FLEXSHOPPER, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The following dialogue needs to be learn along with our consolidated
monetary statements and the notes thereto showing elsewhere on this Form
10-Okay. All references to our enterprise operations seek advice from FlexShopper, LLC and
its wholly-owned subsidiaries, except the context signifies in any other case.

Overview

Since December 2013, now we have developed a enterprise that focuses on enhancing the
high quality of life of our prospects by offering them the chance to acquire
possession of high-quality sturdy merchandise, equivalent to shopper electronics, house
home equipment, computer systems (together with tablets and wearables), smartphones, tires,
jewellery and furnishings (together with equipment), beneath reasonably priced fee
lease-to-own (“LTO”) buy agreements with no long-term obligation, together with
by an in depth on-line expertise. Our prospects can purchase well-known
manufacturers equivalent to Samsung, Frigidaire, Hewlett-Packard, LG, Whirlpool, Simmons,
Philips, Ashley, Apple and extra. We consider that the introduction of
FlexShopper’s LTO packages assist broad untapped enlargement alternatives inside
the U.S. shopper e-commerce and retail marketplaces. We have efficiently
developed and are presently processing LTO transactions utilizing our “LTO Engine,”
FlexShopper’s proprietary expertise that automates the method of customers
receiving spending limits and coming into into leases for sturdy items to inside
seconds. The LTO Engine is the premise for FlexShopper’s main gross sales channels,
which embrace enterprise to shopper (“B2C”) and enterprise to enterprise (“B2B”)
channels, as described in additional element beneath. Concurrently, e-tailers and
retailers that work with FlexShopper could improve their gross sales by using
FlexShopper’s on-line channels to attach with customers that need to purchase
merchandise on an LTO foundation. FlexShopper’s gross sales channels embrace (1) promoting
on to customers through the web FlexShopper.com LTO Marketplace that includes
1000’s of sturdy items, (2) using our LTO fee methodology at check-out on
our companions’ e-commerce websites and (3) facilitating LTO transactions with
retailers of their bodily places each by their in retailer terminals and
FlexShopper functions accessed through the Internet.

In 2021, we started a check to market an unsecured, shopper mortgage product for our
financial institution accomplice that will increase our LTO resolution in retailer gross sales channels. In
2022, based mostly upon the success of this testing, we count on the advertising of our
financial institution accomplice’s loans to grow to be a strategic resolution that we provide to many of our
present prospects and by our retailer companions.

Summary of Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of
Operations discusses our monetary statements, which have been ready in
accordance with accounting ideas typically accepted within the United States of
America (“GAAP”). The preparation of these monetary statements requires
administration to make estimates and assumptions that have an effect on the reported quantities of
belongings and liabilities and the disclosure of contingent belongings and liabilities
on the date of the monetary statements and the reported quantities of income and
bills throughout the reporting interval. On an on-going foundation, administration evaluates
its estimates and judgments, together with these associated to credit score provisions,
intangible belongings, contingencies, litigation and revenue taxes. Management bases
its estimates and judgments on historic expertise in addition to numerous different
components which can be believed to be cheap beneath the circumstances, the outcomes
of which type the premise for making judgments in regards to the carrying worth of belongings
and liabilities that aren’t readily obvious from different sources. Actual outcomes
could differ from these estimates beneath totally different assumptions or circumstances.
Management believes the next essential accounting insurance policies, amongst others,
mirror the extra important judgments and estimates used within the preparation of
our monetary statements.

Accounts Receivable and Allowance for Doubtful Accounts – FlexShopper seeks to
accumulate quantities owed beneath its leases from every buyer on a weekly foundation by
charging their financial institution accounts or bank cards. Accounts receivable are
principally comprised of lease funds presently owed to FlexShopper that are
late, as FlexShopper has been unable to efficiently accumulate within the
aforementioned method and due to this fact the Company has an in-house and near-shore
workforce to gather on the late quantities FlexShopper maintains an allowance for
uncertain accounts, beneath which FlexShopper’s coverage is to document an allowance
for estimated uncollectible prices, based totally on historic assortment
expertise that considers each the getting older of the lease and the origination
channel. Other qualitative components are thought of in estimating the allowance,
equivalent to seasonality, underwriting adjustments and different enterprise tendencies. We consider
our allowance is sufficient to soak up all anticipated losses. The accounts receivable
balances consisted of the next as of December 31, 2021 and December 31,
2020:

December 31, December 31,
2021 2020
Accounts receivable $ 57,602,269 $ 32,171,255

Allowance for uncertain accounts (27,703,278 ) (22,138,541 )
Accounts receivable, internet $ 29,898,991 $ 10,032,714

20

The allowance for uncertain accounts is a major share of the stability
as a result of FlexShopper doesn’t cost off any buyer account till it has
exhausted all assortment efforts with respect to every account, together with
makes an attempt to repossess objects. In addition, whereas collections are pursued, the
similar delinquent prospects will proceed to accrue weekly prices till all
assortment efforts are exhausted. During the years ended December 31, 2021 and
2020, $34,924,803 and $19,769,114 of accounts receivable balances, respectively,
had been charged off towards the allowance.

December 31, December 31,
2021 2020
Beginning stability $ 22,138,541 $ 9,976,941
Provision 40,489,540 31,930,714
Accounts written off (34,924,803 ) (19,769,114 )
Ending stability $ 27,703,278 $ 22,138,541

Lease Merchandise – Until all fee obligations for possession are happy
beneath the lease settlement, the Company maintains possession of the lease
merchandise. Lease merchandise consists primarily of residential furnishings,
shopper electronics, computer systems, home equipment and family equipment and is
recorded at value internet of amassed depreciation. The Company depreciates leased
merchandise utilizing the straight-line methodology over the relevant settlement interval
for a shopper to accumulate possession, typically twelve months with no salvage
worth. Upon switch of possession of merchandise to prospects ensuing from
satisfaction of their lease obligations, the associated value and amassed
depreciation are eradicated from lease merchandise. For lease merchandise
returned or anticipated to be returned both voluntarily or by
repossession, the Company offers an impairment reserve for the undepreciated
stability of the merchandise internet of any estimated salvage worth with a
corresponding cost to value of lease income. The value, amassed
depreciation and impairment reserve associated to such merchandise are written off
upon dedication that no salvage worth is obtainable.

The internet leased merchandise balances consisted of the next as of December
31, 2021 and December 31, 2020:

December 31, December 31,
2021 2020
Lease merchandise at value $ 72,159,063 $ 64,335,971
Accumulated depreciation (29,505,431 ) (19,162,357 )
Impairment reserve (1,711,520 ) (2,351,274 )
Lease merchandise, internet $ 40,942,112 $ 42,822,340

Cost of lease merchandise bought represents the undepreciated value of rental
merchandise on the time of sale.

Stock Based Compensation – The truthful worth of transactions during which the Company
exchanges its fairness devices for worker companies (share-based fee
transactions) is acknowledged as an expense within the monetary statements as
companies are carried out. Compensation expense is set by reference to the
truthful worth of an award on the date of grant and is acknowledged on a straight-line
foundation over the vesting interval. We have elected to make use of the Black Scholes pricing
mannequin (BSM) to find out the truthful worth of all inventory choice awards.

21

Key Performance Metrics

We frequently assessment a quantity of metrics, together with the next key metrics, to
consider our enterprise, measure our efficiency, establish tendencies affecting our
enterprise, formulate monetary projections and make strategic selections. Key
efficiency metrics for the years ended December 31, 2021 and 2020 are as
follows:

Gross Profit 2021 2020 $ Change % Change
Gross lease billings and charges $ 158,844,724 $ 128,870,481

$ 29,974,243 23.3
Lease merchandise bought 7,071,572 5,144,747 1,926,825 37.5
Gross billings 165,916,296 134,015,228 31,901,068 23.8

Provision for uncertain accounts (40,489,540 ) (31,930,714 ) (8,558,826 ) 26.8
Net revenues 125,426,756 102,084,514 23,342,242 22.9
Cost of lease revenues, consisting of
depreciation and impairment of lease
merchandise (73,616,293 ) (63,308,210 ) (10,308,083 ) 16.3
Cost of merchandise bought (5,561,593 ) (3,424,880 ) (2,136,713 ) 62.4
Gross revenue $ 46,248,870 $ 35,351,424 $ 10,897,446 30.8
Gross revenue margin 37 % 35 %

Adjusted EBITDA 2021 2020 $ Change % Change
Net revenue/ (loss) $ 3,272,774 $ (339,896 ) $ 3,612,670 1,062.9
Provision for revenue taxes 785,310 663,050 122,260 18.4
Amortization of debt prices 220,816 305,797 (84,981 ) (27.8 )
Other amortization and depreciation 2,875,902 2,271,287

604,615 26.6
Interest expense 5,017,744 3,996,764 1,020,980 25.5
Stock compensation 1,125,819 981,261 144,558 14.7

Product/ infrastructure expense 10,000 299,287 (289,287 ) (96.7 )
Warrants compensation- consulting settlement – 139,480 (139,480 ) –
Gain on debt extinguishment (1,931,825 ) – (1,931,825 ) –
Executive separation settlement – 396,090

(396,090 ) –
Adjusted EBITDA $ 11,376,540 $ 8,713,120 $ 2,663,420 30.6

We seek advice from Gross Profit and Adjusted EBITDA within the above tables as we use these
measures to guage our working efficiency and make strategic selections
in regards to the Company. Management believes that Gross Profit and Adjusted EBITDA
present related and helpful info which is broadly utilized by analysts,
traders and rivals in our trade in assessing efficiency.

Gross Profit represents GAAP income much less the supply for uncertain accounts
and value of leased stock and stock bought as a share of value of these
revenues. Gross Profit offers us with an understanding of the outcomes from the
main operations of our enterprise. We use Gross Profit to guage our
period-over-period working efficiency. This measure could also be helpful to an
investor in evaluating the underlying working efficiency of our enterprise.

Adjusted EBITDA is a supplemental measure of FlexShopper’s efficiency that’s
neither required by, nor offered in accordance with, GAAP. Adjusted EBITDA
shouldn’t be thought of as substitutes for GAAP metrics equivalent to working
revenue/ (loss), internet revenue or another efficiency measures derived in
accordance with GAAP.

Adjusted EBITDA represents internet revenue earlier than curiosity, stock-based compensation,
taxes, depreciation (aside from depreciation of leased stock), amortization
and one-time or non-recurring objects. We consider that Adjusted EBITDA offers us
with an understanding of one facet of earnings earlier than the affect of investing
and financing prices and revenue taxes. Adjusted EBITDA could also be helpful to an
investor in evaluating our working efficiency and liquidity as a result of this
measure:

? is broadly utilized by traders to measure an organization’s working efficiency

with out regard to objects excluded from the calculation of such measure, which

can range considerably from firm to firm.

? is a monetary measurement that’s utilized by ranking companies, lenders and different

events to guage our credit score worthiness; and

? is utilized by our administration for numerous functions, together with as a measure of

efficiency and as a foundation for strategic planning and forecasting.

22

Results of Operations

The following desk particulars working outcomes for the twelve months ended
December 31, 2021 and 2020:

2021 2020 $ Change % Change
Gross lease billings and charges $ 158,844,724 $ 128,870,481 $ 29,974,243 23.3
Provision for uncertain accounts (40,489,540 ) (31,930,714 ) (8,558,826 ) 26.8
Net lease billing and charges 118,355,184 96,939,767

21,415,417 22.1
Lease merchandise bought 7,071,572 5,144,747 1,926,825 37.5
Total revenues 125,426,756 102,084,514 23,342,242 22.9
Cost of lease income and merchandise
bought (79,177,886 ) (66,733,090 ) (12,444,796 ) 18.6
Marketing (9,129,062 ) (5,880,063 ) (3,248,999 ) 55.3
Salaries and advantages (11,489,208 ) (10,440,693 ) (1,048,515 ) 10.0

Other working bills (18,265,781 ) (14,404,953 ) (3,860,828 ) 26.8
Operating revenue 7,364,819 4,625,715 2,739,104 59.2
Gain on extinguishment of debt 1,931,825 – 1,931,825 –
Interest expense together with amortization
of debt issuance prices (5,238,560 ) (4,302,561 ) (935,999 ) 21.8
Provision for incomes taxes (785,310 ) (663,050

) (122,260 ) 18.4
Net revenue/ (loss) $ 3,272,774 $ (339,896 ) $ 3,612,670 1,062.9

FlexShopper originated 159,217 gross leases much less similar day modifications and
cancellations with a median origination worth per lease of $524 for the twelve
months ended December 31, 2021 in comparison with 188,468 gross leases much less similar day
modifications and cancellations with a median origination worth of $468 per
lease for the comparable interval final 12 months. Total lease revenues for the twelve
months ended December 30, 2021 had been $118,355,184 in comparison with $96,939,767 for the
twelve months ended December 31, 2020, representing a rise of $21,415,417
or 22.1%. In 2020, authorities stimulus packages had a major affect on our
prospects. Despite originating a higher quantity of gross leases and gross lease
{dollars} in 2020, the unprecedented quantity of authorities stimulus in 2020
resulted in a bigger portion of our buyer base paying off leases early
thereby decreasing lease income. In 2021, because of this of enhancements to our
web site and advertising packages, the Company has been rising the common
origination worth per lease. Coupled with the return to pre-stimulus early
payoff conduct, 2021 resulted in higher lease income in comparison with 2020. The
provision for uncertain accounts relative to gross lease billings and charges are
related for each years at roughly 25%.

Cost of lease income and merchandise bought for the twelve months ended December
31, 2021 was $79,177,886 in comparison with $66,733,090 for the twelve months ended
December 31, 2020, representing a rise of $12,444,796 or 18.6%. Cost of
lease income and merchandise bought for the twelve months ended December 31, 2021
is comprised of depreciation expense and impairment of lease merchandise of
$73,616,293 and the online ebook worth of merchandise bought of $5,561,593. Cost of
lease income and merchandise bought for the twelve months ended December 31, 2020
is comprised of depreciation expense and impairment of lease merchandise of
$63,308,210 and the online ebook worth of merchandise bought of $3,424,880. As the
Company’s lease portfolio and revenues improve, the depreciation and associated
prices related to the bigger portfolio additionally improve. The combine of early paid
off leases and returned merchandise will alter the common depreciable time period of
the leases throughout the portfolio and lead to will increase or decreases in value of
lease income and merchandise bought relative to lease income.

Marketing bills within the twelve months ended December 31, 2021 had been $9,129,062
in comparison with $5,880,063 within the twelve months ended December 31, 2020, a rise
of $3,248,999 or 55.3%. The Company strategically elevated advertising
expenditures, that are primarily associated to rising new lease customers to
develop the lease portfolio. The main supply of new customers is thru digital
advertising channels directing potential customers to FlexShopper.com. The focus
on digital advertising permits the Company to have enhanced reporting on the
effectiveness of advertising spending to make sure that it’s buying prospects at
its focused acquisition value. A smaller portion of advertising expense is expounded
to commissions associated to retail partnerships in addition to remarketing efforts to
drive repeat shopper exercise.

Salaries and advantages within the twelve months ended December 30, 2021 had been
$11,489,208 in comparison with $10,440,693 within the twelve months ended December 30,
2020, a rise of $1,048,515 or 10.0%. Generally, the wage and advantages
expense ought to directionally transfer with the change in lease originations and the
total measurement of the lease portfolio albeit at a slower charge. During the second
quarter of 2021, there have been some administration positions stuffed in operational
roles to extend efficiencies within the name middle and different operational
departments. The firm additionally expanded its gross sales workforce to assist the expansion

with
the retail companions.

23

Other working bills for the years ended December 30, 2021 and 2020 included
the next:

2021 2020

Amortization and depreciation $ 2,875,902 $ 2,271,287
Computer and web bills 3,329,532 1,849,641
Legal and skilled charges 3,221,667 1,932,287
Merchant financial institution charges
2,472,489 1,879,978
Customer verification bills 1,991,111 2,791,114
Stock compensation expense 1,125,819 981,261
Telephone and workplace bills 918,374 462,740
Rent expense 670,951 680,153
Insurance expense 542,620 488,257
Other 1,117,316 1,068,235
Total $ 18,265,781 $ 14,404,953

Computer and web bills within the twelve months ended December 31, 2021 had been
$3,329,532 in comparison with $1,849,641 within the twelve months ended December 30, 2020,
representing a rise of $1,479,891 or 80.0%. A good portion of
pc and web expense is expounded to scaling each the patron dealing with
web site and the Company’s back-end billing and assortment techniques. As the lease
portfolio grows, the back-office techniques might want to scale additionally however at a a lot
decrease charge. In the final two quarters of 2021, there have been some further prices
associated to the creation and optimization of new operational processes.

Legal and skilled charges bills within the twelve months ended December 31,
2021 had been $3,221,667 in comparison with $1,932,287 within the twelve months ended December
31, 2020, representing a rise of $1,289,380 or 66.7%. During the second
quarter of 2021, the Company onboarded two off-shore servicing and collections
choices to enhance flexibility round seasonal name middle site visitors and enhance
operational metrics. Also, the expense recorded for warrants granted as half of
the consulting settlement with XLR8 Capital Partner elevated within the twelve month
interval ended December 31, 2021 because the weighted common valuation per warrant was
$1.63 within the twelve months ended December 31, 2021 in comparison with $0.85 per warrant
for a similar interval in 2020.

Merchant financial institution charges bills within the twelve months ended December 31, 2021 had been
$2,472,489 in comparison with $1,879,978 within the twelve months ended December 31, 2020,
representing a rise of $592,511 or 31.5%. Merchant financial institution charge expense
represents the ACH and card processing charges associated to billing customers and
due to this fact a rise in income is the primary driver for the rise in service provider
financial institution charges.

Customer verification bills within the twelve months ended December 31, 2021 had been
$1,991,111 in comparison with $2,791,114 within the twelve months ended December 31, 2020,
representing an lower of $800,003 or 28.7%. Customer verification expense is
primarily the fee of knowledge used for underwriting new lease candidates. The
quantity of new lease candidates for which buyer verification checks are run
and bills incurred, is immediately correlated with adjustments in advertising expense.
During the third quarter of 2021, a number of adjustments remarked by the implementation
of a extra self-discipline course of round knowledge procurement and storage, had been made by
the Company. Those enhancements triggered a change within the estimate of the
likelihood to supply future financial profit of some knowledge value. As a consequence of
this variation within the estimate concerning the portion of knowledge prices incurred that
will not be immediately utilized in underwriting selections and which can be possible of
offering future financial profit, the Company capitalized $884,160 of knowledge
prices within the 12 months ended December 31, 2021. Also, the discount within the quantity of
leases for the 12 months ended December 31, 2021 contributed to the lower of
buyer verification bills. The underwriting and knowledge science workforce continues
to optimize the prices associated to underwriting lease functions.

Telephone and workplace bills within the twelve months ended December 31, 2021 had been
$918,374 in comparison with $462,740 within the twelve months ended December 30, 2020,
representing a rise of $455,634 or 98.5%. The enchancment to operations
features a revamping of our phone system which elevated the amount of
outbound calls and created extra efficiencies in dealing with inbound calls.

24

Operations

We promote our FlexShopper merchandise and companies throughout all gross sales channels
by strategic partnerships, direct response advertising, and affiliate and
web advertising, all of that are designed to extend our lease transactions
and identify recognition. Our commercials emphasize such options as immediate
spending limits, and reasonably priced weekly funds. We consider that because the
FlexShopper identify positive aspects familiarity and nationwide recognition by our
promoting efforts, we are going to proceed to teach our prospects and potential
prospects in regards to the LTO fee various in addition to solidify our status
as a number one supplier of high-quality branded merchandise and companies.

For every of our gross sales channels, FlexShopper has a multichannel,
analytics-powered advertising technique that features the next:

Patented LTO Payment In-store LTO expertise
Online LTO Marketplace Method platform
Search engine
optimization; pay-per Direct to Direct to
click on retailers/e-tailers retailers/e-tailers

Partnerships with fee Consultants &
strategic

Online affiliate networks aggregators
relationships

Direct response tv Consultants & strategic

campaigns relationships
Direct mail

The Company believes it has a aggressive benefit over rivals within the LTO
trade by offering all three channels as a bundled bundle to retailers and
e-tailers. Management is anticipating a fast improvement of the FlexShopper
enterprise as we’re capable of penetrate every of our gross sales channels. To assist our
anticipated development, FlexShopper will want the supply of substantial
capital sources. See “Liquidity and Capital Resources” beneath.

Liquidity and Capital Resources

As of December 31, 2021, the Company had money of $5,094,642 in comparison with
$8,541,232 as of December 31, 2020.

As of December 31, 2021, the Company had accounts receivables of $57,602,269 internet
of an allowance for uncertain accounts of $27,703,278 totaling $29,898,991.
Accounts receivables are principally comprised of lease funds owed to the
Company. An allowance for uncertain accounts is estimated based mostly upon historic
assortment and delinquency percentages.

Credit Agreement

On March 6, 2015, FlexShopper, by a wholly-owned subsidiary (the
“Borrower”), entered right into a credit score settlement (as amended now and again and
together with the Fee Letter (as outlined therein), the “Credit Agreement”) with
Wells Fargo Bank, National Association as paying agent, numerous lenders from
time to time celebration 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 beneath the Credit Agreement based mostly on FlexShopper’s
just lately collected funds and the Amortized Order Value of its Eligible Leases
(as such phrases are outlined within the Credit Agreement) much less sure deductions
described within the Credit Agreement. Under the phrases of the Credit Agreement,
topic to the satisfaction of sure circumstances, the Borrower could presently
borrow as much as $57,500,000 from the Lender till the Commitment Termination Date
and should repay all borrowed quantities one 12 months thereafter, on the date that’s 12
months following the Commitment Termination Date (except such quantities grow to be due
or payable on an earlier date pursuant to the phrases of the Credit Agreement). On
January 29, 2021, pursuant to an modification to the Credit Agreement, the
Commitment Termination Date was prolonged to April 1, 2024, the Lender was
granted a safety curiosity in sure leases as collateral beneath the Credit
Agreement and the rate of interest charged on quantities borrowed was set at LIBOR
plus 11% each year.

The Credit Agreement offers that FlexShopper could not incur further
indebtedness (aside from expressly permitted indebtedness) with out the
permission of the Lender and additionally prohibits dividends on frequent inventory.
Additionally, the Credit Agreement consists of covenants requiring FlexShopper to
preserve a minimal quantity of Equity Book Value, preserve a minimal quantity of
money and liquidity and preserve a sure ratio of Consolidated Total Debt to
Equity Book Value (every capitalized time period, as outlined within the Credit Agreement).
Upon a Permitted Change of Control (as outlined within the Credit Agreement),
FlexShopper could refinance the debt beneath the Credit Agreement, topic to the
fee of an early termination charge.

25

In addition, the Lender and its associates have a proper of first refusal on
sure FlexShopper transactions involving leases or different monetary merchandise.
The Credit Agreement consists of customary occasions of default, together with, amongst
others, failures to make fee of principal and curiosity, breaches or defaults
beneath the phrases of the Credit Agreement and associated agreements entered into with
the Lender, breaches of representations, warranties or certifications made by or
on behalf of the Borrower within the Credit Agreement and associated paperwork
(together with sure monetary and expense covenants), deficiencies within the
borrowing base, sure judgments towards the Borrower and chapter occasions.

As of December 31, 2021, the Company had roughly $5,300,000 obtainable
beneath the Credit Agreement.

On March 5, 2021, the relevant regulators introduced that LIBOR will stop to
be offered and will not be consultant (i) instantly after December
31, 2021 for all sterling, euro, Swiss franc and Japanese yen settings, and the
one-week and two-month U.S. greenback settings and (ii) instantly after June
30,2023 for the remaining U.S. greenback settings. The Company’s debt bears
curiosity based mostly on the one-month LIBOR charge. If there’s a LIBOR Disruption Event
as outlined within the Credit Agreement, LIBOR will likely be changed with the Prime Rate.

Financing Activity

On January 25, 2019, FlexShopper, LLC (the “Borrower”) entered right into a
subordinated debt financing letter settlement with 122 Partners, LLC, as lender,
pursuant to which FlexShopper, LLC issued a subordinated promissory be aware to 122
Partners, LLC (the “122 Partners Note”) within the principal quantity of $1,000,000.
H. Russell Heiser, Jr., FlexShopper’s Chief Financial Officer, is a member of
122 Partners, LLC. Payment of the principal quantity and accrued curiosity beneath
the 122 Partners Note was due and payable by the borrower on April 30, 2020 and
the borrower can prepay principal and curiosity at any time with out penalty.
Amounts excellent beneath the 122 Partners Note bear curiosity at a charge equal to
5.00% each year in extra of the non-default charge of curiosity now and again
in impact beneath the Credit Agreement. Obligations beneath the 122 Partners Note
are subordinated to obligations beneath the Credit Agreement. The 122 Partners
Note is topic to customary representations and warranties and occasions of
default. If an occasion of default happens and is constant, the Borrower could also be
required to repay all quantities excellent beneath the 122 Partners Note.
Obligations beneath the 122 Partners Note are secured by considerably all of the
Borrower’s belongings, topic to the senior rights of the lenders beneath the Credit
Agreement. On April 30, 2020, pursuant to an modification to the subordinated debt
financing letter settlement, the Borrower and 122 Partners, LLC agreed to increase
the maturity date of the 122 Partners Note to April 30, 2021. On March 22, 2021,
FlexShopper, LLC executed an modification to the 122 Partners Note such that the
maturity date of the 122 Partners Note was prolonged to April 1, 2022. No different
adjustments had been made to such Note. As of December 30, 2021, $1,011,439 of principal
and accrued and unpaid curiosity was excellent on the 122 Partners Note.

The Borrower beforehand entered into letter agreements with NRNS Capital
Holdings LLC (“NRNS”), the supervisor of which is the Chairman of the Company’s
Board of Directors, pursuant to which the Borrower issued subordinated
promissory notes to NRNS (the “NRNS Note”) within the whole principal quantity of
$3,750,000. Payment of principal and accrued curiosity beneath the NRNS Note was
due and payable by the Borrower on June 30, 2021 and FlexShopper, LLC can prepay
principal and curiosity at any time with out penalty. Amounts excellent beneath
the NRNS Note bear curiosity at a charge equal to five.00% each year in extra of the
non-default charge of curiosity now and again in impact beneath the Credit
Agreement. Obligations beneath the NRNS Note are subordinated to obligations beneath
the Credit Agreement. The NRNS Note is topic to customary representations and
warranties and occasions of default. If an occasion of default happens and is
persevering with, the Borrower could also be required to repay all quantities excellent beneath
the NRNS Note. Obligations beneath the NRNS Note is secured by considerably all
of the Borrower’s belongings, topic to rights of the lenders beneath the Credit
Agreement. On March 22, 2021, FlexShopper, LLC executed an modification to the NRNS
Note such that the maturity date was prolonged to April 1, 2022. On February 2,
2022, FlexShopper LLC executed different modification to the NRNS Note. This final
modification prolonged the maturity date from April 1, 2022 to July 1, 2024 and
elevated the credit score dedication from $3,750,000 to $11,000,000. No different adjustments
had been made to such Note. As of December 30, 2021, $3,792,923 of principal and
accrued and unpaid curiosity was excellent on the NRNS Note.

The Company utilized for and obtained a mortgage (the “Loan”) on May 4, 2020, from
Customers Bank (the “PPP Lender”) within the principal quantity of $1,914,100,
pursuant to the Paycheck Protection Program (the “PPP”) beneath the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted
March 27, 2020, and administered by the U.S. Small Business Administration
(the “SBA”).

The Loan was evidenced by a promissory be aware (the “Note”), dated April 30, 2020,
issued by the Borrower to the PPP Lender. The Note matured on April 30, 2022 and
bore curiosity on the charge of 1.00% each year, payable month-to-month commencing the
later of on November 30, 2020 or the SBA assessment of the forgiveness software.
The Note could be pay as you go by the Borrower at any time previous to maturity with no
prepayment penalty. Proceeds from the Loan had been obtainable to the Borrower to
fund designated bills, together with sure payroll prices, group well being care
advantages and different permitted bills, in accordance with the PPP. Under the
phrases of the PPP, as much as your entire sum of the principal quantity and accrued
curiosity could be forgiven to the extent the Loan proceeds had been used for
qualifying bills as described within the CARES Act and relevant implementing
steering issued by the U.S. Small Business Administration beneath the PPP.

On June 21, 2021 we had been notified that efficient April 7, 2021, the U.S. Small
Business Administration confirmed the waiver of FlexShopper’s compensation of a
$1,914,000 Paycheck Protection Program promissory be aware issued to the Company on
May 4, 2020. As a consequence of the PPP promissory be aware forgiveness, the Company
acknowledged a achieve from the extinguishment of the mortgage, together with accrued
curiosity, of $1,931,825.

26

Cash Flow Summary

Cash Flows from Operating Activities

Net money utilized in working actions was $11,256,031 for the 12 months ended
December 31, 2021 and was primarily because of the purchases of leased merchandise
and the change in accounts receivable, partially offset by the add again of
provision for uncertain accounts and the add again of depreciation and impairment
on leased merchandise.

Net money utilized in working actions was $5,207,547 for the 12 months ended December
31, 2020 and was primarily because of the purchases of leased merchandise and the
change in accounts receivable, partially offset by the add again of provision for
uncertain accounts and the add again of depreciation and impairment on leased
merchandise.

Cash Flows from Investing Activities

For the 12 months ended December 31, 2021, internet money utilized in investing actions was
$4,949,544 comprised of $1,248,445 for the acquisition of property and tools
and $3,701,099 for capitalized software program prices and knowledge prices.

For the 12 months ended December 31, 2020, internet money utilized in investing actions was
$3,098,194 comprised of $732,582 for the acquisition of property and tools and
$2,365,612 for capitalized software program prices.

Cash Flows from Financing Activities

Net money offered by financing actions was $12,758,985 for the 12 months ended
December 31, 2021 primarily because of the funds drawn on the Credit Agreement of
$19,850,000, offset by repayments of quantities borrowed beneath the Credit Agreement
of $6,575,000.

Net money offered by financing actions was $9,978,501 for the 12 months ended
December 31, 2020 primarily because of the funds drawn on the Credit Agreement of
$15,033,000 and $1,914,100 of proceeds obtained beneath the Paycheck Protection
Program, offset by repayments of quantities borrowed beneath the Credit Agreement of
$7,023,250.

Capital Resources and Financial Condition

To date, funds derived from the sale of FlexShopper’s frequent inventory, warrants,
Series 1 Convertible Preferred Stock and Series 2 Convertible Preferred Stock
and the Company’s skill to borrow funds towards the lease portfolio have
offered the liquidity and capital sources essential to fund its operations.

Management believes that liquidity wants for future development by not less than the
subsequent 12 months could be met by money movement from operations generated by the present
portfolio and/or further borrowings towards the Credit Agreement (see Note 6)
and towards the associated events promissory notes (NRNS Note, see Note 5).

Financial Impact of COVID-19 Pandemic

The COVID-19 Pandemic and the associated stimulus packages had, and could proceed to
have, an affect on the Company. The instant affect early within the second quarter
of 2020 was a transition to a major share of the Company’s workers
working remotely. Fortunately, our South Florida location requires an intensive
Hurricane Impact plan enabling all our workers to work remotely, if needed.
All workers, through specifically configured laptops, are capable of entry the identical
knowledge and have the identical performance as in the event that they had been within the workplace. Throughout
the pandemic, FlexShopper rotated choose teams of workers into the workplace in
order to regulate to the opposite enterprise impacts on the enterprise. As of the tip of
December 2021, roughly 15% of our workers are working remotely.

The different impacts to the enterprise could be damaged into three classes. The first
is the lower within the availability of our lease financing product.
Pre-COVID-19, roughly 40% of new prospects had been obtained by brick and
mortar or B2B retailers. The pandemic-related closing and restricted operations of
retailers, in addition to shelter in place orders, restricted our new prospects from
this channel considerably over the second quarter and third quarter of 2020.
Through the primary half of the second quarter of 2021 there was diminished demand
from our B2B retailers ensuing from pandemic associated points. Moreover, since
the disaster started, a quantity of our brick and mortar rollouts and pilots have been
delayed or placed on maintain as our retailer companions try to return to a extra
secure operational surroundings. Fortunately, by the tip of 2021, the proportion
of new prospects obtained from brick and mortar places exceeded pre-pandemic
ranges.

27

The second affect was a Company response within the second quarter of 2020 to the
uniqueness of the pandemic. Not understanding what the potential affect to shopper
fee patterns could be, the Company considerably tightened approval charges.
It was not till the tip of the third quarter of 2020, that approval charges
returned to the pre-pandemic ranges. This decreased approval charge, each on-line
and in third celebration shops, coupled with the retailer closures talked about above,
considerably lowered new lease originations. In 2021, the individuality of the
pandemic had resulted in important development in BNPL (purchase now pay later) choices
that had been provided to our shopper section. Despite a return to close pre-pandemic
approval charges, the Company nonetheless skilled lowered demand for its product in
2021.

The third affect was on shopper conduct and fee patterns. The mixture
of stimulus funds and enhanced unemployment advantages measures offered by the
Federal and/ or State Government all through 2020 and early 2021 had been particularly
impactful to our typical buyer. As a consequence of enhanced revenue, the demand
for our merchandise was lowered, the chance of customers selecting early payoff
choices elevated considerably and, on a constructive be aware, the asset stage
efficiency of our full-term buyer, relative to their anticipated efficiency,
elevated considerably. The first signal of the return to extra regular fee
patterns was a discount within the elevated quantity of early pay offs skilled by
the Company which occurred within the center of 2021.

Despite the supply of COVID-19 vaccines in 2021, the quantity of COVID-19
instances had elevated at numerous occasions all through 2021 because the consequence of the
look of new variants.

As of the tip of 2021, the lowered demand was evident in our digital advertising
channels by the conversion charge of new candidates. However, the improved
fee efficiency, versus our anticipated efficiency, started to wane which might
appear to be a possible preliminary indicator of a return to the Pre-COVID-19
surroundings.

Finally, all through the pandemic, the Company has been capable of develop the general
measurement of the lease portfolio, internet of early payoffs, regardless of the objects talked about
beforehand. At no level, have there been liquidity issues or covenant
problems. In truth, our credit score facility was upsized, our product breadth
elevated and our covenants lowered in 2021.

Off-Balance Sheet Arrangements

The Company doesn’t have any off-balance sheet preparations.© Edgar Online, supply Glimpses

https://www.marketscreener.com/quote/stock/FLEXSHOPPER-INC-32000324/news/FLEXSHOPPER-INC-Management-s-Discussion-and-Analysis-of-Financial-Condition-and-Results-of-Operat-39915070/

Recommended For You