Excerpt from;

  UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-K

           FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

For full 10-K report; http://www.sec.gov/Archives/edgar/data/827230/000095013504001616/0000950135-04-001616-index.htm

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     B. In October, 2002, the Company was served with a Complaint in an action

in the United States District Court for the Southern District of New York filed

by approximately 170 present and former lessees asserting individual claims. The

Complaint contains claims for violation of RICO (18 U.S.C. sec. 1964), fraud,

unfair and deceptive acts and practices, unlawful franchise offerings, and

intentional infliction of mental anguish. The claims purportedly arise from

Leasecomm's dealer relationships with Themeware, E-Commerce Exchange,

Cardservice International, Inc., and Online Exchange for the leasing of websites

and virtual terminals. The Complaint asserts that the Company is responsible for

the conduct of its dealers in trade shows, infomercials and web page

advertisements, seminars, direct mail, telemarketing, all which are alleged to

constitute unfair and deceptive acts and practices. Further, the Complaint

asserts that Leasecomm's lease contracts as well as its collection practices and

late fees are unconscionable. The Complaint seeks restitution, compensatory and

treble damages, and injunctive relief. The Company filed a Motion to Dismiss the

Complaint on January 31, 2003. By decision dated September 30, 2003, the court

dismissed the complaint with leave to file an amended complaint. An Amended

Complaint was filed in November, 2003. The Company filed a Motion to Dismiss the

Amended Complaint, which is awaiting decision by the Court. Because of the

uncertainties inherent in litigation, we cannot predict whether the outcome will

have a material adverse effect.

     C. On August 22, 2002 plaintiff Aaron Cobb filed a Complaint against

Leasecomm Corporation and MicroFinancial, Inc. and another Entity known as

Galaxy Mall, Inc. alleging breach of contract; Fraud, Suppression and Deceit;

Unjust Enrichment; Conspiracy; Conversion; Theft by Deception; and violation of

Alabama Usury Laws. The Complaint was filed on behalf of Aaron Cobb

individually, and on behalf of a class of persons and entities similarly

situated in the State of Alabama. More specifically, the Plaintiff purports to

represent a class of persons and small business in the State of Alabama who

allegedly were induced to purchase services and/or goods from any of the

Defendants named in the Complaint. The case is venued in Bullock County,

Alabama. On March 31, 2003 the trial court entered an Order denying the

Company's Motion to Dismiss. An appeal of the Order was filed with the Alabama

Supreme Court on May 12, 2003. The Company continues to deny any wrongdoing and

plans to vigorously defend this claim. Because of the uncertainties inherent in

litigation, the company cannot predict whether the outcome will have a material

adverse affect.

     D. In March 2003, an action was filed by a shareholder against the Company

in United States District Court asserting a single count of common law fraud and

constructive fraud. The complaint alleges that the shareholder was defrauded by

untrue statements made to him by management, upon which he relied in the

purchase of Company stock for himself and for others. The complaint seeks

damages in an unspecified amount. The Company filed an answer denying the

allegations. In December 2003, upon motion filed by the plaintiff shareholder,

the Court dismissed the action without prejudice.

     E. In March 2003, a purported class action was filed in Superior Court in

Massachusetts against Leasecomm and one of its dealers. The class sought to be

certified is a nationwide class (excluding certain residents of the State of

Texas) who signed identical or substantially similar lease agreements with

Leasecomm covering the same product. After the Company had filed a motion to

dismiss, but before the motion to dismiss was heard by the Court, plaintiffs

filed an Amended Complaint. The Amended Complaint asserts claims against the

Company for declaratory relief, absence of consideration, unconscionability, and

violation of Massachusetts General Laws Chapter 93A, Section 11. The Company

filed a motion to dismiss the Amended Complaint. The Court allowed the Company's

motion to dismiss the Amended Complaint in March 2004.

     F. On April 28, 2003 plaintiff Wallace Dickey filed a purported class

action against Leasecomm Corporation, Cardservice International, Linkpoint

International and Clear Commerce Corporation alleging

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                          MICROFINANCIAL INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that he lease-financed through Leasecomm the right to use certain computer

software manufactured, distributed and sold by the other defendants. The

plaintiff does not allege that Leasecomm failed to provide the lease financing

contemplated by the Leasecomm lease. Instead, the Plaintiff alleges that the

software failed to operate as he believed it would, and he has sued for a

declaration that would allow him to rescind his contract, to recover money paid

in the course of the transaction and to recover damages allegedly caused by

unspecified deceptive trade practices. The plaintiff asserts his claims "on

behalf of himself and all others similarly situated." Leasecomm denies all of

the Plaintiff's allegations. The parties have reached an agreement on settlement

terms and are currently drafting settlement documents. The settlement, if

finalized, and signed by the parties, will require court approval to become

effective. Because of the uncertainties inherent in litigation, the company

cannot predict whether the outcome will have a material adverse affect.

     G. On April 29, 2003, Leasecomm was served with a Complaint filed in the

Orange County Superior Court for the State of California. In that Complaint,

Maria J. Smith purports to bring a claim against Leasecomm and two other

defendants (Galaxy Mall, Inc. and Electronic Commerce International, Inc.) for

unfair business practices and competition under California Business and

Professions Code section 17200 et seq. The essence of the claim is that Smith

and others who are similarly situated were defrauded in connection with their

acquisition of certain licenses that were financed by Leasecomm. In May 2003,

Leasecomm filed a motion to stay the action in favor of a Massachusetts forum

based on a forum selection clause contained in plaintiff's lease agreement with

Leasecomm. After filing the motion, Leasecomm entered into settlement

negotiations with plaintiff's counsel to explore the possibility of resolving

the matter on a class wide basis without the need for further litigation

(meaning the settlement would, if accepted, apply not only to the named

plaintiff but to others similarly situated). The parties have reached agreement

on settlement terms and are currently drafting the settlement documents. The

settlement, if finalized and signed by the parties, will require Court approval

to become effective. Because of the uncertainties inherent in litigation, the

company cannot predict whether the outcome will have a material adverse affect.

     H. In October 2003, the Company was served with a purported class action

complaint which was filed in United States District Court for the District of

Massachusetts alleging violations of federal securities law. The purported class

would consist of all persons who purchased Company securities between February

5, 1999 and October 30, 2002. The Complaint asserts that during this period the

Company made a series of materially false or misleading statements about the

Company's business, prospects and operations, including with respect to certain

lease provisions, the Company's course of dealings with its vendor/dealers, and

the Company's reserves for credit losses. No motion or answer has been filed in

response to the Complaint. Because of the uncertainties inherent in litigation,

we cannot predict whether the outcome will have a material adverse effect.

     I. In February 2004, a purported class action was filed in Superior Court

in Massachusetts against Leasecomm, a dealer, and a party purportedly related to

the dealer. The class sought to be certified is a nationwide class who signed

lease agreements identical to, or substantially similar to, the plaintiff's

lease agreement with Leasecomm, and covering the same product. The Complaint

asserts claims for declaratory judgment, absence of consideration,

unconscionability, and violation of Massachusetts General Laws Chapter 93A,

Section 11. The claims concern the validity, enforceability, and alleged

unconscionability of this Leasecomm lease of a product which enabled a merchant

to process credit card payments. The Complaint seeks rescission of lease

agreements with Leasecomm, restitution, multiple damages and attorneys fees

under Chapter 93A, and injunctive relief. Because of the uncertainties inherent

in litigation we cannot predict whether the outcome will have a material adverse

effect. As of the date of this filing, the Company has not been served with this

complaint.

     J. In February 2003, Leasecomm received a Civil Investigative Demand

("CID") from the Office of the Attorney General, State of Washington, to which

it has responded. The CID concerns an investigation of monitoring agreements

between Priority One, Inc. and various State of Washington consumers, as to

which Leasecomm appears to be the assignee of the right to receive monthly

payments. Since the investigation has

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                          MICROFINANCIAL INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not been concluded, and no legal action has been commenced against Leasecomm,

there can be no assurance as to the eventual outcome.

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For full Form 10-Q report click here

PENDING LEGAL PROCEEDINGS

 
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.

Leasecomm had been served with Civil Investigative Demands and subpoenas 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, had informed Leasecomm that they were seeking to coordinate their investigations. All of these investigations have been concluded by the entry of consent judgements in each of the applicable jurisdictions. The consent judgments resolve all matters alleged by the government agencies in their court filings without any admission of liability or of wrongful conduct by Leasecomm or MicroFinancial. Under the terms of the settlement, Leasecomm has agreed to the following: (1) Not to collect upon certain court judgments where the financing included virtual terminals or the predominant purpose of the financing was for business opportunities. (2) Not to finance any product in conjunction with a business opportunity solicitation, and not to finance the virtual terminal product for four years. (3) Include in its lease forms, and in its lease processing and collection activities, certain provisions and practices, including filing collection actions in the customer's home forum. (Existing actions pending in Massachusetts may be transferred or dismissed and then re-filed in the lessee's home forum.) Neither MicroFinancial nor Leasecomm were required to pay any fines or penalties; however, the Company agreed to pay $1.0 million in twelve equal monthly installments, as recovery in the investigations. In addition Leasecomm has agreed to take steps to monitor its vendors, and to file periodic reports concerning its vendors for two years. The financial impact directly related to the terms of the settlement, have been accounted for in current and or past periods as appropriate.

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's motion for summary judgment seeking dismissal of the counterclaim and the award of full damages on the Company's claims was denied by Court Order, without a written decision. The Company's motion for the appointment of a special master was also denied without a written decision. The case is currently scheduled to be tried in November, 2003. Because of the uncertainties inherent in litigation, we 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

C. In October, 2002, the Company was served with a Complaint in an action in the United States District Court for the Southern District of New York filed by approximately 170 present and former lessees asserting individual claims. The Complaint contains claims for violation of RICO (18 U.S.C. Section 1964), fraud, unfair and deceptive acts and practices, unlawful franchise offerings, and intentional infliction of mental anguish. The claims purportedly arise from Leasecomm's dealer relationships with Themeware, E-Commerce Exchange, Cardservice International, Inc., and Online Exchange for the leasing of websites and virtual terminals. The Complaint asserts that the Company is responsible for the conduct of its dealers in trade shows, infomercials and web page advertisements, seminars, direct mail, telemarketing, all which are alleged to constitute unfair and deceptive acts and practices. Further, the Complaint asserts that Leasecomm's lease contracts as well as its collection practices and late fees are unconscionable. The Complaint seeks restitution, compensatory and treble damages, and injunctive relief. The Company filed a Motion to Dismiss the Complaint on January 31, 2003. Briefing has been completed, but the Motion to Dismiss has not been decided. Because of the uncertainties inherent in litigation, we cannot predict whether the outcome will have a material adverse effect.

D. On August 22, 2002 plaintiff Aaron Cobb filed a Complaint against Leasecomm Corporation and MicroFinancial, Inc. and another Entity known as Galaxy Mall, Inc. alleging breach of contract; Fraud, Suppression and Deceit; Unjust Enrichment; Conspiracy; Conversion; Theft by Deception; and violation of Alabama Usury Laws. The Complaint was filed on behalf of Aaron Cobb individually, and on behalf of a class of persons and entities similarly situated in the State of Alabama. More specifically, the Plaintiff purports to represent a class of persons and small business in the State of Alabama who allegedly were induced to purchase services and/or goods from any of the Defendants named in the Complaint. The case is venued in Bullock County, Alabama. On March 31, 2003 the trial court entered an Order denying the Company's Motion to Dismiss. An appeal of the Order was filed with the Alabama Supreme Court on May 12, 2003. The Company continues to deny any wrongdoing and plans to vigorously defend this claim. Because of the uncertainties inherent in litigation, the company cannot predict whether the outcome will have a material adverse affect.

E. In March, 2003, an action was filed by a shareholder against the Company in United States District Court asserting a single count of common law fraud and constructive fraud. The complaint alleges that the shareholder was defrauded by untrue statements made to him by management, upon which he relied in the purchase of Company stock for himself and for others. The complaint seeks damages in an unspecified amount. The Company has filed an answer denying the allegations. Because of the uncertainties inherent in litigation, we cannot predict whether the outcome will have a material adverse effect.

F. In March, 2003, a purported class action was filed in Superior Court in Massachusetts against Leasecomm and one of its dealers. The class sought to be certified is a nationwide class (excluding certain residents of the State of Texas) who signed identical or substantially similar lease agreements with Leasecomm covering the same product. The complaint asserts claims for declaratory relief, rescission, civil conspiracy, usury, breach of fiduciary duty, and violation of Massachusetts General Laws Chapter 93A, Section 11 ("Chapter 93A"). The claims concern the validity, enforceability, and alleged unconscionability of agreements provided through the dealer, including a Leasecomm lease, to acquire on line credit card processing services. The complaint seeks rescission of the lease agreements with Leasecomm, restitution, multiple damages and attorneys fees under Chapter 93A, and injunctive relief. The Company has filed a motion to dismiss the complaint, which is scheduled to be heard by the Court in September, 2003. Because of the uncertainties inherent in litigation we cannot predict whether the outcome will have a material adverse effect.

G. On April 28, 2003 plaintiff Wallace Dickey filed a purported class action against Leasecomm Corporation, Cardservice International, Linkpoint International and Clear Commerce Corporation alleging that he lease-financed through Leasecomm the right to use certain computer software manufactured, distributed and sold by the other defendants. The plaintiff does not allege that Leasecomm failed to provide the lease financing contemplated by the Leasecomm Lease, rather the Plaintiff alleges that the software failed to operate as he believed it would, and he has sued for a declaration that would allow him to rescind his contract, to recover money paid in the course of the transaction and to recover damages allegedly caused by unspecified deceptive trade practices. The plaintiff asserts his claims "on behalf of himself and all others similarly situated." Leasecomm denies all of the Plaintiff's

H. On April 29, 2003, Leasecomm was served with a Complaint filed in the Orange County Superior Court for the State of California. In that Complaint, Maria J. Smith purports to bring a claim against Leasecomm and two other defendants (Galaxy Mall, Inc. and Electronic Commerce International, Inc.) for unfair business practices and competition under California Business and Professions Code section 17200 et seq. The essence of the claim is that Smith and others who are similarly situated were defrauded in connection with their acquisition of certain licenses that were financed by Leasecomm. In May 2003, Leasecomm filed a motion to stay the action in favor of a Massachusetts forum based on a forum selection clause contained in plaintiff's lease agreement with Leasecomm. After filing the motion, Leasecomm entered into settlement negotiations with plaintiff's counsel to explore the possibility of resolving the matter on a class wide basis without the need for further litigation (meaning the settlement would, if accepted, apply not only to the named plaintiff but to others similarly situated). The parties have agreed to postpone the hearing on Leasecomm's stay motion until August 22, 2003 in order to allow the parties time to explore possible settlement. Because of the uncertainties inherent in litigation we cannot predict whether the outcome will have a material adverse effect.

In February 2003, Leasecomm received a CID from the Office of the Attorney General, State of Washington, to which it has responded. The CID concerns an investigation of monitoring agreements between Priority One, Inc. and various State of Washington consumers, as to which Leasecomm appears to be the assignee of the right to receive monthly payments. Since the investigation has not been concluded, and no legal action has been commenced against Leasecomm, there can be no assurance as to the eventual outcome.