FlexShopper(FPAY) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Presents FlexShopper, Inc.'s unaudited consolidated financial statements for Q3 and nine months ended September 30, 2021, covering balance sheets, operations, cash flows, and notes Consolidated Balance Sheets As of September 30, 2021, FlexShopper's total assets decreased to $64.6 million from $68.2 million, while total liabilities decreased to $49.3 million from $57.1 million, leading to an increase in total stockholders' equity to $15.2 million from $11.2 million Consolidated Balance Sheet Highlights (unaudited) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $3,147,926 | $8,541,232 | | Accounts receivable, net | $19,651,250 | $10,032,714 | | Lease merchandise, net | $33,332,854 | $42,822,340 | | Total Assets | $64,555,540 | $68,249,379 | | Liabilities & Equity | | | | Total current liabilities | $12,387,089 | $17,067,745 | | Loan payable under credit agreement | $34,205,693 | $37,134,009 | | Total Liabilities | $49,319,353 | $57,095,333 | | Total Stockholders' Equity | $15,236,187 | $11,154,046 | Consolidated Statements of Operations For Q3 2021, total revenues increased 25.6% to $30.9 million, with net income rising significantly to $1.7 million; for the nine months, revenues grew 27.6% to $94.3 million, and net income reached $2.6 million, boosted by a $1.9 million gain on debt extinguishment Key Operating Results (unaudited) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $30,860,935 | $24,570,064 | $94,333,158 | $73,942,941 | | Operating Income | $3,865,869 | $1,240,696 | $6,477,116 | $3,293,066 | | Net Income | $1,696,023 | $289,360 | $2,639,454 | $78,983 | | Diluted EPS | $0.05 | $(0.02) | $0.03 | $(0.12) | Consolidated Statements of Changes in Stockholders' Equity For the nine months ended September 30, 2021, total stockholders' equity increased from $11.2 million to $15.2 million, driven by net income and stock-based compensation expenses - Total stockholders' equity grew to $15,236,187 as of September 30, 2021, up from $11,154,046 at the beginning of the year[15] Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash provided by operating activities was $1.2 million, while investing and financing activities used $3.5 million and $3.1 million respectively, resulting in a $5.4 million decrease in cash Cash Flow Summary (Nine Months Ended Sep 30, 2021) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $1,159,828 | | Net cash used in investing activities | $(3,459,424) | | Net cash used in financing activities | $(3,093,710) | | Decrease in Cash | $(5,393,306) | Notes To Consolidated Financial Statements Detailed notes explain accounting policies, LTO business model, revenue recognition, debt, capital structure, and PPP loan forgiveness - The company's business involves providing durable goods to consumers on a lease-to-own (LTO) basis through e-commerce sites, with revenue recognized as operating lease income[24][27] - On June 21, 2021, the company's $1.914 million Paycheck Protection Program (PPP) loan was forgiven, resulting in a recognized gain of $1,931,825[104] - The company is subject to a regulatory inquiry from the California Department of Financial Protection and Innovation (DFPI) regarding compliance with state consumer protection laws[98] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, revenue growth, key metrics, operational results, liquidity, capital resources, COVID-19 impact, and critical accounting policies Executive Overview FlexShopper operates a lease-to-own (LTO) business model, providing durable goods to consumers through its direct-to-consumer website, a patent-pending LTO payment method for third-party e-commerce sites, and in-store terminals - FlexShopper's business model is centered on providing durable goods to consumers on a lease-to-own (LTO) basis[108] - The company's sales channels include the FlexShopper.com marketplace, an LTO payment method for e-commerce checkouts, and in-store LTO solutions for retail partners[108] Key Performance Metrics The company's key performance metrics showed significant improvement, with gross profit and Adjusted EBITDA increasing substantially for both Q3 and the nine-month period of 2021 compared to the prior year Q3 2021 vs Q3 2020 Performance Metrics | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Gross Profit | $12,688,960 | $8,919,538 | 42.3% | | Adjusted EBITDA | $4,815,632 | $2,100,746 | 129.2% | Nine Months 2021 vs 2020 Performance Metrics | Metric | Nine Months 2021 | Nine Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Gross Profit | $34,031,579 | $24,275,340 | 40.2% | | Adjusted EBITDA | $9,390,413 | $6,163,023 | 52.4% | Results of Operations Strong revenue growth in Q3 and nine months 2021 from larger lease portfolio and higher origination values, despite fewer new leases; operating and net income significantly increased - For Q3 2021, total revenues grew 25.6% to $30.9 million, and operating income more than doubled to $3.9 million from $1.2 million in Q3 2020[121] - For the nine months ended Sep 30, 2021, total revenues increased 27.6% to $94.3 million, and operating income grew 96.7% to $6.5 million[129] - Lease originations decreased in Q3 2021 to 30,407 from 47,317 in Q3 2020, partly due to the impact of government stimulus programs reducing demand for financing; however, the average origination value increased from $480 to $522[121] Liquidity and Capital Resources As of September 30, 2021, the company had $3.1 million cash, with primary liquidity from a $47.5 million credit facility, sufficient for the next 12 months, following a $1.9 million PPP loan forgiveness - The company's cash position was $3.1 million as of September 30, 2021[143] - The primary credit facility allows for borrowing up to $47.5 million, with a commitment termination date of April 1, 2024; as of September 30, 2021, $165,417 was available under the agreement[145][148] - A $1.9 million PPP loan was forgiven in June 2021, resulting in a gain of $1,931,825[155] Financial Impact of COVID-19 Pandemic COVID-19 had mixed effects, initially reducing customer acquisition and tightening underwriting, but government stimulus improved payment patterns and early payoffs, with enhanced performance waning by Q3 2021 - The pandemic limited new customer acquisition from B2B retail channels due to store closures and operational disruptions[164] - Government stimulus programs reduced demand for financing products but positively impacted customer payment behavior, increasing early payoffs and improving asset performance[166] - By the end of Q3 2021, the company observed that the enhanced payment performance was starting to wane, indicating a potential return to a pre-COVID environment[168] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for this reporting period - The company has indicated that this section is not applicable[171] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[172] - No material changes were made to the company's internal controls over financial reporting during the most recent fiscal quarter[173] PART II - OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any pending legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not currently involved in any material legal proceedings[176] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2020 have been reported[177] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company issued warrants for 80,000 shares of common stock to XLR8 Capital Partners LLC as part of a consulting agreement, exempt from registration under Section 4(a)(2) of the Securities Act of 1933 - The company issued warrants for 80,000 shares of common stock to XLR8 Capital Partners LLC during Q3 2021[178] Warrants Granted in Q3 2021 | Grant Date | Warrants Granted | | :--- | :--- | | July 31, 2021 | 40,000 | | August 31, 2021 | 40,000 | | Total | 80,000 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[180] Mine Safety Disclosures This section is not applicable to the company - Not applicable[181] Other Information The company reports no other information for this period - None[182] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and XBRL data files Signatures The report is duly signed by Richard House Jr., Chief Executive Officer, and H. Russell Heiser, Chief Financial Officer, on November 15, 2021