Quarterly Report (10-q)

Date : 05/07/2019 @ 9:40PM
Source : Edgar (US Regulatory)
Stock : Flexshopper, Inc. (FPAY)
Quote : 1.56  0.0 (0.00%) @ 9:00AM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended   March 31, 2019

 

TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _________________

 

Commission

File Number

 

Exact name of registrant as specified in its charter, address of principal executive offices and registrants’ telephone number

 

IRS Employer

Identification Number

001-37945   FLEXSHOPPER, INC.   20-5456087

 

2700 N. Military Trail, Suite 200

Boca Raton, Florida 33431

(855) 353-9289

 

State or other jurisdiction of incorporation or organization:  Delaware

 

Former name, former address and formal fiscal year, if changed since last report: Not applicable

 

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days.  Yes  þ     No 

 

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.  Yes  þ     No 

 

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.

 

  Large Accelerated Filer   Non-Accelerated Filer   þ
  Accelerated Filer   Smaller Reporting Company   þ
    Emerging Growth Company  

 

If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes     No  þ

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 par value   FPAY   The Nasdaq Stock Market LLC
Warrants, each to purchase one share of Common Stock   FPAYW   The Nasdaq Stock Market LLC

  

As of May 6, 2019, the Company had a total of 17,666,193 shares of common stock outstanding, excluding 171,191 outstanding shares of Series 1 Convertible Preferred Stock convertible into 216,637 shares of common stock and excluding 21,952 outstanding shares of Series 2 Convertible Preferred Stock convertible into 5,639,745 shares of common stock.

 

 

 

 

 

 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

 

Certain information set forth in this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate” “strategy,” “future,” “likely” or other comparable terms and references to future periods. All statements other than statements of historical facts included in this prospectus regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding: the expansion of our lease-to-own program; expectation concerning our partnerships with retail partners; investments in, and the success of, our underwriting technology and risk analytics platform; our ability to collect payments due from customers; expected future operating results and; expectations concerning our business strategy.

 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

 

  our limited operating history, limited cash and history of losses;
     
  our ability to obtain adequate financing to fund our business operations in the future;
     
  the failure to successfully manage and grow our FlexShopper.com e-commerce platform;
     
  our ability to maintain compliance with financial covenants under our Credit Agreement;
     
  our dependence on the success of our third-party retail partners and our continued relationships with them;
     
  our compliance with various federal, state and local laws and regulations, including those related to consumer protection;
     
  the failure to protect the integrity and security of customer and employee information; and
     
  the other risks and uncertainties described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as may be required under applicable law. We anticipate that subsequent events and developments will cause our views to change. You should read this prospectus and the documents filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.

 

i

 

 

TABLE OF CONTENTS

 

    Page No.
     
Cautionary Statement About Forward-Looking Statements i
     
  PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 4. Controls and Procedures 23
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 6. Exhibits 25
     
Signatures 26

  

ii

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FLEXSHOPPER, INC.

CONSOLIDATED BALANCE SHEETS

 

    March 31,     December 31,  
    2019     2018  
    (unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash   $ 2,647,056     $ 6,141,210  
Accounts receivable, net     6,510,338       6,375,963  
Prepaid expenses     335,484       317,160  
Lease merchandise, net     28,181,941       32,364,697  
Total current assets     37,674,819       45,199,030  
                 
PROPERTY AND EQUIPMENT, net     3,497,073       3,336,664  
                 
OTHER ASSETS, net     149,852       90,621  
    $ 41,321,744     $ 48,626,315  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES:                
Current portion of loan payable under credit agreement to beneficial shareholder net of $222,526 at 2019 and $167,483 at 2018 of unamortized issuance costs   $ 18,372,922     $ 14,252,717  
Accounts payable     3,105,990       8,317,216  
Accrued payroll and related taxes     195,530       393,095  
Promissory notes to related parties net of $32,574 at 2019 and $0 at 2018 of unamortized issuance costs     3,762,526       1,814,771  
Accrued expenses     1,012,131       1,335,505  
Lease liability – current portion     94,249       -  
Total current liabilities     26,543,348       26,113,304  
                 
Loan payable under credit agreement to beneficial shareholder net of $54,869 at 2019 and $164,752 at 2018 of unamortized issuance costs and current portion     4,530,310       14,020,335  
Promissory notes to related parties net of $22,001 at 2019 and $0 at 2018 of unamortized issuance costs and current portion     1,164,789       -  
Lease liabilities less current portion     37,202       -  
Total liabilities     32,275,649       40,133,639  
                 
STOCKHOLDERS’ EQUITY                
Series 1 Convertible Preferred Stock, $0.001 par value- authorized 250,000 shares, issued and outstanding 171,191 shares at 2019 and 239,405 shares at $5.00 stated value at 2018     855,955       1,197,025  
Series 2 Convertible Preferred Stock, $0.001 par value- authorized 25,000 shares, issued and outstanding 21,952 shares at $1,000 stated value     21,952,000       21,952,000  
Common stock, $0.0001 par value- authorized 40,000,000 shares, issued and outstanding: 17,666,193 shares at 2019 and 17,579,870 at 2018     1,767       1,758  
Additional paid in capital     34,465,425       34,074,488  
Accumulated deficit     (48,229,052 )     (48,732,595 )
Total stockholders’ equity     9,046,095       8,492,676  
    $ 41,321,744     $ 48,626,315  

   

The accompanying notes are an integral part of these consolidated statements.

 

1

 

 

FLEXSHOPPER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    For the three months ended
March 31,
 
    2019     2018  
             
Revenues:            
Lease revenues and fees, net   $ 21,784,779     $ 14,161,578  
Lease merchandise sold     946,618       614,518  
Total revenues     22,731,397       14,776,096  
                 
Costs and expenses:                
Cost of lease revenues, consisting of depreciation and impairment of lease merchandise     15,277,939       10,407,746  
Cost of lease merchandise sold     565,007       333,763  
Marketing     848,546       1,168,950  
Salaries and benefits     1,758,087       2,179,376  
Operating expenses     2,596,282       2,038,938  
Total costs and expenses     21,045,861       16,128,773  
                 
Operating income/(loss)     1,685,536       (1,352,677 )
                 
Interest expense including amortization of debt issuance costs     1,181,993       933,667  
Net income/(loss)     503,543       (2,286,344 )
                 
Dividends on Series 2 Convertible Preferred Shares     609,168       603,680  
Net loss attributable to common shareholders   $ (105,625 )   $ (2,890,024 )
                 
Basic and diluted (loss) per common share:                
Net loss   $ (0.01 )   $ (0.55 )
                 
WEIGHTED AVERAGE COMMON SHARES:                
Basic and diluted     17,650,847       5,294,501  

  

The accompanying notes are an integral part of these consolidated statements.

 

2

 

 

FLEXSHOPPER, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2019 and 2018

(unaudited)

 

    Series 1
Convertible
Preferred Stock
    Series 2
Convertible
Preferred Stock
    Common Stock     Additional
Paid in
    Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
Balance, January 1, 2019     239,405     $ 1,197,025       21,952     $ 21,952,000       17,579,870     $ 1,758     $ 34,074,488     $ (48,732,595 )   $ 8,492,676  
Provision for compensation expense related to stock options     -       -       -       -       -       -       25,529       -       25,529  
Issuance of warrants in connection with consulting agreement     -       -       -       -       -       -       11,200       -       11,200  
Refund of costs related to equity raise     -       -       -       -       -       -       13,147       -       13,147  
Conversion of preferred stock to common stock     (68,214 )     (341,070 )     -       -       86,323       9       341,061       -       -  
Net income     -       -       -       -       -       -       -       503,543       503,543  
Balance, March 31, 2019     171,191     $ 855,955       21,952     $ 21,952,000       17,666,193     $ 1,767     $ 34,465,425     $ (48,229,052 )   $ 9,046,095  

 

    Series 1
Convertible
Preferred Stock
    Series 2
Convertible
Preferred Stock
    Common Stock     Additional
Paid in
    Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
Balance, January 1, 2018     239,405     $ 1,197,025       21,952     $ 21,952,000       5,294,501     $ 529     $ 22,445,691     $ (39,271,333 )   $ 6,323,912  
Provision for compensation expense related to stock options     -       -       -       -       -       -       49,702       -       49,702  
Net loss     -       -       -       -       -       -       -       (2,286,344 )     (2,286,344 )
Balance, March 31, 2018     239,405     $ 1,197,025       21,952     $ 21,952,000       5,294,501     $ 529     $ 22,495,393     $ (41,557,677 )   $ 4,087,270  

 

The accompanying notes are an integral part of these consolidated statements.

 

3

 

 

FLEXSHOPPER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2019 and 2018

(unaudited)

 

    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income/(loss)   $ 503,543     $ (2,286,344 )
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:                
Depreciation and impairment of lease merchandise     15,277,939       10,407,746  
Other depreciation and amortization     584,968       568,078  
Compensation expense related to issuance of stock options and warrants     36,729       49,702  
Interest in kind added to promissory notes balance     167,119       -  
Provision for doubtful accounts     7,344,944       5,175,318  
Changes in operating assets and liabilities:                
Accounts receivable     (7,479,319 )     (4,690,455 )
Prepaid expenses and other     (17,624 )     (361,718 )
Lease merchandise     (11,095,183 )     (7,947,647 )
Security deposits     (60,000 )     -  
Accounts payable     (5,211,226 )     (2,704,981 )
Accrued payroll and related taxes     (197,565 )     (229,283 )
Accrued expenses     (320,979 )     (3,774 )
Net cash used in operating activities     (466,654 )     (2,023,358 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment, including capitalized software costs     (553,184 )     (307,340 )
Net cash used in investing activities     (553,184 )     (307,340 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Refund of equity issuance related costs     13,147       -  
Proceeds from promissory notes, net of fees     2,940,000       3,465,000  
Proceeds from loan payable under credit agreement     1,241,328       1,550,000  
Repayment of loan payable under credit agreement     (6,665,989 )     (5,855,000 )
Repayment of installment loan     (2,802 )     -  
Net cash used in financing activities     (2,474,316 )     (840,000 )
                 
INCREASE/(DECREASE) IN CASH     (3,494,154 )     (3,170,698 )
                 
CASH, beginning of period     6,141,210       4,968,915  
                 
CASH, end of period   $ 2,647,056     $ 1,798,217  
                 
Supplemental cash flow information:                
Interest paid   $ 993,544     $ 754,276  
Non-cash financing activities:                
Conversion of preferred stock to common stock   $ 341,070       -  

  

The accompanying notes are an integral part of these consolidated statements.

 

4

 

 

FLEXSHOPPER, INC.

Notes To Consolidated Financial Statements

For the three months ended March 31, 2019 and 2018

(Unaudited)

 

1. BASIS OF PRESENTATION

 

Our interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information. Accordingly, the information presented in our interim financial statements does not include all information and disclosures necessary for a fair presentation of our financial position, results of operations and cash flows in conformity with GAAP for annual financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring accruals, necessary for a fair statement of our financial position, results of operations and cash flows for such periods. The results of operations for any interim period are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

The consolidated balance sheet as of December 31, 2018 contained herein has been derived from audited financial statements.

 

2. BUSINESS

 

FlexShopper, Inc. (“FlexShopper” or the “Company”) is a corporation organized under the laws of the State of Delaware in 2006. The Company owns 100% of FlexShopper, LLC, a North Carolina limited liability company, which in turns owns 100% of FlexShopper 1, LLC and FlexShopper 2, LLC. The Company is a holding corporation with no operations except for those conducted by FlexShopper, LLC. FlexShopper, LLC provides through e-commerce sites certain types of durable goods to consumers, including customers of third-party retailers and e-tailers, on a lease-to-own (“LTO”) basis.

 

To date, funds derived from the sale of FlexShopper’s common stock, warrants and Series 2 Convertible Preferred Stock and the Company’s ability to borrow funds against the lease portfolio have provided the liquidity and capital resources necessary to fund its operations.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of intercompany balances and transactions.

 

Estimates - The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

5

 

 

Revenue Recognition - Merchandise is leased to customers pursuant to lease purchase agreements which provide for weekly lease terms with non-refundable lease payments. Generally, the customer has the right to acquire title either through a 90 day same as cash option, an early purchase option, or through payments of all required lease payments, generally 52 weeks, for ownership. On any current lease, customers have the option to cancel the agreement in accordance with lease terms and return the merchandise. Accordingly, customer agreements are accounted for as operating leases with lease revenues recognized in the month they are due on the accrual basis of accounting. Merchandise sales revenue is recognized when the customer exercises the purchase option and pays the purchase price. Revenue for lease payments received prior to their due date is deferred and recognized as revenue in the period to which the payments relate. Revenues from leases and sales are reported net of sales taxes.

 

Accounts Receivable and Allowance for Doubtful Accounts - FlexShopper seeks to collect amounts owed under its leases from each customer on a weekly or monthly basis by charging their bank accounts or credit cards. Accounts receivable are principally comprised of lease payments currently owed to FlexShopper which are past due, as FlexShopper has been unable to successfully collect in the manner described above. The allowance for doubtful accounts is based upon revenues and historical experience of balances charged off as a percentage of revenues. The accounts receivable balances consisted of the following as of March 31, 2019 and December 31, 2018:

 

    March 31,
2019
    December 31,
2018
 
             
Accounts receivable   $ 12,579,684     $ 10,130,269  
Allowance for doubtful accounts     (6,069,346 )     (3,754,306 )
Accounts receivable, net   $ 6,510,338     $ 6,375,963  

 

The allowance is a significant percentage of the balance because FlexShopper does not charge off any customer account until it has exhausted all collection efforts with respect to each account, including attempts to repossess items. In addition, while collections are pursued, the same delinquent customers continue to accrue weekly charges until they are charged off with such charges being fully reserved for. Accounts receivable balances charged off against the allowance were $5,029,904 for the three months ended March 31, 2019 and $4,428,276 for the three months ended March 31, 2018.

 

    March 31,
2019
    December 31,
2018
 
Beginning balance   $ 3,745,306     $ 2,139,765  
Provision for write-offs     7,344,944       23,239,189  
Accounts written off     (5,029,904 )     (21,624,648 )
Ending balance   $ 6,069,346     $ 3,754,306  

 

Lease Merchandise - Until all payment obligations for ownership are satisfied under the lease agreement, the Company maintains ownership of the lease merchandise. Lease merchandise consists primarily of residential furniture, consumer electronics, computers, appliances and household accessories and is recorded at cost net of accumulated depreciation. The Company depreciates leased merchandise using the straight-line method over the applicable agreement period for a consumer to acquire ownership, generally twelve months with no salvage value. Upon transfer of ownership of merchandise to customers resulting from satisfaction of their lease obligations, the related cost and accumulated depreciation are eliminated from lease merchandise. For lease merchandise returned or anticipated to be returned either voluntarily or through repossession, the Company provides an impairment reserve for the undepreciated balance of the merchandise net of any estimated salvage value with a corresponding charge to cost of lease revenue. The cost, accumulated depreciation and impairment reserve related to such merchandise are written off upon determination that no salvage value is obtainable. The impairment charge amounted to approximately $1,348,000 for the three months ended March 31, 2019 and $807,000 for the three months ended March 31, 2018.

 

The net leased merchandise balances consisted of the following as of March 31, 2019 and December 31, 2018:

 

    March 31,
2019
    December 31,
2018
 
Lease merchandise at cost   $ 44,941,403     $ 48,893,012  
Accumulated depreciation     (14,532,742 )     (14,338,295 )
Impairment reserve     (2,226,720 )     (2,190,020 )
Lease merchandise, net   $ 28,181,941     $ 32,364,697  

 

Lease merchandise at cost represents the undepreciated cost of rental merchandise at the time of purchase.

 

6

 

 

Deferred Debt Issuance Costs - Debt issuance costs incurred in conjunction with the Credit Agreement entered into on March 6, 2015 (see Note 7) are offset against the outstanding balance of the loan payable and are amortized using the straight-line method over the remaining term of the related debt, which approximates the effective interest method. Amortization, which is included in interest expense, was $54,840 for the three months ended March 31, 2019 and $118,404 for the three months ended March 31, 2018.

 

Debt issuance costs of $35,000 incurred in conjunction with the subordinated Promissory Notes entered into on January 29, 2018 and January 30, 2018 (see Note 6) are offset against the outstanding balance of the loan payable and are amortized using the straight-line method over the remaining term of the related debt, which approximates the effective interest method. Amortization, which is included in interest expense, was $14,000 for the three months ended March 31, 2018.

 

Debt issuance costs of $60,000 incurred in conjunction with the subordinated Promissory Notes entered into on January 25, 2019 and February 19, 2019 (see Note 6) are offset against the outstanding balance of the loan payable and are amortized using the straight-line method over the remaining term of the related debt, which approximates the effective interest method. Amortization, which is included in interest expense, was $5,425 for the three months ended March 31, 2019.

 

Intangible Assets - Intangible assets consist of a patent on the Company’s LTO payment method at check-out for third party e-commerce sites. Patents are stated at cost less accumulated amortization. Patent costs are amortized by using the straight-line method over the legal life, or if shorter, the useful life of the patent, which has been estimated to be 10 years.

 

Software Costs -  Costs related to developing or obtaining internal-use software incurred during the preliminary project and post-implementation stages of an internal use software project are expensed as incurred and certain costs incurred in the project’s application development stage are capitalized as property and equipment. The Company expenses costs related to the planning and operating stages of a website. Costs associated with minor enhancements and maintenance for the website are included in expenses as incurred. Direct costs incurred in the website’s development stage are capitalized as property and equipment. Capitalized software costs amounted to $547,044 for the three months ended March 31, 2019, and $297,826 for the three months ended March 31, 2018.

 

Operating Expenses - Operating expenses include corporate overhead expenses such as salaries, stock-based compensation, insurance, occupancy, and other administrative expenses.

 

Marketing Costs - Marketing costs, primarily consisting of advertising, are charged to expense as incurred.

 

Per Share Data - Per share data is computed by use of the two-class method as a result of outstanding Series 1 Convertible Preferred Stock, which participates in dividends with the common stock and accordingly has participation rights in undistributed earnings as if all such earnings had been distributed during the period (see Note 8). Under such method income available to common shareholders is computed by deducting both dividends declared or, if not declared, accumulated on Series 2 Convertible Preferred Stock from income from continuing operations and from net income. Loss attributable to common shareholders is computed by increasing loss from continuing operations and net loss by such dividends. Where the Company has undistributed net income available to common shareholders, basic earnings per common share is computed based on the total of any dividends paid or declared per common share plus undistributed income per common share determined by dividing net income available to common shareholders reduced by any dividends paid or declared on common and participating Series 1 Convertible Preferred Stock by the total of the weighted average number of common shares outstanding plus the weighted average number of common shares issuable upon conversion of outstanding participating Series 1 Convertible Preferred Stock during the period. Where the Company has a net loss, basic per share data (including income from continuing operations) is computed based solely on the weighted average number of common shares outstanding during the period. As the participating Series 1 Convertible Preferred Stock has no contractual obligation to share in the losses of the Company, common shares issuable upon conversion of such preferred stock are not included in such computations.

 

7

 

 

Diluted earnings per share is based on the more dilutive of the if-converted method (which assumes conversion of the participating Series 1 Convertible Preferred Stock as of the beginning of the period) or the two-class method (which assumes that the participating Series 1 Convertible Preferred Stock is not converted) plus the potential impact of dilutive non-participating Series 2 Convertible Preferred Stock, options and warrants. The dilutive effect of stock options and warrants is computed using the treasury stock method, which assumes the repurchase of common shares at the average market price during the period. Under the treasury stock method, options and warrants will have a dilutive effect when the average price of common stock during the period exceeds the exercise price of options or warrants. When there is a loss from continuing operations, potential common shares are not included in the computation of diluted loss per share, since they have an anti-dilutive effect.

 

In computing diluted loss per share, no effect has been given to the issuance of common stock upon conversion or exercise of the following securities as their effect is anti-dilutive. The following table reflects a change in the conversion rates of the Series 1 Convertible Preferred Stock and Series 2 Convertible Preferred Stock due to anti-dilution adjustments as a result of FlexShopper’s September 2018 equity offering.

 

    Three Months ended  
    March 31,  
    2019     2018  
Series 1 Convertible Preferred Stock     216,637       145,197  
Series 2 Convertible Preferred Stock     5,639,745       2,710,124  
Series 2 Convertible Preferred Stock issuable upon exercise of warrants     112,785       54,217  
Common Stock Options     605,400       444,067  
Common Stock Warrants     7,222,489       511,553  
      13,797,056       3,865,158  

 

Stock-Based Compensation - The fair value of transactions in which the Company exchanges its equity instruments for employee and non-employee services (share-based payment transactions) is recognized as an expense in the financial statements as services are performed.

 

Compensation expense is determined by reference to the fair value of an award on the date of grant and is amortized on a straight-line basis over the vesting period. The Company has elected to use the Black-Scholes-Merton (BSM) pricing model to determine the fair value of all stock option awards (see Note 9).

 

Fair Value of Financial Instruments - The carrying value of loans payable under the Credit Agreement increased by unamortized issuance costs (see Note 7) and notes payable approximates fair value. The carrying value of cash, receivables, and payables approximate fair value due to their short-term nature.

 

Income Taxes - Deferred tax assets and liabilities are determined based on the estimated future tax effects of net operating loss carryforwards and temporary differences between the tax bases of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records a valuation allowance for its deferred tax assets when management concludes that it is not more likely than not that such assets will be recognized.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of March 31, 2019, and 2018, the Company had not recorded any unrecognized tax benefits.

 

Interest and penalties related to liabilities for uncertain tax positions will be charged to interest and operating expenses, respectively.

 

Recent Accounting Pronouncements - In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, on revenue recognition. The new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this guidance on January 1, 2018 but it did not have a material impact on its financial statements as a majority of the Company’s revenue generating activities are leasing arrangements, which are outside the scope of the guidance.

 

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In February 2016, the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. The Company has determined that the new standard will not materially impact the timing of revenue recognition. The new standard resulted in the Company classifying bad debt expense incurred as a reduction of lease revenue and fees within the consolidated statements of earnings including retrospective presentation of prior year financial information. As a result of the change in presentation, the breakout of Lease revenues and fees, net of lessor bad debt expense, that ties the consolidated statements of operations is shown below:

 

    Three Months ended  
    March 31,  
    2019     2018  
Lease revenues and fees   $ 29,129,723     $ 19,336,896  
Provision for doubtful accounts     7,344,944       5,175,318  
Lease revenues and fees, net of lessor bad debt expense   $ 21,784,779     $ 14,161,578  

 

The new standard also impacted the Company as a lessee by requiring all of its operating leases to be recognized on the balance sheet as a right-to-use asset and lease liability. The Company has elected a package of optional practical expedients which includes the option to retain the current classification of leases entered into prior to January 1, 2019. The Company has concluded that there is no material impact to the consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows as a result of the new standard. The Company adopted this new guidance on January 1, 2019 (see Note 4 below).

 

4. LEASES

 

Lessor Information – Refer to Note 3 to these condensed consolidated financial statements for further information about the Company’s revenue generating activities as a lessor. All of the Company’s customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.

 

Lessee Information – As a lessee, the Company leases retail, call center and corporate space under operating leases expiring at various times through 2021. At January 1, 2019, the Company recognized $191,001 of operating lease assets and $191,001 of operating lease liabilities as a result of adopting ASU 2016-02.

 

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included in the Company’s consolidated balance sheet beginning January 1, 2019. The breakout of operating lease assets, and current and non-current operating lease liabilities, is shown in the table below.

 

Supplemental balance sheet information related to leases is as follows:

 

    Balance Sheet Classification   March 31,
2019
 
Assets          
Operating Lease Asset   Property and Equipment, net   $ 131,159  
Total Lease Assets       $ 131,159  
             
Liabilities            
Operating Lease Liability   Current Operating Lease Liabilities   $ 94,249  
Operating Lease Liability   Long Term Operating Lease Liabilities     37,202  
Total Lease Liabilities       $ 131,451  

 

Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company generally uses the base, non-cancelable, lease term when determining the lease assets and liabilities. Under the short-term lease exception provided within ASC 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement.

 

Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company’s operating leases:

 

    Weighted Average Discount Rate     Weighted Average Remaining Lease Term (in years)  
Operating Leases     16.46 %     1  

 

Upon adoption of ASU 2016-02, discount rates for existing operating leases were established as of January 1, 2019.

 

Operating lease expense is recognized on a straight-line basis over the lease term within operating expenses in the Company’s consolidated statements of operations. The Company’s total operating lease expenses all relate to operating lease costs and amounted to $72,116 for the three months ended March 31, 2019.

 

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Below is a summary of undiscounted operating lease liabilities as of March 31, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the operating lease liabilities included in the consolidated balance sheet.

 

    Operating Leases  
2019   $ 98,064  
2020     27,730  
2021     21,416  
Total undiscounted cash flows     147,210  
Less: interest     (15,759 )
Present value of lease liabilities   $ 131,451  

 

The Company entered into an office lease in January 2019. Lease commencement is estimated to be May 2019, at which time the Company will recognize the operating lease asset and liability. The Company will pay a base monthly rent of $31,532 with payments increasing by 3% on each yearly anniversary of the commencement date. The initial lease term is for 9 years with the Company having a one-time option to extend for 5 years.

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

    Estimated
Useful Lives
  March 31,
2019
    December 31,
2018
 
Furniture, fixtures and vehicle   2-5 years   $ 155,165     $ 155,165  
Website and internal use software   3 years     8,645,527       8,098,483  
Computers and software   3-7 years     710,547       704,407  
          9,511,239       8,958,055  
Less: accumulated depreciation and amortization         (6,145,325 )     (5,621,391 )
Right of use assets, net of amortization         131,159       -  
        $ 3,497,073     $ 3,336,664  

  

Depreciation and amortization expense were $523,934 and $434,905 for the three months ended March 31, 2019 and 2018, respectively.

 

6. PROMISSORY NOTES

 

January 2018 Notes - On January 29, 2018 and January 30, 2018, FlexShopper, LLC entered into letter agreements with Russ Heiser, FlexShopper’s Chief Financial Officer, and NRNS Capital Holdings LLC (“NRNS”), the manager of which is the Chairman of the Company’s Board of Directors, respectively (such letter agreements, together, the “Commitment Letters”), pursuant to which FlexShopper, LLC issued a subordinated promissory note to each of Mr. Heiser and NRNS (together, the “Notes”). The Commitment Letters provided that Mr. Heiser and NRNS would each make advances to FlexShopper, LLC under the applicable Note in aggregate amounts up to $1,000,000 and $2,500,000, respectively. Payments of principal and accrued interest are due and payable by FlexShopper, LLC upon 30 days’ prior written notice from the applicable noteholder and the Company can prepay principal and interest at any time without penalty. However, repayment is not permitted without the consent of the Credit Agreement lender. The Notes bear interest at a rate equal to five (5%) per annum in excess of the non-default rate of interest from time to time in effect under the Credit Agreement entered into on March 6, 2015 (see Note 7) computed on the basis of a 360-day year, which equaled 18.48% at March 31, 2019.

 

Upon issuance of the Notes, FlexShopper, LLC drew $500,000 and a subsequent $500,000 on February 20, 2018 on the Note held by Mr. Heiser and $2,500,000 on the Note held by NRNS. On August 29, 2018, FlexShopper, LLC issued amended and restated Notes to Mr. Heiser and NRNS under which (1) the maturity date for such Notes was set at June 30, 2019 and (2) in connection with the completion of an Equity Financing (as defined in the Notes), the holders of such Notes were granted the option to convert up to 50% of the outstanding principal of the Notes plus accrued and unpaid interest thereon into the securities issued in the Equity Financing at a conversion price equal to the price paid to the Company by the underwriters for such securities, net of the underwriting discount. In connection with the offering of units in September 2018, Mr. Heiser and NRNS elected to convert the convertible portion of the Notes, resulting in the issuance by the Company of 602,974 shares of common stock and 301,487 warrants to Mr. Heiser and 1,507,395 shares of common stock and 753,697 warrants to NRNS.

 

As of March 31, 2019, $544,338 and $1,361,090 of principal and accrued and unpaid interest was outstanding on Mr. Heiser’s Note and NRNS’s Note, respectively. Interest expense incurred under the Notes amounted to $25,900 and $26,159 for Mr. Heiser’s Note and $64,756 and $76,357 for NRNS’ Note, totaling $90,656 for the three months ended March 31, 2019 and March 31, 2018 respectively.

 

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January 2019 Note - On January 25, 2019, FlexShopper, LLC entered into a letter agreement with 122 Partners, LLC (the lender), pursuant to which FlexShopper, LLC issued a subordinated promissory note to 122 Partners, LLC (the “January Note”) in the principal amount of $1,000,000. H. Russell Heiser, Jr., FlexShopper’s Chief Financial Officer, is a member of 122 Partners, LLC. The Company paid a commitment fee of 2% to the lender totaling $20,000. Payment of principal and accrued interest under the January Note is due and payable by FlexShopper, LLC on April 30, 2020 and FlexShopper, LLC can prepay principal and interest at any time without penalty. Amounts outstanding under the January Note bear interest at a rate equal to five percent (5.00%) per annum in excess of the non-default rate of interest from time to time in effect under the Credit Agreement, which equaled 18.48% at March 31, 2019. Obligations under the January Note are subordinated to obligations under the Credit Agreement. The January Note is subject to customary representations and warranties and events of default. If an event of default occurs and is continuing, FlexShopper, LLC may be required to repay all amounts outstanding under the January Note. Obligations under the January Note are secured by essentially all of FlexShopper, LLC’s assets, subject to rights of the lenders under the Credit Agreement. As of March 31, 2019, $1,035,027 of principal and accrued and unpaid interest was outstanding on the January Note.

 

February 2019 Note - On February 19, 2019, FlexShopper, LLC entered into a letter agreement with NRNS, the manager of which is the Chairman of the Company’s Board of Directors, pursuant to which FlexShopper, LLC issued a subordinated promissory note to NRNS (the “February Note”) in the principal amount of $2,000,000. The Company paid a commitment fee of 2% to the lender totaling $40,000. Payment of principal and accrued interest under the February Note is due and payable by FlexShopper, LLC on June 30, 2021 and FlexShopper, LLC can prepay principal and interest at any time without penalty. Amounts outstanding under the February Note bear interest at a rate equal to five percent (5.00%) per annum in excess of the non-default rate of interest from time to time in effect under the Credit Agreement, which equaled 18.48% at March 31, 2019. Obligations under the February Note are subordinated to obligations under the Credit Agreement. The February Note is subject to customary representations and warranties and events of default. If an event of default occurs and is continuing, FlexShopper, LLC may be required to repay all amounts outstanding under the February Note. Obligations under the February Note are secured by essentially all of FlexShopper, LLC’s assets, subject to rights of the lenders under the Credit Agreement. As of March 31, 2019, $2,041,435 of principal and accrued and unpaid interest was outstanding on the February Note.

 

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7. LOAN PAYABLE UNDER CREDIT AGREEMENT

 

On March 6, 2015, FlexShopper, through a wholly-owned subsidiary (the “Borrower”), entered into a credit agreement (as amended from time-to-time and including the Fee Letter (as defined therein), the “Credit Agreement”) with Wells Fargo Bank, National Association as paying agent, various lenders from time to time party thereto and WE 2014-1, LLC, an affiliate of Waterfall Asset Management, LLC, as administrative agent and lender (the “Lender”). The Borrower is permitted to borrow funds under the Credit Agreement based on FlexShopper’s cash on hand and the Amortized Order Value of its Eligible Leases (as such terms are defined in the Credit Agreement) less certain deductions described in the Credit Agreement. Under the terms of the Credit Agreement, subject to the satisfaction of certain conditions, the Borrower may borrow up to $32,500,000 from the Lender until the Commitment Termination Date and must repay all borrowed amounts one year thereafter, on the date that is 12 months following the Commitment Termination Date (unless such amounts become due or payable on an earlier date pursuant to the terms of the Credit Agreement). On April 1, 2019, the Commitment Termination Date was extended to February 28, 2021. The Lender was granted a security interest in certain leases as collateral under the Credit Agreement. At March 31, 2019, amounts borrowed bear interest at 13.48%.

 

The Credit Agreement provides that FlexShopper may not incur additional indebtedness (other than expressly permitted indebtedness) without the permission of the Lender and also prohibits dividends on common stock. Additionally, the Credit Agreement includes covenants requiring FlexShopper to maintain a minimum amount of Equity Book Value, maintain a minimum amount of Unrestricted Cash (including a reserve upon which the Lender may draw to satisfy unpaid amounts under the Credit Agreement) and maintain a certain ratio of Consolidated Total Debt to Equity Book Value (each capitalized term, as defined in the Credit Agreement). Upon a Permitted Change of Control (as defined in the Credit Agreement), FlexShopper must refinance the debt under the Credit Agreement, subject to the payment of an early termination fee.

 

    March 31, 2019  
    Required Covenant     Actual Position  
             
Equity Book Value not less than   $ 8,000,000     $ 9,046,095  
Unrestricted Cash greater than     1,500,000       2,647,056  
Consolidated Total Debt to Equity Book Value ratio not to exceed     4.75       3.11  

 

The Credit Agreement includes customary events of default, including, among others, failures to make payment of principal and interest, breaches or defaults under the terms of the Credit Agreement and related agreements entered into with the Lender, breaches of representations, warranties or certifications made by or on behalf of FlexShopper in the Credit Agreement and related documents (including certain financial and expense covenants), deficiencies in the borrowing base, certain judgments against FlexShopper and bankruptcy events.

 

Principal payable within twelve months of the balance sheet date based on the outstanding loan balance at such date is reflected as a current liability in the accompanying balance sheets. Interest expense incurred under the Credit Agreement amounted to $953,910 for the three months ended March 31, 2019 and $697,952 for the three months ended March 31, 2018. As of March 31, 2019, the outstanding balance under the Credit Agreement was $23,180,627. Such amount is presented in the consolidated balance sheet net of unamortized issuance costs of $277,395. The Company borrowed $1,241,328 and subsequently repaid $6,665,989  in the first quarter of 2019 as a result of the pay down of the seasonal advance. Interest is payable monthly on the outstanding balance of the amounts borrowed.

 

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8. CAPITAL STRUCTURE

 

The Company’s capital structure consists of preferred and common stock as described below:

 

Preferred Stock

 

The Company is authorized to issue 500,000 shares of $0.001 par value preferred stock. Of this amount, 250,000 shares have been designated as Series 1 Convertible Preferred Stock and 25,000 shares have been designated as Series 2 Convertible Preferred Stock. The Company’s Board of Directors determines the rights and preferences of the Company’s preferred stock.

 

  Series 1 Convertible Preferred Stock - Series 1 Convertible Preferred Stock ranks senior to common stock.

 

As of March 31, 2019, each share of Series 1 Convertible Preferred Stock was convertible into 1.26547 shares of the Company’s common stock, subject to certain anti-dilution rights. The holders of the Series 1 Convertible Preferred Stock have the option to convert the shares to common stock at any time. Upon conversion, all accumulated and unpaid dividends, if any, will be paid as additional shares of common stock. The holders of Series 1 Convertible Preferred Stock have the same dividend rights as holders of common stock, as if the Series 1 Convertible Preferred Stock had been converted to common stock.

 

68,214 shares of Series 1 Convertible Preferred Stock were converted into 86,323 shares of common stock during the three months ended March 31, 2019. As of March 31, 2019, there were 171,191 shares of Series 1 Convertible Preferred Stock outstanding, which are convertible into 216,637 shares of common stock.

 

Series 2 Convertible Preferred Stock - The Company sold to B2 FIE V LLC (the “Investor”), an entity affiliated with Pacific Investment Management Company LLC, providing 20,000 shares of Series 2 Convertible Preferred Stock (“Series 2 Preferred Stock”) for gross proceeds of $20.0 million. The Company sold an additional 1,952 shares of Series 2 Preferred Stock to a different investor for gross proceeds of $1.95 million at a subsequent closing.

 

Shares of Series 2 Preferred Stock were sold for $1,000 per share (the “Stated Value”) and accrue dividends on the Stated Value at an annual rate of 10% compounded annually. Cumulative accrued dividends as of March 31, 2019 totaled approximately $6,564,369. As of March 31, 2019, each share of Series 2 Preferred Stock was convertible into approximately 257 shares of common stock; provided the conversion rate is subject to further increase pursuant to a weighted average anti-dilution provision. The holders of the Series 2 Preferred Stock have the option to convert such shares into shares of common stock and have the right to vote with holders of common stock on an as-converted basis. If the average closing price during any 45-day consecutive trading day period or change of control transaction values the common stock at a price equal to or greater than $23.00 per share, then conversion shall be automatic. Upon a Liquidation Event or Deemed Liquidation Event (each as defined), holders of Series 2 Preferred Stock shall be entitled to receive out of the assets of the Company prior to and in preference to the common stock and Series 1 Convertible Preferred Stock an amount equal to the greater of (1) the Stated Value, plus any accrued and unpaid dividends thereon, and (2) the amount per share as would have been payable had all shares of Series 2 Preferred Stock been converted to common stock immediately before the Liquidation Event or Deemed Liquidation Event. 

 

Common Stock

 

The Company is authorized to issue 40,000,000 shares of $0.0001 par value common stock. Each share of common stock entitles the holder to one vote at all stockholder meetings. The commons stock is listed on the Nasdaq Capital Market under the symbol “FPAY.”

 

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Warrants

 

In September 2018, the Company issued warrants exercisable for 5,750,000 shares of common stock at an exercise price of $1.25 per share. The warrants are immediately exercisable and expire five years from the date of issuance. The warrants are listed on the Nasdaq Capital Market under the symbol “FPAYW.”

 

The Company also issued additional warrants exercisable for an aggregate 1,055,184 shares of common stock at an exercise price of $1.25 per warrant to Mr. Heiser and NRNS in connection with partial conversions of their promissory notes (see Note 6). The warrants are exercisable at $1.25 per share of common stock and expire on September 28, 2023.

 

In connection with the issuance of Series 2 Convertible Preferred Stock in June 2016, the Company issued to the placement agent in such offering warrants exercisable for 439 shares of Series 2 Convertible Preferred Stock at an initial exercise price of $1,250 per share, which expire seven years after the date of issuance.

 

As part of a consulting agreement with XLR8 Capital Partners LLC (the “Consultant”), an entity of which the Company’s Chairman is manager, the Company agreed to issue 40,000 warrants to the Consultant monthly for 12 months beginning on March 1, 2019 at an exercise price of $1.25 per share. The warrants are immediately exercisable and expire following the close of business on June 30, 2023. As of March 31, 2019, the Company recorded an expense of $11,200 based on the valuation of $0.28 per warrant as determined by the fair market value of is the Company’s warrants that are actively traded and listed on the Nasdaq Capital Market under the symbol “FPAYW”.

 

The following table summarizes information about outstanding stock warrants as of March 31, 2019, all of which are exercisable:

 

            Series 2 Preferred     Weighted Average
Exercise     Common Stock Warrants     Stock Warrants     Remaining
Price     Outstanding     Outstanding     Contractual Life
                   
$ 10.00       200,001             1 years
$ 5.50       177,304             3 years
$ 1.25       6,845,184             4 years
$ 1,250       -       439     4 years
          7,222,489       439      

  

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9. STOCK OPTIONS

 

On April 26, 2018 at the Company’s annual meeting, the Company’s stockholders approved the FlexShopper, Inc. 2018 Omnibus Equity Compensation Plan (the “2018 Plan”). Upon the 2018 Plan’s approval, approximately 1,057,000 shares of Company common stock were available for issuance thereunder, consisting of 750,000 shares authorized for issuance under the 2018 Plan and an aggregate 307,000 shares then remaining available for issuance under the Company’s 2007 Omnibus Equity Compensation Plan (the “2007 Plan”) and 2015 Omnibus Equity Compensation Plan (the “2015 Plan”, and together with the 2007 Plan, the “Prior Plans”). The 2018 Plan replaced the Prior Plans. No new awards will be granted under the Prior Plans; however, awards outstanding under the Prior Plans upon approval of the 2018 Plan remain subject to and will be paid under the applicable Prior Plan.

 

Grants under the 2018 Plan and the Prior Plans consist of incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, stock unit awards, dividend equivalents and other stock-based awards. Employees, directors and consultants and other service providers are eligible to participate in the 2018 Plan and the Prior Plans. Options granted under the 2018 Plan and the Prior Plans vest over periods ranging from immediately upon grant to a three-year period and expire ten years from date of grant.

 

Activity in stock options for the three months ended March 31, 2019 follows: 

 

    Number of options     Weighted average exercise price     Weighted average contractual term (years)     Aggregate
intrinsic
value
 
Outstanding at January 1, 2019     620,900     $ 3.75                  
Granted     29,000       0.87                  
Forfeited     (19,500 )     1.27               788  
Expired     (25,000 )     6.20                  
Outstanding at March 31, 2019     605,400     $ 3.59       7.92     $ 4,408  
Vested and exercisable at March 31, 2019     304,900     $ 5.39       6.58     $ -  

 

The weighted average grant date fair value of options granted during the three-month period ending March 31, 2019 was $0.34 per share. The Company measured the fair value of each option award on the date of grant using the Black-Scholes-Merton (BSM) pricing model with the following assumptions:

 

Exercise price   $ 0.87  
Expected life     5.5 years  
Expected volatility     38 %
Dividend yield     0 %
Risk-free interest rate     2.50 %

 

The expected dividend yield is based on the Company’s historical dividend yield. The expected volatility is based on the historical volatility of the Company’s common stock. The expected life is based on the simplified expected term calculation permitted by the Securities and Exchange Commission (the “SEC”), which defines the expected life as the average of the contractual term of the options and the weighted-average vesting period for all option tranches. The risk-free interest rate is based on the annual yield on the grant date of a zero-coupon U.S. Treasury bond the maturity of which equals the option’s expected life.

 

The value of stock options is recognized as compensation expense by the straight-line method over the vesting period. Compensation expense recorded for options in the statements of operations was $25,529 for the three months ended March 31, 2019 and $49,702 for the three months ended March 31, 2018. Unrecognized compensation cost related to non-vested options at March 31, 2019 amounted to approximately $163,190, which is expected to be recognized over a weighted average period of 1.91 years.

 

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10. INCOME TAXES

 

As of December 31, 2018, the Company has federal net operating loss carryforwards of approximately $75,400,000 and state net operating loss carryforwards of approximately $18,600,000 available to offset future taxable income which expire from 2024 to 2037. Losses incurred after January 1, 2018 do not expire.

 

Management believes that the federal and state deferred tax asset as of December 31, 2018 does not satisfy the realization criteria and has recorded a full valuation allowance to offset the tax asset.

 

11. SUBSEQUENT EVENTS

 

On February 21, 2019, the Company’s Board of Directors approved Amendment No. 1 to the 2018 Plan (the “2018 Plan Amendment”), subject to stockholder approval. On May 2, 2019, the Company’s stockholders approved the 2018 Plan Amendment that increased (a) the total number of shares available for issuance under the 2018 Plan by 1,000,000 shares and (b) the number of shares available for issuance as “incentive stock options” within the meaning of Internal Revenue Code Section 422 by 1,000,000 shares.

  

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing at the end of our Form 10-K for the fiscal year ended December 31, 2018. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. The “Risk Factors” section of our Form 10-K for the fiscal year ended December 31, 2018 should be read for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Executive Overview

 

The results of operations reflect the operations of FlexShopper, LLC (together with the Company and its direct and indirect wholly owned subsidiaries, “FlexShopper”), which provide certain types of durable goods to consumers on a lease-to-own (“LTO”) basis and also provides LTO terms to consumers of third-party retailers and e-retailers. FlexShopper began generating revenues from this line of business in December 2013. Management believes that the introduction of FlexShopper’s LTO programs support broad untapped expansion opportunities within the U.S. consumer e-commerce and retail marketplaces. FlexShopper and its online LTO platforms provide consumers the ability to acquire durable goods, including electronics, computers and furniture, on an affordable payment, lease basis. Concurrently, e-retailers and retailers that work with FlexShopper may increase their sales by utilizing FlexShopper’s online channels to connect with consumers that want to acquire products on an LTO basis. FlexShopper’s sales channels include (1) selling directly to consumers via the online FlexShopper.com LTO Marketplace featuring thousands of durable goods, (2) utilizing FlexShopper’s patent pending LTO payment method at check out on e-commerce sites and through in-store terminals and (3) facilitating LTO transactions with retailers that have not yet become part of the FlexShopper.com LTO marketplace.

 

Summary of Critical Accounting Policies

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  On an on-going basis, management evaluates its estimates and judgments, including those related to credit provisions, intangible assets, contingencies, litigation and income taxes.  Management bases its estimates and judgments on historical experience as well as various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, reflect the more significant judgments and estimates used in the preparation of our financial statements.

 

Accounts Receivable and Allowance for Doubtful Accounts - FlexShopper seeks to collect amounts owed under its leases from each customer on a weekly basis by charging their bank accounts or credit cards. Accounts receivable are principally comprised of lease payments currently owed to FlexShopper which are past due as FlexShopper has been unable to successfully collect in the manner described above. An allowance for doubtful accounts is estimated based upon revenues and historical experience of balances charged off as a percentage of revenues. The accounts receivable balances consisted of the following as of March 31, 2019 and December 31, 2018:

 

    March 31,
2019
    December 31,
2018
 
             
Accounts receivable   $ 12,579,684     $ 10,130,269  
Allowance for doubtful accounts     (6,069,346 )     (3,754,306 )
Accounts receivable, net   $ 6,510,338     $ 6,375,963  

 

The allowance is a significant percentage of the balance because FlexShopper does not charge off any customer account until it has exhausted all collection efforts with respect to each account including attempts to repossess items. In addition, while collections are pursued, the same delinquent customers will continue to accrue weekly charges until they are charged off. Accounts receivable balances charged off against the allowance were $5,029,829 for the three months ended March 31, 2019, and $4,428,276 for the three months ended March 31, 2018.

 

17

 

 

Lease Merchandise - Until all payment obligations required for ownership are satisfied under the lease agreement, FlexShopper maintains ownership of the lease merchandise. Lease merchandise consists primarily of residential furniture, consumer electronics, computers, appliances and household accessories and is recorded at cost net of accumulated depreciation. The Company depreciates leased merchandise using the straight-line method over the applicable agreement period for a consumer to acquire ownership, generally twelve months with no salvage value. Upon transfer of ownership of merchandise to customers resulting from satisfaction of their lease obligations, the related cost and accumulated depreciation are eliminated from lease merchandise. For lease merchandise returned or anticipated to be returned either voluntarily or through repossession, the Company provides an impairment reserve for the undepreciated balance of the merchandise net of any estimated salvage value with a corresponding charge to cost of lease revenue. The cost, accumulated depreciation and impairment reserve related to such merchandise are written off upon determination that no salvage value is obtainable. The impairment charge amounted was approximately $1,348,000 for the three months ended March 31, 2019, and $807,000 for the three months ended March 31, 2018.

 

Stock Based Compensation - The fair value of transactions in which FlexShopper exchanges its equity instruments for employee services (share-based payment transactions) is recognized as an expense in the financial statements as services are performed. Compensation expense is determined by reference to the fair value of an award on the date of grant and is amortized on a straight-line basis over the vesting period. We have elected to use the Black-Scholes-Merton pricing model (“BSM”) to determine the fair value of all stock option awards.

 

Key Performance Metrics  

 

We regularly review several metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

 

Key performance metrics for the three months ended March 31, 2019 and 2018 are as follows:

 

    Three months ended
March 31,
             
    2019     2018     $ Change     % Change  
Gross Profit:                        
Gross lease revenues and fees   $ 29,129,723     $ 19,336,896     $ 9,792,827       50.6  
Lease merchandise sold     946,618       614,518       332,100       54.0  
Gross Revenue     30,076,341       19,951,414       10,124,927       50.8  
Provision for doubtful accounts and revenue adjustments     (7,344,944 )     (5,175,318 )     (2,169,626 )     41.9  
Net revenues     22,731,397       14,776,096       7,955,301       53.8  
Cost of merchandise sold     (565,007 )     (333,763 )     (231,244 )     69.3  
Cost of lease revenues, consisting of depreciation and impairment of lease merchandise     (15,277,939 )     (10,407,746 )     (4,870,193 )     46.8  
Gross Profit   $ 6,888,451     $ 4,034,587     $ 2,853,864       70.7  
Gross profit margin     30 %     27 %                

 

    Three months ended
March 31,
             
    2019     2018     $ Change     % Change  
Adjusted EBITDA:                        
Net income/(loss)   $ 503,543     $ (2,286,344 )   $ 2,789,887       -  
Amortization of debt costs     60,265       132,404       (72,139 )     (54.5 )
Other amortization and depreciation     524,703       435,674       89,029       20.4  
Interest expense     1,121,728       801,263       320,465       40.0  
Stock compensation     25,529       49,702       (24,173 )     (48.6 )
Non recurring product/infrastructure expenses     92,297       -       92,297       -  
Adjusted EBITDA   $ 2,328,065     $ (867,301 )*   $ 3,195,366       -  

 

* Represents loss

 

18

 

 

Management believes that Gross Profit and Adjusted EBITDA provide relevant and useful information which is widely used by analysts, investors and competitors in our industry in assessing performance.

  

Adjusted EBITDA represents net income before interest, stock-based compensation, taxes, depreciation (other than depreciation of leased inventory), amortization, and one-time or non-recurring items. We believe that Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because this measure:

 

is widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company;

 

is a financial measurement that is used by rating agencies, lenders and other parties to evaluate our credit worthiness; and

 

is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting.

 

Adjusted EBITDA is a supplemental measure of FlexShopper’s performance that are neither required by, nor presented in accordance with, GAAP. Adjusted EBITDA should not be considered as a substitute for GAAP metrics such as operating loss, net income or any other performance measures derived in accordance with GAAP.

 

19

 

 

Results of Operations

 

Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018

 

The following table details operating results for the three months ended March 31, 2019 and 2018:

 

    2019     2018     $ Change     % Change  
                         
Gross lease revenues and fees   $ 29,129,723     $ 19,336,896     $ 9,792,827       50.6  
Provision for doubtful accounts     7,344,944       5,175,318       2,169,626       41.9  
Lease revenues and fees, net of bad debt expense     21,784,779       14,161,578       7,623,201       53.8  
Lease merchandise sold     946,618       614,518       332,100       54.0  
Total revenues     22,731,397       14,776,096       7,955,301       53.8  
Cost of lease revenue and merchandise sold     15,842,946       10,741,509       5,101,437       47.5  
Marketing     848,546       1,168,950       (320,404 )     (27.4 )
Salaries and benefits     1,758,087       2,179,376       (421,289 )     (19.3 )
Other operating expenses     2,596,282       2,038,938       557,344       27.3  
Operating income/(loss)     1,685,536       (1,352,677 )     3,038,213       -  
Interest expense     1,181,993       933,667       248,326       26.6  
Net income/(loss)   $ 503,543     $ (2,286,344 )   $ 2,789,887       -  

  

FlexShopper originated 29,972 gross leases less same day modifications and cancellations with an average origination value of $470 for the three months ended March 31, 2019 compared to 22,035 gross leases less same day modifications and cancellations with an average origination value of $413 for the comparable period last year. Total lease revenues for the three months ended March 31, 2019 were $21,784,779 compared to $14,161,578 for the three months ended March 31, 2018, representing an increase of $7,955,301, or 53.8%. Continued growth in repeat customers coupled with acquiring new customers with more efficient marketing spend is primarily responsible for the increase in leases and related revenue.

 

Cost of lease revenue and merchandise sold for the three months ended March 31, 2019 was $15,842,946 compared to $10,741,509 for the three months ended March 31, 2018, representing an increase of $5,101,437, or 47.5%. Cost of lease revenue and merchandise sold for the three months ended March 31, 2019 is comprised of depreciation expense on lease merchandise of $15,277,939 and the net book value of merchandise sold of $565,007. Cost of lease revenue and merchandise sold for the three months ended March 31, 2018 is comprised of depreciation expense on lease merchandise of $10,407,746 and the net book value of merchandise sold of $333,763. As the Company’s lease revenues increase, the direct costs associated with them also increase.

  

Marketing expenses in the three months ended March 31, 2019 was $848,546 compared to $1,168,950 in the three months ended March 31, 2018, a decrease of $320,404, or 27.4%. The Company strategically curtailed marketing expenditures in its digital and TV channels in an effort to reduce acquisition cost.

 

Salaries and benefits in the three months ended March 31, 2019 was $1,758,087 compared to $2,179,376 in the three months ended March 31, 2018, a decrease of $421,289, or 19.3%. Head count reduction that took place in the 4 th quarter of 2018 and more time was spent on internally developed software are the drivers for the decrease in salaries and benefits expenses.

 

20

 

 

Other operating expenses for the three months ended March 31, 2019 and 2018 included the following:

 

    Three months ended     Three months ended  
    March 31,
2019
    March 31,
2018
 
Amortization and depreciation   $ 524,703     $ 435,674  
Computer and internet expenses     350,740       363,206  
Legal and professional fees     323,349       245,976  
Merchant bank fees     445,816       318,690  
Stock compensation expense     25,529       49,702  
Customer verification expenses     422,928       235,081  
Other     503,217       390,609  
Total   $ 2,596,282     $ 2,038,938  

 

Plan of Operation

 

We promote our FlexShopper products and services across all sales channels through strategic partnerships, direct response marketing, and affiliate and internet marketing, all of which are designed to increase our lease transactions and name recognition. Our advertisements emphasize such features as instant spending limits and affordable weekly payments. We believe that as the FlexShopper name gains familiarity and national recognition through our advertising efforts, we will continue to educate our customers and potential customers about the lease-to-own payment alternative as well as solidify our reputation as a leading provider of high-quality branded merchandise and services.

 

For each of our sales channels, FlexShopper has a marketing strategy that includes the following:

 

Online LTO Marketplace   Patent pending LTO Payment Method   In-store LTO technology platform
Search engine optimization; pay-per click   Direct to retailers/e-retailers   Direct to retailers/e-retailers
Online affiliate networks   Partnerships with payment aggregators   Consultants & strategic relationships
Direct response television campaigns   Consultants & strategic relationships    
Direct mail        

 

The Company believes it has a competitive advantage over competitors in the LTO industry by providing all three channels as a bundled package to retailers and e-retailers. Management is anticipating a rapid development of the FlexShopper business as we are able to penetrate each of our sales channels. To support our anticipated growth, FlexShopper will need the availability of substantial capital resources. See the section captioned “Liquidity and Capital Resources” below.

 

21

 

 

Liquidity and Capital Resources

 

As of March 31, 2019, the Company had cash of $2,647,056 compared to $1,798,217 at the same date in 2018.

 

As of March 31, 2019, the Company had accounts receivable of $12,579,684 offset by an allowance for doubtful accounts of $6,069,346, resulting in net accounts receivable of $6,510,338. Accounts receivable are principally comprised of lease payments owed to the Company. An allowance for doubtful accounts is estimated based upon historical collection and delinquency percentages.

 

Recent Financing Activity

 

On September 28, 2018, the Company completed an offering of 10,000,000 units (the “Offering”) issued at a price of $1.00 per unit, each unit consisting of one share of the Company’s common stock and one-half (1/2) of one warrant, each whole warrant exercisable for one share of common stock at an exercise price of $1.25 per warrant. In addition, in connection with the closing of the Offering, the underwriter in the Offering partially exercised its over-allotment option under the underwriting agreement relating to the Offering by electing to purchase warrants exercisable for 750,000 shares of common stock having the same terms as the warrants sold in the Offering. The common stock and warrants included in the units sold in the Offering were immediately separable and issued separately. Net proceeds for the Offering were approximately $9.2 million, after deducting underwriting discounts and commissions and other offering expenses, of which amount the Company used approximately $2.7 million to repay indebtedness owing under the Credit Agreement. As a result of the Offering, pursuant to anti-dilution provisions, the conversion price of Series 2 Convertible Preferred Stock decreased from $8.10 per share of common stock to $2.92.

 

Pursuant to amendments to the Credit Agreement entered into prior to the Offering, upon consummation of the Offering the Commitment Termination Date (as defined in the Credit Agreement) was extended to June 30, 2019, which date was subsequently extended to February 28, 2021.

 

On January 25, 2019, FlexShopper, LLC entered into a letter agreement with 122 Partners, LLC (the lender), pursuant to which FlexShopper, LLC issued a subordinated promissory note to 122 Partners, LLC (the “January Note”) in the principal amount of $1,000,000. H. Russell Heiser, Jr., FlexShopper’s Chief Financial Officer, is a member of 122 Partners, LLC. Payment of principal and accrued interest under the January Note is due and payable by FlexShopper, LLC on April 30, 2020 and FlexShopper, LLC can prepay principal and interest at any time without penalty. Amounts outstanding under the January Note bear interest at a rate equal to five percent (5.00%) per annum in excess of the non-default rate of interest from time to time in effect under the Credit Agreement. Obligations under the January Note are subordinated to obligations under the Credit Agreement. The January Note is subject to customary representations and warranties and events of default. If an event of default occurs and is continuing, the Borrower may be required to repay all amounts outstanding under the January Note. Obligations under the January Note are secured by essentially all of FlexShopper, LLC’s assets, subject to rights of the lenders under the Credit Agreement.

 

On February 19, 2019, FlexShopper, LLC entered into a letter agreement with NRNS Capital Holdings LLC (“NRNS”), pursuant to which FlexShopper, LLC issued a subordinated promissory note to NRNS (the “February Note”) in the principal amount of $2,000,000. Payment of principal and accrued interest under the February Note is due and payable by FlexShopper, LLC on June 30, 2021 and FlexShopper, LLC can prepay principal and interest at any time without penalty. Amounts outstanding under the February Note bear interest at a rate equal to five percent (5.00%) per annum in excess of the non-default rate of interest from time to time in effect under the Credit Agreement. Obligations under the February Note are subordinated to obligations under the Credit Agreement. The February Note is subject to customary representations and warranties and events of default. If an event of default occurs and is continuing, FlexShopper, LLC may be required to repay all amounts outstanding under the February Note. Obligations under the February Note are secured by essentially all of FlexShopper, LLC’s assets, subject to rights of the lenders under the Credit Agreement.

 

22

 

 

Cash Flow Summary

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $466,654 for the three months ended March 31, 2019 and primarily consisted of lease merchandise acquired partially offset by the net income for the period.

 

Net cash used in operating activities was $2,023,358 for the three months ended March 31, 2018 primarily due to the net loss for the period.

 

Cash Flows from Investing Activities

 

For the three months ended March 31, 2019, net cash used in investing activities was $553,184 comprised of $6,140 for the purchase of property and equipment and $547,044 for capitalized software costs.

 

For the three months ended March 31, 2018, net cash used in investing activities was $307,340, comprised of $9,514 for the purchase of property and equipment and $297,826 for capitalized software costs.

 

Cash Flows from Financing Activities

 

Net cash used in financing activities was $2,474,316 for the three months ended March 31, 2019 due to loan repayments on the Credit Agreement of $6,665,989 partially offset by $2,940,000 of funds drawn on the Promissory Notes and $1,241,328 of funds drawn on the Credit Agreement.

 

Capital Resources

 

To date, funds derived from the sale of FlexShopper’s common stock, warrants and Series 2 Convertible Preferred Stock and the Company’s ability to borrow funds against the lease portfolio have provided the liquidity and capital resources necessary to fund its operations.

  

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level at March 31, 2019.

 

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

23

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS:

 

We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business, financial condition or results of operations. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.

 

ITEM 1A. RISK FACTORS:

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes to such risk factors.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

 

On March 31, 2019, the Company issued a warrant exercisable for 40,000 shares of its common stock to XLR8 Capital Partners LLC (“XLR8”) pursuant to that certain Consulting Agreement, dated February 19, 2019, by and between the Company and XLR8. The warrants are exercisable immediately at a price of $1.25 per share and will remain exercisable until June 30, 2023. In connection with the issuance of the warrants, the Company relied on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.    

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES:

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES:

 

Not applicable.

 

ITEM 5. OTHER INFORMATION:

 

Not applicable.

 

24

 

 

ITEM 6. EXHIBITS:

 

Exhibit Number   Description
3.1   Restated Certificate of Incorporation of FlexShopper, Inc. (previously filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference)
3.2   Amended and Restated Bylaws (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 10-K filed on March 11, 2019 and incorporated herein by reference)
3.3   Certificate of Amendment to the Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 21, 2018 and incorporated herein by reference)
3.4   Certificate of Amendment to the Certificate of Incorporation of the Company (previously filed as Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q filed on November 5, 2018 and incorporated herein by reference)
10.1   Commitment Letter, dated January 25, 2019, issued by FlexShopper, LLC and 122 Partners, LLC  (previously filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed on March 11, 2019 and incorporated herein by reference)
10.2   Office Lease, dated January 29, 2019, between FlexShopper, LLC and Mainstreet CV North 40, LLC (previously filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on March 11, 2019 and incorporated herein by reference)
10.3   Consulting Agreement, dated February 19, 2019, between the Company and XLR8 Capital Partners LLC (previously filed as Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed on March 11, 2019 and incorporated herein by reference)
10.4   Commitment Letter and Subordinated Promissory Note, dated February 19, 2019, issued by FlexShopper, LLC to NRNS Capital Holdings LLC (previously filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed on March 11, 2019 and incorporated herein by reference)
10.5  

Non-Employee Director Compensation Policy*+

31.1   Rule 13a-14(a) Certification - Principal Executive Officer*
31.2   Rule 13a-14(a) Certification - Principal Financial Officer*
32.1   Section 1350 Certification - Principal Executive Officer*
32.2   Section 1350 Certification - Principal Financial Officer*
101.INS   XBRL Instance Document, XBRL Taxonomy Extension Schema *
101.SCH   Document, XBRL Taxonomy Extension *
101.CAL   Calculation Linkbase, XBRL Taxonomy Extension Definition *
101.DEF   Linkbase, XBRL Taxonomy Extension Labels *
101.LAB   Linkbase, XBRL Taxonomy Extension *
101.PRE   Presentation Linkbase *

 

* Filed herewith.

+ Indicates a management contract or compensatory plan or arrangement.

 

25

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

  FLEXSHOPPER, INC.
     
Date: May 7, 2019 By: /s/ Brad Bernstein
    Brad Bernstein
    President and Principal Executive Officer

 

Date: May 7, 2019 By: /s/ Russ Heiser
    Russ Heiser
    Chief Financial Officer

 

 

26

 

 

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