8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (date of earliest event reported): February 7, 2007

MICROFINANCIAL INCORPORATED

(Exact name of registrant as specified in its charter)

MASSACHUSETTS

(State or other jurisdiction of incorporation)

1-14771	04-2962824
(Commission file number)	(IRS Employer Identification Number)
10-M Commerce Way, Woburn, MA	01801
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 781-994-4800

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-99 Press release dated February 7, 2007

Item 2.02. Results of Operations and Financial Condition.

     On February 7, 2007, the Registrant announced its results of operations for the fiscal quarter and full year ended December 31, 2006. Pursuant to Form 8-K, General Instruction F, the Registrant hereby incorporates by reference the press release attached hereto as Exhibit 99.

Item 9.01. Financial Statements and Exhibits.

Exhibit	Exhibit Title
Exhibit 99	Press Release dated February 7, 2007

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MICROFINANCIAL INCORPORATED Registrant
By:	/s/ James R. Jackson, Jr.
	James R. Jackson, Jr.
	Vice President and Chief Financial Officer

Dated: February 8, 2006

EX-99

Exhibit 99

For Release February 7, 2007	Contact:
4:01 pm	Richard F. Latour
	President and CEO
	Tel: 781-994-4800

MICROFINANCIAL INCORPORATED ANNOUNCES
FOURTH QUARTER AND YEAR END 2006 RESULTS

- Completes Sixth Consecutive Profitable Quarter -
- - Return to Annual Profitability -

Woburn, MA— February 7, 2007— MicroFinancial Incorporated (AMEX-MFI), a financial intermediary specializing in vendor based leasing and financing programs for microticket transactions, announces its financial results for the fourth quarter and year ended December 31, 2006.

2006 Accomplishments Include:

• Return to annual profitability with 2006 net income of $3.9 million as compared to a 2005 net loss of ($1.7) million.

• Company adds 637 new vendors.

• Continued investment in sales and marketing resulted in the origination of $21.5 million in new leases

• A 31%, or $6.4 million, reduction in SG&A expenses compared to 2005.

• Payment of $6.2 million in cash dividends.

Fourth Quarter 2006 Results

Net income for the quarter was $1.8 million, or $0.13 per diluted share on 13,979,368 diluted shares, compared to net income of $877,000, or $0.06 per diluted share, in the fourth quarter of 2005.

Fourth quarter revenue for 2006 was $7.5 million compared to $8.9 million in the prior year’s fourth quarter. Revenue on leases was $1.5 million, rental revenue was $4.5 million, and other revenue components contributed $1.5 million for the quarter. Lease originations for the quarter were $9.1 million.

Richard Latour, President and Chief Executive Officer said, “In 2006, we continued to strengthen our sales and marketing programs and rebuild our vendor base. Throughout the year we have made progress executing on our plan to grow our business. The results for the fourth quarter further validate that these efforts are beginning to succeed. Our lease originations improved 42% to $9.1 million as compared to the third quarter of 2006. In addition, during the quarter, we continued to add more vendors, and processed over 6,300 lease applications. We

were also pleased to have announced, in December, the dismissal of the attempted shareholder class action and the favorable resolution of the IRS audit.”

Total operating expenses for the quarter declined 29.8% to $5.6 million from $8.0 million in the fourth quarter of 2005. Interest expense was $27,000 for the quarter. Selling, general and administrative expenses decreased $1.1 million to $3.1 million from $4.2 million for the same period last year. The fourth quarter provision for credit losses was $1.9 million compared to $1.6 million for the same period in 2005. Net charge-offs were $2.2 million in both the current quarter and the fourth quarter of 2005. The increase in the provision for credit losses is primarily due to the recent growth in our lease portfolio. Sequentially, invoices greater than 31 days delinquent on December 31, 2006 decreased to $7.1 million from $9.5 million on September 30, 2006.

The provision for income taxes increased to $131,000 for the fourth quarter of 2006 compared to a benefit of $21,000 for the same period last year. The provision for the fourth quarter of 2006 was impacted favorably by the settlement of the IRS audit and the Company’s ability to utilize state net operating loss carryforwards.

Total interest bearing debt at December 31, 2006 decreased to $5,000 from $2.8 million at December 31, 2005. Cash and cash equivalents decreased by $4.2 million to $28.7 million at December 31, 2006 from $32.9 million at December 31, 2005. The decrease in cash is primarily due to the increase in lease originations and the payment of dividends and outstanding debt. Net cash received from customers for the quarter was $9.0 million compared to $11.5 million during the same period in 2005.

Full Year 2006 Results

Revenues for 2006 were $32.4 million compared to $39.3 million during 2005. Net income for 2006 was $3.9 million compared to a net loss of ($1.7) million for the previous year. Net income per diluted share for 2006 improved to $0.28 on 13,958,759 diluted shares versus a net loss per share of ($0.12) for 2005. New leases for 2006 were $21.5 million, an increase of $15.1 million compared to 2005.

Total operating expenses for the year decreased 35.8% to $27.0 million from $42.0 million in 2005. Interest expense declined 85.9% to $162,000 from $1.1 million, as a result of lower average debt balances. Selling, general and administrative expenses decreased $6.4 million to $14.5 million for 2006, from $20.9 million for 2005. The decrease was driven by reductions of approximately $2.0 million in payroll and benefits, $1.6 million in collection expenses and $1.6 million in professional fees. Depreciation and amortization expense decreased 43.9% to $5.3 million, compared to $9.5 million in 2005. The decrease is primarily due to a $2.1 million decrease in service contract amortization and a $1.8 million decrease in depreciation on rental contracts due to the overall decrease in those assets. The provision for credit losses decreased $3.5 million to $7.0 million for 2006 from $10.5 million for the prior year. Gross charge-offs decreased 29.5% to $16.1 million while recoveries decreased 8.1% to $5.6 million. Cash received from customers decreased 28.0% to $39.8 million from $55.2 million for 2005.

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

	December 31,			December 31,
	2005			2006
ASSETS
Cash and cash equivalents	$	32,926		$	28,737
Net investment in leases:
Receivables due in installments		29,139			40,455
Estimated residual value		3,865			3,859
Initial direct costs		98			302
Less:
Advance lease payments and deposits		(35	)		(50	)
Unearned income		(3,658	)		(13,682	)
Allowance for credit losses		(8,714	)		(5,223	)
Net investment in leases		20,695			25,661
Investment in service contracts, net		1,626			613
Investment in rental contracts, net		3,025			313
Property and equipment, net		587			655
Other assets		1,447			652
Deferred income taxes, net		4,882			3,090
Total assets	$	65,188		$	59,721
LIABILITIES AND STOCKHOLDERS’ EQUITY
Notes payable	$	161		$	5
Subordinated notes payable		2,602			—
Accounts payable		1,099			1,038
Dividends payable		4,114			691
Other liabilities		2,094			1,110
Income taxes payable		431			741
Total liabilities		10,501			3,585
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued at December 31, 2005 and 2006		—			—
Common stock, $.01 par value; 25,000,000 shares authorized; 13,713,899 and 13,811,442 shares issued and outstanding at December 31, 2005 and 2006, respectively		137			138
Additional paid-in capital		43,839			44,136
Retained earnings		10,711			11,862
Total stockholders’ equity		54,687			56,136
Total liabilities and stockholders’ equity	$	65,188		$	59,721

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

	Three Months Ended					Year Ended
	December 31,					December 31,
	2005			2006		2005			2006
Revenues:
Income on financing leases	$	698		$	1,514	$	4,140		$	3,917
Rental income		6,029			4,461		25,359			20,897
Income on service contracts		649			392		3,467			1,870
Loss and damage waiver fees		612			420		2,863			1,895
Service fees and other		670			373		2,953			2,448
Interest income		226			366		502			1,415
Total revenues		8,884			7,526		39,284			32,442
Expenses:
Selling general and administrative		4,185			3,054		20,884			14,499
Provision for credit losses		1,598			1,861		10,468			6,985
Depreciation and amortization		2,083			692		9,497			5,326
Interest		162			27		1,148			162
Total expenses		8,028			5,634		41,997			26,972
Income (loss) before income taxes		856			1,892		(2,713	)		5,470
Provision (benefit) for income taxes		(21	)		131		(1,053	)		1,555
Net income (loss)	$	877		$	1,761	$	(1,660	)	$	3,915
Net income (loss) per common share — basic	$	0.06		$	0.13	$	(0.12	)	$	0.28
Net income (loss) per common share — diluted	$	0.06		$	0.13	$	(0.12	)	$	0.28
Weighted-average shares used to compute:
Basic net income per share		13,713,899			13,811,442		13,567,640			13,791,403
Fully diluted net income per share		13,902,183			13,979,368		13,567,640			13,958,759

About The Company

MicroFinancial Inc. (AMEX-MFI), headquartered in Woburn, MA, is a financial intermediary specializing in microticket leasing and financing. We have been in operation since 1986.

Statements in this release that are not historical facts, including statements about future dividends or growth plans, 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,” “views,” “will” and similar expressions are intended to identify forward-looking statements. We caution that a number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Readers should not place undue reliance on forward-looking statements, which reflect our views only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. We cannot assure that we will be able to anticipate or respond timely to changes which could adversely affect our operating results. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results or other factors may result in fluctuations in the price of our common stock. For a more complete description of the prominent risks and uncertainties inherent in our business, see the risk factors described in documents that we file from time to time with the Securities and Exchange Commission.