000)
   Proceeds from short term demand notes payable                889                0           889              0
   Repayment of short term demand notes payable                 (75)            (200)          (75)          (285)
   Proceeds from issuance of subordinated debt                1,075                0         2,875              0
   Repayment of subordinated debt                                 0                0        (3,000)             0
   Proceeds from exercise of common stock options               529                0           529              0
   Repayment of capital leases                                 (116)            (105)         (256)          (206)
   Payment of dividends                                        (574)            (641)       (1,147)        (1,283)
                                                          ---------         --------     ---------      ---------

      Net cash provided by (used in) financing activities     1,636           (2,750)        3,978         (8,497)
                                                          ---------         --------     ---------      ---------

Net (decrease) increase in cash and cash equivalents:          (396)            (529)        1,376            872
Cash and cash equivalents, beginning of period               19,729           22,046        17,957         20,645
                                                          ---------         --------     ---------      ---------

Cash and cash equivalents, end of period                  $  19,333         $ 21,517     $  19,333      $  21,517
                                                          =========         ========     =========      =========
</TABLE>


                          (continued on following page)
   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.

                                       5
<PAGE>
                           MICROFINANCIAL INCORPORATED
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       For the three months ended    For the six months ended
                                                               June 30,                     June 30,
                                                       --------------------------    ------------------------
                                                         2001              2002        2001            2002
                                                       --------          --------    --------        --------
<S>                                                    <C>               <C>         <C>             <C>
Reconciliation of net income to net cash
   provided by operating activities:

   Net income                                          $  5,179          $  1,955    $ 10,598        $  5,172
   Adjustments to reconcile net income to cash
      provided by operating activities:
      Depreciation and amortization                       3,640             4,851       7,083           8,490
      Provision for credit losses                        11,819            10,824      22,085          21,788
      Recovery of equipment cost and residual value,
         net of revenue recognized                        8,779            13,367      18,795          25,570
      Decrease in current taxes                          (1,647)           (1,523)     (1,767)         (2,512)
      Increase in deferred income taxes                     837               557       4,776           2,701
   Change in assets and liabilities:
      Decrease (increase) in other assets                    (9)              502          92             918
      Increase (decrease) in accounts payable              (683)               39        (518)             23
      Increase (decrease) in accrued liabilities             90              (480)      1,035            (115)
                                                       --------          --------    --------        --------
         Net cash provided by operating activities     $ 28,005          $ 30,092    $ 62,179        $ 62,035
                                                       ========          ========    ========        ========

Supplemental disclosure of noncash activities:
   Property acquired under capital leases              $      0          $     68    $    341        $     68
   Accrual of common stock dividends                   $    640          $    641    $    640        $    641
</TABLE>


                                                                     (Concluded)

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       6
<PAGE>
                           MICROFINANCIAL INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (tables in thousands, except share and per share data)
                                   (Unaudited)

(A) Nature of Business:

     MicroFinancial Incorporated (the "Company") which operates primarily
through its wholly-owned subsidiary, Leasecomm Corporation, is a specialized
commercial finance company that primarily leases and rents "microticket"
equipment and provides other financing services in amounts generally ranging
from $400 to $3,000 with an average amount financed of approximately $1,400 and
an average lease term of 44 months. The Company does not market its services
directly to lessees but sources leasing transactions through a network of
independent sales organizations and other dealer-based origination networks
nationwide. The Company funds its operations primarily through borrowings under
its credit facilities, issuances of subordinated debt and on balance sheet
securitizations.

(B) Summary of Significant Accounting Policies:

Basis of Presentation:

     The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the Securities and
Exchange Commission for interim financial statements. Accordingly, the interim
statements do not include all of the information and disclosures required for
the annual financial statements. In the opinion of the Company's management, the
condensed consolidated financial statements contain all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation of these interim results. These financial statements should be read
in conjunction with the consolidated financial statements and notes included in
the Company's Annual Report and Form 10-K for the year ended December 31, 2001.
The results for the six-month period ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the full year ended December
31, 2002.

     The balance sheet at December 31, 2001 has been derived from the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.

Allowance for Credit Losses:

     The Company maintains an allowance for estimated credit losses on its
investment in leases, loans, rental contracts and service contracts at an amount
that it believes is sufficient to provide an adequate provision against losses
in its portfolio. The allowance is determined principally on the basis of the
historical loss experience of the Company and the level of recourse provided by
such leases, loans and service contracts, if any. In addition, the allowance
reflects management's judgment of the additional loss potential considering
current economic conditions and the nature and characteristics of the underlying
lease portfolio. The Company determines the necessary periodic provision for the
credit losses taking into account actual and expected losses in the portfolio as
a whole and the relationship of the allowance to the net investment in leases,
loans, rental contracts and service contracts.

     The following table sets forth the Company's allowance for credit losses as
of December 31, 2001 and June 30, 2002 and the related provision, charge-offs
and recoveries for the year ended December 31, 2001 and the six months ended
June 30, 2002.


                                       7
<PAGE>
                           MICROFINANCIAL INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (tables in thousands, except share and per share data)
                                   (Unaudited)

<TABLE>
<S>                                                          <C>       <C>
Balance of allowance for credit losses at December 31, 2001            $45,026
                                                                       ========
Provision for credit losses                                   21,788
   Total provisions for credit losses                                    21,788
Charge-offs                                                   32,562
Recoveries                                                     6,577
                                                              ------
  Charge-offs, net of recoveries                                         25,985
                                                                       --------

Balance of allowance for credit losses at June 30, 2002                $ 40,829
                                                                       ========
</TABLE>

     At December 31, 2001 and June 30, 2002, other assets included prepayments
and deposits of $4,809,000 and $3,891,000, respectively, and receivables
totaling $10,553,000 and $11,855,000, respectively.

Earnings Per Share:

     Basic net income per common share is computed based upon the
weighted-average number of common shares outstanding during the period. Dilutive
net income per common share gives effect to all dilutive potential common shares
outstanding during the period. The computation of dilutive earnings per share
does not assume the issuance of common shares that have an antidulitive effect
on the net income per share. Options to purchase 40,609 and 1,770,000 shares of
common stock were not included in the computation of diluted earnings per share
for the three months ended June 30, 2001 and 2002 respectively because their
effects were antidilutive. Options to purchase 449,847 and 1,770,000 shares of
common stock were not included in the computation of diluted earnings per share
for the six months ended June 30, 2001 and 2002 respectively because their
effects were antidilutive.

<TABLE>
<CAPTION>
                                            For three months ended            For six months ended
                                                   June 30,                          June 30,
                                         ----------------------------      ----------------------------
                                            2001              2002             2001            2002
                                         -----------      -----------      -----------      -----------

<S>                                      <C>              <C>              <C>              <C>
Net Income                               $     5,179      $     1,955      $    10,598      $     5,172
Shares used in computation:
  Weighted average common shares
    outstanding used in computation
    of net income per common share        12,759,548       12,821,946       12,750,299       12,821,946
  Dilutive effect of common stock
    options                                  221,902           79,203          183,040           55,893
Shares used in computation of net
  income per common share --
  assuming dilution                       12,981,450       12,901,149       12,933,339       12,877,839
                                         -----------      -----------      -----------      -----------

Net income per common share              $      0.41      $      0.15      $      0.83      $      0.40
Net income per common share
  assuming dilution                      $      0.40      $      0.15      $      0.82      $      0.40
</TABLE>


                                       8
<PAGE>
                           MICROFINANCIAL INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (tables in thousands, except share and per share data)
                                   (Unaudited)

Notes Payable:

     On December 21, 1999, the Company entered into a revolving line of credit
and term loan facility with a group of financial institutions whereby it may
borrow a maximum of $150,000,000 based upon qualified lease receivables, loans,
rentals and service contracts. On August 22, 2000, the revolving line of credit
and term loan facility was amended and restated where by the Company may now
borrow a maximum of $192,000,000 based upon qualified lease receivables, loans,
rentals and service contracts. Outstanding borrowings with respect to the
revolving line of credit bear interest based at Prime minus 0.25% for Prime Rate
Loans, the prevailing rate per annum as offered in the London Interbank Offered
Rate ("LIBOR") plus 1.75% for LIBOR Loans or the seven-day Money Market rate
plus 2.00% for Swing Line advances. If the LIBOR Loans are not renewed upon
their maturity they automatically convert into prime rate loans. Swing Line
advances have a seven-day maturity and upon their maturity they automatically
convert into prime rate loans. In addition, the Company's aggregate outstanding
principal amount of Swing Line advances shall not exceed $10 million. The prime
rate at December 31, 2001, and June 30, 2002 was 4.75%. The 90-day LIBOR rates
December 31, 2001, and June 30, 2002 were 1.9380% and 1.8750%, respectively. The
7-day Money Market rates December 31, 2001, and June 30, 2002 were 1.88% and
1.87%, respectively.

The Company had borrowings outstanding under these agreements with the following
terms:

<TABLE>
<CAPTION>
                          December 31, 2001          June 30, 2002
                          -----------------       -------------------
Type                      Rate      Amount         Rate       Amount
----                      ----     --------       ------     --------
                                (in thousands)             (in thousands)

<S>                       <C>      <C>            <C>        <C>
Prime                     4.5000%  $  4,640       4.5000%    $ 15,869
LIBOR                     3.8750%   100,000       3.6563%      30,000
LIBOR                                             3.7625%      30,000
LIBOR                                             3.7500%      50,000
                                   --------                  --------
     Total Outstanding             $104,640                  $125,869
                                   ========                  ========
</TABLE>

     Outstanding borrowings are collateralized by leases, loans, rentals and
service contracts pledged specifically to the financial institutions. Management
is currently negotiating the terms and conditions under which both parties would
agree to renew the credit facility. To the extent the existing line of credit is
not renewed and no event of default exists, the credit facility will be
automatically converted to a term loan on September 30, 2002. All converted term
loans are payable over the term of the underlying leases, loans, rentals and
service contracts, but in any event not to exceed 36 monthly installments. The
most restrictive covenants of the agreement have minimum net worth and income
requirements.

     MFI I has three series of notes outstanding, the 2000-1 Notes, the 2000-2
Notes, and the 2001-3 Notes. In March 2000, MFI I issued the 2000-1 Notes in
aggregate principal amount of $50,056,686. In December 2000, MFI I issued the
2000-2 Notes in aggregate principal amount of $50,561,633. In September 2001,
MFI I issued the 2001-3 Notes in aggregate principal amount of $39,397,354.
Outstanding borrowings are collateralized by a specific pool of lease
receivables. In September 2001, MFI II, LLC was formed and issued one series of
notes, the 2001-1 Notes in aggregate principal amount of $10,000,000.
Outstanding borrowings are collateralized by a specific pool of lease
receivables as well as the excess cash flow from the MFI I collateral. These
notes are subordinate to the three series of notes issued by MFI I.

     At December 31, 2001 and June 30, 2002, MFI I and MFI II had borrowings
outstanding under the series of notes with the following terms:


                                       9
<PAGE>
                           MICROFINANCIAL INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (tables in thousands, except share and per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                           December 31, 2001            June 30, 2002
                          -------------------        -------------------
Series                      Rate       Amount          Rate       Amount
------                    -------     -------        -------      ------
                                   (in thousands)              (in thousands)
<S>                       <C>          <C>           <C>          <C>
MFI I
2000-1 Notes              7.3750%      19,855        7.3750%      12,005
2000-2 Notes              6.9390%      34,518        6.9390%      26,258
2001-3 Notes              5.5800%      34,160        5.5800%      24,868

MFI II LLC
2001-1 Notes              8.0000%       8,725        8.0000%       6,175
                                      -------                    -------
      Total Outstanding               $97,258                    $69,306
                                      =======                    =======
</TABLE>

     At December 31, 2001 and June 30, 2002, the Company also had other notes
payable which totaled $1,155,000 and $870,000 respectively. Of these notes, at
December 2001 and June 30, 2002, $339,000 and $54,000, respectively, are notes
that are due on demand and bear interest at a rate of prime less 1.00%. At
December 31, 2001 and June 30, 2002, the Company also had $816,000 of notes
which were borrowed against the cash surrender value of the life insurance
policies held on key officers. The interest rates on these loans range from
5.05% to 8.00%.

Stock Options:

     Under the 1998 Equity Incentive Plan (the "1998 Plan") which was adopted on
July 9, 1998 the Company had reserved 4,120,380 shares of the Company's common
stock for issuance pursuant to the 1998 Plan. The Company granted a total of
520,000 options and a total of 211,000 options were surrendered during the six
months ended June 30, 2002. A total of 2,245,000 options were outstanding at
June 30, 2002 of which 716,400 were vested.

Dividends:

     On June 17, 2002 the Company's Board of Directors approved a dividend of
$.050 per common share for all outstanding common shares as of June 28, 2002
which was paid on July 15, 2002.

New Accounting Pronouncements:

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets". This Statement supersedes APB
Opinion No. 17, "Intangible Assets" and addresses financial accounting and
reporting for intangible assets, but not those acquired in a business
combination at acquisition. SFAS No. 142 addresses financial accounting and
reporting of goodwill and other intangible assets subsequent to their
acquisition, assigning a definite or indefinite useful life to these assets.
Goodwill and other intangible assets having an indefinite useful life will not
be amortized, but rather tested at least annually for impairment. It also
provides guidance on how to define, measure and record impairment losses on
goodwill and other intangible assets and provides for additional disclosures
regarding these assets in years subsequent to their acquisition. The provisions
for this Statement are required to be applied for fiscal years beginning after
December 15, 2001, although earlier adoption is permitted. The Company has
determined that the adoption of this Statement does not have a material impact
on its results of operations or consolidated financial position.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 provides new accounting standards for
recording of liabilities related to legal obligations to retire tangible
long-lived assets. The Statement requires an entity to recognize at fair value a
liability associated with an asset retirement obligation in the period in which
the liability is both incurred and in which the fair value is determinable. The
provisions of this Statement are effective for the Company's fiscal year ended
December 31, 2003, although earlier application is permitted. The Company has
not completed its evaluation of SFAS No. 143 and has not yet determined the
effect on its consolidated financial statements.


                                       10
<PAGE>
                           MICROFINANCIAL INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (tables in thousands, except share and per share data)
                                   (Unaudited)

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of a long-lived asset or
group of assets. This pronouncement, which supersedes and amends several earlier
interpretations, establishes a single comprehensive statement to provide
impairment accounting guidance for tangible long-lived assets to be either held
and continued to be used by the entity or disposed of by sale or by some other
means. This Statement will be effective for the first quarter of the Company's
fiscal year ending December 31, 2002, although earlier application is permitted.
The Company has determined that the adoption of this Statement does not have a
material impact on its results of operations or consolidated financial position.

     On January 1, 2002, the Company adopted the provisions of Statement of
Position ("SOP") 01-6, Accounting by Certain Entities (Including Entities With
Trade Receivables) That Lend to or Finance the Activities of Others. The SOP was
effective for financial statements issued for the fiscal year beginning after
December 15, 2001. The Company has determined that the adoption of this SOP does
not have a material impact on its results of operations or consolidated
financial position.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64 and Technical Corrections." This Statement which rescinds and
amends several statements, improves financial reporting for extinguishment of
debt, modifies the accounting for certain leasing transactions, and makes
various technical corrections to existing pronouncements. The Statement requires
the gains and losses from the extinguishment of debt to be classified as
extraordinary items only if they meet the criteria in APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Also, the Statement requires that the accounting
treatment of certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The provisions for this Statement are required to
be applied for fiscal years beginning after May 15, 2002, with earlier
application encouraged. The Company has not completed its evaluation of SFAS No.
145 and has not yet determined the effect on its consolidated financial
statements.

Reclassification of Prior Year Balances:

     Certain reclassifications have been made to prior years' consolidated
financial Statements to conform to the current presentation.

Commitments and Contingencies:

     Please refer to Part II Other Information, Item 1 Legal Proceedings for
information about pending litigation of the Company.

                                       11
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Three months ended June 30, 2002 as compared to the three months ended June 30,
2001.

     Net income for the three months ended June 30, 2002 was approximately $2.0
million, a decrease of $3.2 million or 62% from the three months ended June 30,
2001. This represents diluted earnings per share for the three months ended June
30, 2002 of $0.15 per share on weighted-average outstanding shares of 12,901,149
as compared to $0.40 per share on weighted-average outstanding shares of
12,981,450 for the three months ended June 30, 2001.

     Total revenues for the three months ended June 30, 2002 were $33.0 million,
a decrease of $5.6 million, or 15%, from the three months ended June 30, 2001.
The decrease was primarily due to a decrease of $4.3 million, or 24%, in
financing leases and loans, and $1.6 million or 18% in fee and other income
offset by an increase of $327,000 or 3% in rental and service contract income.
The decrease in income on financing leases and loans was due to the decreased
number of leases originated primarily resulting from the Company's decision to
increase pricing and tighten its credit approval standards. The decrease in fee
income and other income is the result of decreased fees from the lessees related
to the collection and legal process employed by the Company. The increase in
rental and service contract income is a result of the increased number of
lessees that have continued to rent their equipment beyond their original lease
term, an increase in the rental business originated through our Resource Leasing
division, and an increase in orginations in rental and service contracts.

     Selling, general and administrative expenses increased by $751,000, or 7%,
for the three months ended June 30, 2002, as compared to the three months ended
June 30, 2001. Marketing programs increased $472,000 or 306%, legal expenses
increased $152,000 or 97%, and inventory services increased $127,000 or 232%.

     Depreciation and amortization increased by $1.2 million or 33%, due to an
increase in the number of early terminations of monthly cancelable contracts.

     The Company's provision for credit losses decreased by $995,000, or 8%, for
the three months ended June 30, 2002 as compared to the three months ended June
30, 2001. This decrease is a result of the Company's historical policy, based on
experience, of providing a provision for credit losses based upon the dealer
fundings and revenue recognized in any period and reflects management's
judgement of loss potential considering current economic conditions and the
nature of the underlying receivables.

     Interest expense decreased by $875,000, or 25%, for the three months ended
June 30, 2002 as compared to the three months ended June 30, 2001. This decrease
resulted primarily from the Company's lower cost of funds, and an overall
decrease in the level of borrowings.

     Dealer fundings were $25.7 million for the three months ended June 30,
2002, down $1.7 million, or 6% as compared to the three months ended June 30,
2001. This decrease is a result of the Company's decision during the second
quarter of 2000 to increase pricing and tighten its credit approval standards.
The new credit policies were put into place in August of 2000. This is an
ongoing effort, and is expected to continue going forward. Total cash from
customers decreased by $2.5 million or 5% to a total of $45.0 million. This
decrease is primarily the result of an decrease in the size of the overall
portfolio. Investment in lease and loan receivables due in installments,
estimated residuals, rental and service contracts were down from $470.6 million
in December of 2001 to $455.1 million in June of 2002.

Six months ended June 30, 2002 as compared to the six months ended June 30,
2001.

     Net income for the six months ended June 30, 2002 was approximately $5.2
million, a decrease of $5.4 million or 51% from the six months ended June 30,
2001. This represents diluted earnings per share for the six months ended June
30, 2002 of $0.40 per share on weighted-average outstanding shares of 12,877,839
as compared to $0.82 per share on weighted-average outstanding shares of
12,933,339 for the six months ended June 30, 2001.

     Total revenues for the six months ended June 30, 2002 were $68.2 million, a
decrease of $9.6 million, or 12%, from the six months ended June 30, 2001. The
decrease was primarily due to a decrease of $7.8 million, or 21%, in


                                       12
<PAGE>

financing leases and loans, and $3.2 million or 17% in fee and other income
offset by an increase of $1.3 million or 6% in rental and service contract
income. The decrease in income on financing leases and loans was due to the
decreased number of leases originated primarily resulting from the Company's
change in its credit approval process. The decrease in fee income and other
income is the result of decreased fees from the lessees related to the
collection and legal process employed by the Company. The increase in rental and
service contract income is a result of the increased number of lessees that have
continued to rent their equipment beyond their original lease term, an increase
in the rental business originated through our Resource Leasing division, and an
increase in originations in rental and service contracts.

     Selling, general and administrative expenses increased by $1.4 million, or
6%, for the six months ended June 30, 2002, as compared to the six months ended
June 30, 2001. Marketing programs increased $647,000 or 130%, legal expenses
increased $345,000 or 83%, professional service fees increased $240,000 or 20%,
inventory services increased $154,000 or 59%, insurance expense increased
$146,000 or 75%, debt closing expenses increased $116,000 or 32%, and lease
expense increased $110,000 or 309%.

     Depreciation and amortization increased by $1.4 million, or 20% due to an
increase in the number of early terminations of monthly cancelable contracts.

     The Company's provision for credit losses increased by $297,000, or 1%, for
the six months ended June 30, 2002 as compared to the six months ended June 30,
2001. This increase is a result of the Company's historical policy, based on
experience, of providing a provision for credit losses based upon the dealer
fundings and revenue recognized in any period and reflects management's
judgement of loss potential considering current economic conditions and the
nature of the underlying receivables.

     Interest expense decreased by $2.5 million, or 32%, for the six months
ended June 30, 2002 as compared to the six months ended June 30, 2001. This
decrease resulted primarily from the Company's lower cost of funds, and an
overall decrease in the level of borrowings.

     Dealer fundings were $48.3 million for the six months ended June 30, 2002,
down $13.0 million, or 21% as compared to the six months ended June 30, 2001.
This decrease is a result of the Company's decision during the second quarter of
2000 to increase pricing and tighten its credit approval standards, described
below. The new credit policies were put into place in August of 2000. This is an
ongoing effort, and is expected to continue going forward. Total cash from
customers decreased by $3.4 million or 4% to a total of $91.7 million. This
decrease is primarily the result of a decrease in the size of the overall
portfolio. Investment in lease and loan receivables due in installments,
estimated residuals, rental and service contracts were down from $470.6 million
in December of 2001 to $455.1 million in June of 2002.

CRITICAL ACCOUNTING POLICIES

     In response to the SEC's release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," Management identified the most
critical accounting principles upon which the Company's financial status
depends. The Company determined the critical principles by considering
accounting policies that involve the most complex or subjective decisions or
assessments. Management identified the most critical accounting policies to be
those related to revenue recognition and maintaining the allowance for credit
losses. These accounting policies are discussed below as well as within the
notes to the consolidated financial statements.

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

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


                                       13
<PAGE>

     The Company maintains an allowance for credit losses on its investment in
leases, service contracts, rental contracts and loans at an amount that it
believes is sufficient to provide adequate protection against losses in its
portfolio. The allowance is determined principally on the basis of the
historical loss experience of the Company and the level of recourse provided by
such lease, service contract, rental contract or loan, if any, and reflects
management's judgment of additional loss potential considering current economic
conditions and the nature and characteristics of the underlying lease portfolio.
The Company determines the necessary periodic provision for credit losses taking
into account actual and expected losses in the portfolio as a whole and the
relationship of the allowance to the net investment in leases, service
contracts, rental contracts and loans. Such provisions generally represent a
percentage of funded amounts of leases, contracts and loans. The resulting
charge is included in the provision for credit losses.

     Leases and loans are charged against the allowance for credit losses and
are put on non-accrual when they are deemed to be uncollectable. Generally, the
Company deems leases, service contracts, rental contracts and loans to be
uncollectable when one of the following occurs: (i) the obligor files for
bankruptcy; (ii) the obligor dies, and the equipment is returned; or (iii) when
an account has become 360 days delinquent without contact with lessee. The
typical monthly payment under the Company's leases is between $30 and $50 per
month. As a result of these small monthly payments, the Company's experience is
that lessees will pay past due amounts later in the process because of the small
amount necessary to bring an account current (at 360 days past due, a lessee
will only owe lease payments of between $360 and $600).

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

EXPOSURE TO CREDIT LOSSES

     The following table sets forth certain information as of December 31, 2000
and 2001 and June 30, 2002 with respect to delinquent leases, service contracts
and loans. The percentages in the table below represent the aggregate on such
date of the actual amounts not paid on each invoice by the number of days past
due, rather than the entire balance of a delinquent receivable, over the
cumulative amount billed at such date from the date of origination on all
leases, service contracts, and loans in the Company's portfolio. For example, if
a receivable is 90 days past due, the portion of the receivable that is over 30
days past due will be placed in the 31-60 days past due category, the portion of
the receivable which is over 60 days past due will be placed in the 61-90 days
past due category and the portion of the receivable which is over 90 days past
due will be placed in the over 90 days past due category. The Company
historically used this methodology of calculating its delinquencies because of
its experience that lessees who miss a payment do not necessarily default on the
entire lease. Accordingly, the Company includes only the amount past due rather
than the entire lease receivable in each category.


                                       14
<PAGE>
<TABLE>
<CAPTION>
                                                    As of              As of
                                                 December 31          June 30
                                            ----------------------   ---------
                                               2000        2001         2002
                                            ---------    ---------   ---------

<S>                                        <C>          <C>          <C>
Cumulative amounts billed (in thousands)   $462,011     $602,649     $610,084
31-60 days past due                             1.9%         1.8%         2.4%
61-90 days past due                             1.6%         1.7%         1.5%
Over 90 days past due                          10.0%        13.4%        13.1%
                                            ---------    ---------   --------
   Total past due                              13.5%        16.9%        17.0%
                                            =========    =========   ========
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

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

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

     The Company utilizes its credit facility to fund the origination and
acquisition of leases, loans, rentals and service contracts that satisfy the
eligibility requirements established pursuant to each facility. Management is
currently negotiating the terms and conditions under which both parties would
agree to renew the credit facility. To the extent the existing line of credit is
not renewed and no event of default exists, the credit facility will be
automatically converted to a term loan on September 30, 2002. At June 30, 2002,
the Company had an aggregate maximum of $192 million available for borrowing
under its credit facility, of which approximately $125.9 million was outstanding
as of such date. To date, cash flow from its portfolio and other fees have been
sufficient to repay current amounts due under the credit facilities and
subordinated debt.

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

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

     At June 30, 2002 the repayment schedules for outstanding long-term debt,
minimum lease payments under non-cancelable operating leases and future minimum
lease payments under capital leases were as follows:


                                       15
<PAGE>
<TABLE>
<CAPTION>

For the year ended                                     Long Term    Operating   Capital
   December 31,                                           Debt        Leases    Leases       Total
------------------                                     ----------   ---------   -------     --------
<S>                                                     <C>          <C>        <C>         <C>
   2002                                                 $ 27,271     $  698     $   204     $ 28,173
   2003                                                   37,625      1,343         267       39,235
   2004                                                    5,126        417         169        5,712
   2005                                                       --        214          55          269
   2006                                                    2,600         --          --        2,600
Thereafter                                                   816         --          --          816
                                                        --------     ------     -------     --------
                                                          73,438      2,672         695       76,805
   Outstanding balance of revolving credit facility      125,869         --          --      125,869
                                                        --------     ------     -------     --------
   Total                                                $199,307     $2,672     $   695     $202,674
                                                        ========     ======     =======     ========
</TABLE>

All balances under the revolving line of credit will be automatically converted
to a term loan on September 30, 2002 provided the line of credit is not renewed
and no event of default exists at that date. All converted term loans are
payable over the term of the underlying leases, loans, rentals and service
contracts, but in any event not to exceed 36 monthly installments.

Note on Forward-Looking Information

     Statements in this document that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects," and similar expressions are intended to
identify forward-looking statements. The Company cautions that a number of
important factors could cause actual results to differ materially from those
expressed in any forward-looking statements made by or on behalf of the Company.
Such statements contain a number of risks and uncertainties, including but not
limited to: the Company's dependence on point-of-sale authorization systems and
expansion into new markets; the Company's significant capital requirements;
risks associated with economic downturns; higher interest rates; intense
competition; change in regulatory environment and risks associated with
acquisitions. Readers should not place undue reliance on forward-looking
statements, which reflect the management's view only as of the date hereof. The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances. The Company cannot
assure that it will be able to anticipate or respond timely to changes which
could adversely affect its operating results in one or more fiscal quarters.
Results of operations in any past period should not be considered indicative of
results to be expected in future periods. Fluctuations in operating results may
result in fluctuations in the price of the Company's common stock. For a more
complete description of the prominent risks and uncertainties inherent in the
Company's business, see the risks factors described in the Company's Form S-1
Registration Statement and other documents filed from time to time with the
Securities and Exchange Commission.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market-Rate-Sensitive Instruments and Risk Management

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

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

Interest Rate Risk Management

     The implicit yield to the Company on all of its leases, loans, rentals and
service contracts is on a fixed interest rate basis due to the leases, loans,
rentals and service contracts having scheduled payments that are fixed at the
time of origination of the lease, loan, rentals or service contract. When the
Company originates or acquires leases, loans


                                       16
<PAGE>

and service contracts it bases its pricing in part on the "spread" it expects to
achieve between the implicit yield rate to the Company on each lease, loan or
service contract and the effective interest cost it will pay when it finances
such leases, loans and service contracts through its credit facilities.
Increases in the interest rates during the term of each lease, loan or service
contract could narrow or eliminate the spread, or result in a negative spread.
The Company has adopted a policy designed to protect itself against interest
rate volatility during the term of each lease, loan or service contract.

     Given the relatively short average life of the Company's leases, loans,
rentals and service contracts, the Company's goal is to maintain a blend of
fixed and variable interest rate obligations. As of June 30, 2002, the Company's
outstanding fixed rate indebtedness, including indebtedness outstanding under
the Company's securitizations, represented 36.8% of the Company's outstanding
indebtedness.


                                       17
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Management believes, after consultation with counsel, that the allegations
against the Company included in the lawsuits described below are subject to
substantial legal defenses, and the Company is vigorously defending each of the
allegations. The Company also is subject to claims and suits arising in the
ordinary course of business. At this time, it is not possible to estimate the
ultimate loss or gain, if any, related to these lawsuits, nor if any such loss
will have a material adverse effect on the Company's results of operations or
financial position.

     A. The Company filed an action in the United States District Court for the
District of Massachusetts against Sentinel Insurance Company, Ltd.,
("Sentinel"), Premier Holidays International, Inc., ("Premier") and Daniel
DelPiano ("DelPiano") arising from Premier's October, 1999, default on its
repayment obligations to the Company under a Twelve Million Dollar ($12,000,000)
loan. Judgment has been entered in this case against Sentinel, which had issued
a business performance insurance policy guaranteeing repayment of the loan, in
the amount of Fourteen Million Dollars ($14,000,000). This judgment has not been
satisfied. Sentinel is currently undergoing liquidation proceedings, and a claim
in this amount has been filed with the bankruptcy court. Premier has asserted a
counterclaim against the Company for Seven Hundred Sixty Nine Million Three
Hundred Fifty Thousand dollars ($769,350,000) in actual and consequential
damages, and for Five Hundred Million Dollars ($500,000,000) in punitive
damages, plus interest, cost and attorney's fees. The counterclaim is based upon
an alleged representation by the Company that it would lend Premier an
additional Forty-Five Million Dollars ($45,000,000), when all documents
evidencing the Premier loan refer only to the Twelve Million ($12,000,000)
amount actually loaned and not repaid. The Company denies any liability on the
counterclaim, which the Company is vigorously contesting. The Company has filed
a motion for summary judgment, now pending before the Court, seeking dismissal
of the counterclaim and the award of full damages on the Company's claims.
Because of the uncertainties inherent in litigation, the Company cannot predict
whether the outcome will have a material adverse effect.

     B. On January 29, 2002, Leasecomm was served with an Amended Complaint
("Complaint") in an action entitled PEOPLE V. ROMA COMPUTER SOLUTIONS, INC., ET
AL., Ventura County Superior Court Case No. CIV207490. The Complaint asserts two
claims, one for violation of the California Business Professions Code Section
17500 (false advertising), and the other for violation of the California
Business and Professions Code Section 17200 (unfair or unlawful acts or
practices). The claims arise from the marketing and selling activities of other
defendants, including Roma Computer Solutions, Inc., and/or Maro Securities,
Inc. The Complaint seeks to have Leasecomm held liable for the acts of other
defendants, alleging that Leasecomm directly participated in those acts and
received proceeds and the assignment of lease contracts as a result of those
acts. The Complaint requests injunctive relief, rescission, restitution, and a
civil penalty. By agreement, no answer or motion need be filed until September
2002. Because of the uncertainties inherent in litigation, the Company cannot
predict whether the outcome will have a material adverse affect.

     C. On May 8, 2000, Plaintiff Efraim Bason brought an action in the Supreme
Court of the State of New York, County of Nassau, seeking compensatory damages
in the amount of $450,000 and punitive damages under various legal theories for
Leasecomm's refusal to promptly release him from an equipment lease to which he
claims his name was forged (the "Bason Complaint"). The Bason Complaint alleged
that Leasecomm's failure to promptly release him from the lease, and subsequent
negative reports to credit agencies, ruined his credit and prevented him from
securing certain financing that he allegedly needed to purchase merchandise
which he claims he could have then re-sold at a $450,000 profit. The Company
filed a motion for summary judgment, which the Court has now granted awarding
the Company judgment. Absent an appeal, the matter is over.

     D. On January 29, 2002, Leasecomm was served with an Amended Complaint
("Complaint") in an action entitled RAE LYNN COPITKA V. LEASECOMM CORP., ET AL.,
Travis County (Texas) District Court Case No. GN-102292. The Complaint asserts
that the original action, filed mid-2001 by a single plaintiff should proceed as
a class action. In the original action, Ms. Copitka sought to rescind her
finance lease with Leasecomm and to recover economic damages arising from prior
payments under the lease. Ms. Copitka alleges that her proposed class includes
all persons in Texas who have executed Leasecomm finance leases for "virtual
terminal" type credit card software during the years 1998, 1999, 2000, and 2001.
Leasecomm intends to vigorously contest both the class certification and the
substantive merits of the lawsuit. No answer or motion has been filed. Because
of the uncertainties inherent


                                       18
<PAGE>

in litigation, the Company cannot predict whether the outcome will have a
material adverse effect on the Company's results of operations or consolidated
financial position.

     E. On April 3, 2000, a purported class action suit was filed in Superior
Court of the State of California, County of San Mateo against Leasecomm and
MicroFinancial as well as a number of other defendants with whom Leasecomm and
MicroFinancial are alleged to have done business, directly or indirectly. The
complaint seeks certification of a subclass of those class members who entered
into any lease agreement contracts with Leasecomm for the purposes of financing
the goods or services allegedly purchased from other defendant entities. The
class action complaint alleges multiple causes of action, including: fraud and
deceit; negligent misrepresentation; unfair competition; false advertising;
unjust enrichment; fraud in the inducement and the inception of contract; lack
of consideration for contact; and breach of the contractual covenant of good
faith and fair dealing.

     On February 1, 2002, the parties entered into stipulation of settlement to
the class action litigation. The stipulation of settlement will be effective
only if and when it is approved by the San Mateo Superior Court as fair and
reasonable to the members of the plaintiff class and as a good faith settlement
pursuant to Section 877.6 of the California Code of Civil Procedure. It is
unclear at this point how long this process will take.

     F. On October 29, 2001, a purported class action suit was filed in Superior
Court of the State of California, County of Orange against Leasecomm and
MicroFinancial and another entity known as Prospecting Services of America, Inc.
("PSOA"). The plaintiffs purport to represent a class of customers who were
allegedly solicited by PSOA to enter into leases with Leasecomm for the lease of
a "virtual link point gateway" and "I-phone." Plaintiffs alleged that PSOA made
numerous misrepresentations and omissions during the course of solicitation for
which Leasecomm and MicroFinancial Incorporated should be responsible. On
January 25, 2002, the trial court granted the motion of Leasecomm and
MicroFinancial to stay the claims against them, on the grounds that the forum
selection clause contained in the lease agreements required plaintiffs to
litigate any claims against those entities in Massachusetts. In the event that
this matter cannot be resolved, Leasecomm and MicroFinancial intend to
vigorously defend the action. Because of the uncertainties inherent in
litigation, the Company cannot predict whether the outcome will have a material
adverse effect on the Company's results of operations or consolidated financial
position.

     G. On January 25, 2002, a purported class action suit was filed in Superior
Court of the State of California, County of Los Angeles against Leasecomm. The
complaint alleges that, two individuals were acting as agents of Leasecomm, and
that they solicited the plaintiff to enter into a lease agreement with
Leasecomm. The complaint seeks declaratory and injunctive relief against all
defendants based upon alleged violations of California law. The plaintiff
purports to represent two subclasses comprised of: business entities who entered
into commercial lease agreements with Leasecomm, and all California residents
who entered into lease agreements with Leasecomm for consumer goods. Leasecomm
intends to vigorously defend the action. Because of the uncertainties inherent
in litigation, the Company cannot predict whether the outcome will have a
material adverse effect on the Company's results of operations or consolidated
financial position.

         Leasecomm has been served with Civil Investigative Demands by the
Offices of the Attorney General for the states of Kansas, Illinois, Florida, and
Texas, and for the Commonwealth of Massachusetts. Those Offices of the Attorney
General, in conjunction with the Northwest Region Office of the Federal Trade
Commission, the Offices of the Attorney General for North Carolina and North
Dakota, and the Ventura County, California, District Attorney's Office, have
informed Leasecomm that they are seeking to coordinate their investigations
(collectively, the "Government Investigators"). At this time, the principal
focus of the investigations appears to be software license leases (principally
virtual terminals) and leases from certain vendor/dealers whose activities
included business opportunity seminars. Leasecomm has further been informed that
the investigations cover certain lease provisions, including the forum selection
clause and language concerning the non-cancellability of the lease. In addition,
the investigations include, among other things, whether Leasecomm's lease
termination, or rollover, provisions, are legally sufficient; whether a
Leasecomm lease is an enforceable lease; whether there were potential problems
with its leases of which Leasecomm had knowledge; whether the leases are
enforceable in accordance with their terms; whether three day right of
rescission notices were required and, if required, whether proper notices were
given; whether any lease prices were unconscionable; whether the lease of a
software license is the lease of a service, not a good; whether any lease of
satellites or computers are leases to consumers which must comply with certain
consumer statutes; whether electronic fund transfer payments pursuant to a lease
violate Reg. E; whether any


                                       19
<PAGE>

Leasecomm billing and collection practices or charges are unreasonable, or
constitute unfair or deceptive trade practices; whether Leasecomm's course of
dealings with its vendors/dealers makes Leasecomm liable for any of the
activities of its vendors/dealers. In April, 2002, Leasecomm and the Government
Investigators entered into provisional relief and tolling agreements which
provide for Leasecomm to take certain interim actions, toll the running of the
statute of limitations as of January 29, 2002, and require advance notice by
Leasecomm of its withdrawal from the provisional relief agreement and advance
notice by each of the Government Investigators of its intention to commence
legal action.

     Since the investigations are in process, and no legal action has been
commenced against Leasecomm, there can be no assurance as to the eventual
outcome.

     In May, 2002, the Company received notice from an attorney in New York City
who advised the Company that he intended to bring suit against the Company on
behalf of a class of approximately 150 lessees of one of the Company's lease
products. Since that time, the attorney has refused the Company's several
requests to identify the legal theories and facts which would be the basis for
any claims against the Company, stating only that the leases were unconscionable
and are unenforceable. The Company cannot predict whether suit will eventually
be brought on behalf of one or more of these lessees or, if it is, what the
outcome of the suit would be and, therefore, whether it could have a material
adverse effect.


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<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following exhibit is filed herewith:


     Exhibit 99.1       Certification of Chief Executive Officer, Chief
                        Operating Officer and Chief Financial Officer pursuant
                        to 18 U.S.C. Section 1350, as adopted pursuant to
                        Section 906 of the Sarbanes-Oxley Act of 2002

(b)  None.


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<PAGE>


                                   SIGNATURES

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


                                      MicroFinancial Incorporated


                                      By: /s/ Peter R. Bleyeben
                                         --------------------------------------
                                         Chairman of the Board and Chief
                                         Executive Officer


                                      By: /s/ Richard F. Latour
                                         --------------------------------------
                                         President, and Chief Operating Officer


                                      By: /s/ James R. Jackson
                                         --------------------------------------
                                         Chief Financial Officer


Date:  August 14, 2002



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