FLEXSHOPPER, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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, 2021. 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,
2021 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.



At FlexShopper, our highest priority remains the safety, health and well-being
of our employees, their families and our communities and we remain committed to
serving the needs of our customers. The COVID-19 pandemic is a highly fluid
situation and it is not currently possible for us to reasonably estimate the
full impact it may have on our financial and operating results. We will continue
to evaluate the impact of the COVID-19 pandemic on our business as we learn more
and the residual impact of COVID-19 on our industry becomes clearer.



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 provides 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, an 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.



In 2021, we began a test to market an unsecured, consumer loan product for our
bank partner that would augment our LTO solution. In 2022, based upon the
success of this testing, the marketing of our bank partner's loans has become a
strategic solution that we offer to many of our current customers and through
our retailer partners.


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, fair value of loans
receivable 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 or biweekly
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, 2022 and December 31, 2021:



                                    March 31,       December 31,
                                      2022              2021

Accounts receivable               $  51,988,768     $  54,042,161

Allowance for doubtful accounts (22,450,828 ) (27,703,278 ) Accounts receivable, net $29,537,940 $26,338,883




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. As the customer account
ages, the greater the allowance attributable to that account to reflect the
decreased likelihood of successful collection efforts. Accounts receivable
balances charged off against the allowance were $17,083,567 for three months
ended March 31, 2022 respectively and $7,036,164 for three months ended March
31, 2021, respectively.



                                       24




Loans receivable - The Company elected the fair value option on its entire loans
receivable portfolio purchased from its bank partner. As such, loans receivable
is carried at fair value in the condensed consolidated balance sheet with
changes in fair value recorded in the condensed consolidated statement of
operations. Accrued and unpaid interest and fees are included in loans
receivable in the condensed consolidated balance sheets. Management believes the
fair value option for its loans portfolio is a better measure of the asset for
the Company given the high growth, short duration, quality and funding structure
of the loans portfolio. Also, management believes the reporting of these
receivables at fair value more closely approximates the true economics of the
loans receivables.



Interest and fees are discontinued when loans receivable become contractually
120 or more days past due. The Company charges-off loans at the earlier of when
the loans are determined to be uncollectible or when the loans are 120 days
contractually past due. Recoveries on loans receivables that were previously
charge off are recognized when cash is received. Changes in the fair value of
loans receivable include the impact of current period charge offs associated
with these receivables.



The Company estimates the fair value of the loans receivable using a discounted
cash flow analysis at an individual loan level to more accurately predict future
payments. The Company adjusts expected cash flows for estimated losses and
servicing costs over the estimated duration of the underlying assets. These
adjustments are determined using historical data and include appropriate
consideration of recent trends and anticipated future performance. Future cash
flows are discounted using a rate of return that the Company believes a market
participant would require. Model results may be adjusted by management if the
Company does not believe the output reflects the fair value of the instrument,
as defined under U.S. GAAP. The models are updated at each measurement date to
capture any changes in internal factors such as nature, term, volume, payment
trends, remaining time to maturity, and portfolio mix, as well as changes in
underwriting or observed trends expected to impact future performance.



A third-party bank partner originates our credit product and initially provides
all of the funding for the loans. The third-party retains 5% of the balance of
all loans originated and sells a 95% loan participation to the Company. The
Company services the loans and remits the corresponding portion to the third
party. Loan revenues and fees is representative of the Company's portion of
participation in the loans.



Lease Merchandise - Until all payment obligations required 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.



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 a compensation expense in
the financial statements as services are performed.



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



Compensation expense for performance share units is recognized on an accelerated
basis over the vesting period based on the Company's projected assessment of the
level of performance that will be achieved and earned. The fair value of
performance share units is based on the fair market value of the Company's
common stock on the date of grant.



                                       25





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, 2022 and 2021 are
as follows:



                                                 Three months ended
                                                      March 31,
                                               2022              2021            $ Change       % Change
Gross Profit:
Gross lease billings and fees              $  39,597,429     $  41,584,680     $ (1,987,251 )        (4.8 )
Provision for doubtful accounts              (11,831,117 )      (8,833,349 )     (2,997,768 )        33.9
Net lease billing and fees                 $  27,766,312     $  32,751,331     $ (4,985,019 )       (15.2 )
Loan revenues and fees                         1,712,348            49,332        1,663,016       3,371.1
Net changes in the fair value of loans
receivable                                      (523,424 )         (16,993 )       (506,431 )     2,980.2
Net loan revenues                          $   1,188,924     $      32,339     $  1,156,585       3,576.4
Total revenues                             $  28,955,236     $  32,783,670     $ (3,828,434 )       (11.7 )
Cost of lease revenues, consisting of
depreciation and impairment of lease
merchandise                                  (19,160,611 )     (22,463,556 )      3,302,945         (14.7 )
Loans origination costs and fees                (425,513 )         (63,397 )       (362,116 )       571.2
Gross profit                               $   9,369,112     $  10,256,717     $   (887,605 )        (8.7 )
Gross profit margin                                   32 %              31 %




                                                Three months ended
                                                    March 31,
                                               2022            2021           $ Change         % Change
Adjusted EBITDA:
Net (loss)/income                          $ (2,380,935 )   $     1,237     $ (2,382,172 )     (192,576.6 )
Income taxes                                   (859,780 )             -         (859,780 )              -
Amortization of debt issuance costs              50,603          91,703          (41,100 )          (44.8 )
Other amortization and depreciation             937,062         651,396          285,666             43.9
Interest expense                              1,907,465       1,307,294          600,171             45.9
Stock-based compensation                        305,229         380,264          (75,035 )          (19.7 )
Product/ infrastructure expenses                      -          10,000    
     (10,000 )              -
Adjusted EBITDA                            $    (40,356 )   $ 2,441,894     $ (2,482,250 )         (101.7 )



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 operational performance

without taking into account the elements excluded from the calculation of this measure, which

can vary significantly from company to company;

? is a financial measure used by rating agencies, lenders and other

parties to assess our creditworthiness; 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 is
neither required by, nor presented in accordance with, GAAP. Adjusted EBITDA
should not be considered as a substitute for GAAP metrics such as operating
income/(loss), net income or any other performance measures derived in
accordance with GAAP.



                                       26





Results of Operations


Three months completed March 31, 2022 Compared to the three months ended March 31, 2021



The following table details operating results for the three months ended March
31, 2022 and 2021:



                                               2022              2021            $ Change         % Change
Gross lease billings and fees              $  39,597,429     $  41,584,680     $ (1,987,251 )           (4.8 )
Provision for doubtful accounts              (11,831,117 )      (8,833,349 )     (2,997,768 )           33.9
Net lease billing and fees                 $  27,766,312     $  32,751,331     $ (4,985,019 )          (15.2 )
Loan revenues and fees                         1,712,348            49,332        1,663,016          3,371.1
Net changes in the fair value of loans
receivable                                      (523,424 )         (16,993 )       (506,431 )        2,980.2
Net loan revenues                          $   1,188,924     $      32,339     $  1,156,585          3,576.4
Total revenues                             $  28,955,236     $  32,783,670     $ (3,828,434 )          (11.7 )
Cost of lease revenue and merchandise
sold                                         (19,160,611 )     (22,463,556 )      3,302,945            (14.7 )
Loans origination costs and fees                (425,513 )         (63,397
)       (362,116 )          571.2
Marketing                                     (2,014,115 )      (1,832,740 )       (181,375 )            9.9
Salaries and benefits                         (2,964,442 )      (2,909,319 )        (55,123 )            1.9
Other operating expenses                      (5,673,202 )      (4,114,424 )     (1,558,778 )           37.9
Operating (loss)/income                       (1,282,647 )       1,400,234       (2,682,881 )         (191.6 )
Interest expense                              (1,958,068 )      (1,398,997 )       (559,071 )           40.0
Income taxes                                     859,780                 -          859,780                -
Net (loss)/income                          $  (2,380,935 )   $       1,237 
   $ (2,382,172 )     (192,576.6 )



FlexShopper originated 30,611 gross leases less same day modifications and
cancellations with an average origination value of $532 for the three months
ended March 31, 2022 compared to 39,299 gross leases less same day modifications
and cancellations with an average origination value of $532 for the comparable
period last year. Net lease revenues for the three months ended March 31, 2022
were $27,766,312 compared to $32,751,331 for the three months ended March 31,
2021, representing a decrease of $4,985,019 or 15.2%. In 2022, the average
origination value per lease was comparable to the same period last year but
volume has decreased due to tightening of approval rates. The provision for
doubtful accounts relative to gross lease billings and fees were 30% and 21% for
the three months ending March 31, 2022 and 2021, respectively.



Net loan revenues for the three months ended March 31, 2022 were $1,188,924
compared to $32,339 for the three months ended March 31, 2021, representing an
increase of $1,156,585 or 3,576.4%. In 2021, we began a test for an unsecured
consumer loan product with our bank partner. Our bank partner originated 3,848
loans at an average loan value of $1,282 for the three months ended March 31,
2022 compared to 108 loans at an average loan value of $902 for the three months
ended March 31, 2021. Our bank partner sold to the Company a 95% participation
interest for each loan originated in those periods. In 2022, based upon the
success of this testing, we expanded the program mainly in our
direct-to-consumer channel.



Cost of lease revenue and merchandise sold for the three months ended March 31,
2022 was $19,160,611 compared to $22,463,556 for the three months ended March
31, 2021, representing an decrease of $3,302,945 or 14.7%. As the Company's
lease portfolio and revenues decrease, the depreciation and related costs
associated with the larger portfolio also decrease. Asset level performance
within the portfolio, as well as the mix of early paid off leases, will alter
the average depreciable term of the leases within the portfolio and result in
increases or decreases in cost of lease revenue and merchandise sold relative to
lease revenue.


Marketing expenses in the three months ended March 31, 2022 were $2,014,115
compared to $1,832,740 in the three months ended March 31, 2021, an increase of
$181,375 or 9.9%. Marketing expenses related to loans in the three months ended
March 31, 2022 were $465,123 compared to $16,000 in the three months ended March
31, 2021, an increase of $449,123 or 2,807.0%. The increase is related to the
marketing of direct-to-consumer loans which mainly involves direct mailing
campaigns. Marketing expenses related to leases in the three months ended March
31, 2022 were $1,548,992 compared to $1,816,740 in the three months ended March
31, 2021, a decrease of $267,748 or 14.7%. The decrease is related to allocating
marketing spend to loan originations.





                                       27




Other operating expenses for the three months ended March 31, 2022 and 2021 included the following:



                                      2022            2021

Amortization and depreciation $937,062 $651,396
IT and Internet expenses 1,168,847 668,892 Legal and professional fees 1,344,715 502,038 Merchant banking fees

                     492,115         440,346
Customer verification expenses         142,757         857,825
Stock-based compensation expense       305,229         380,264
Insurance expense                      155,182          95,652
Office and telephone expense           356,434         197,061
Rent expense                           179,279         166,473
Travel expense                         228,179          58,286
Other                                  363,403          96,191
Total                              $ 5,673,202     $ 4,114,424




Computer and internet expenses in the three months ended March 31, 2022 were
$1,168,847 compared to $668,892 in the three months ended March 31, 2021,
representing an increase of $499,955 or 74.7%. A significant portion of computer
and internet expense is related to scaling both the consumer facing website and
the Company's back end billing and collection systems. Also, some of these
expenses are related to the preparation for new products offered by the company.



Legal and professional fees expenses in the three months ended March 31, 2022
were $1,344,715 compared to $502,038 in the three months ended March 31, 2021,
representing an increase of $842,677 or 167.9%. During the second quarter of
2021, the Company onboarded two off-shore servicing and collections options to
improve flexibility around seasonal call center traffic and improve operational
metrics.


Merchant banking fees during the three months ended March 31, 2022 have been
$492,115 compared to $440,346 within three months March 31, 2021which represents an increase of $51,769 or 11.8%. Merchant banking fees represent ACH and card processing fees related to consumer billing. During the first quarter of 2022, the Company increased the number of collection attempts for delinquent customers.



Travel expenses in the three months ended March 31, 2022 were $228,179 compared
to $58,286 in the three months ended March 31, 2021, representing an increase of
$169,893 or 291.5%. The increase in travel expense in the first quarter of 2022
is related to the expansion of retail partner rollouts.



Customer verification expenses in the three months ended March 31, 2022 were
$142,757 compared to $857,825 in the three months ended March 31, 2021,
representing an decrease of $715,068 or 83.4%. Customer verification expense is
primarily the cost of data used for underwriting new lease and loan applicants.
During the third quarter of 2021, several changes including the implementation
of a more disciplined process around data procurement and storage were made by
the Company. Those improvements triggered a change in the estimate of the
probability of future economic benefit of a portion of the data cost. As a
result of this change in the estimate regarding the portion of data costs
incurred that are not directly used in underwriting decisions and that are
probable that they will provide future economic benefit, the Company capitalized
$293,054 of data costs in the quarter ended March 31, 2022. Also, the reduction
in the marketing expense for leases for the quarter ended March 31, 2022
contributed to the decrease in customer verification expenses. The underwriting
and data science team continues to optimize the costs related to underwriting
lease and loan applications.



                                       28





Operations


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. 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 elements:

Online LTO Marketplace Patent Pending LTO Payment Method In-Store LTO Technology Platform

Search engine optimization;

        pay-per click               Direct to retailers/e-retailers         

Directly to retailers/e-merchants

Online affiliate networks Partnerships with payment aggregators Consultants and 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.



In 2021, we began a test to market an unsecured, consumer loan product for our
bank partner that would augment our LTO solution. In 2022, based upon the
success of this testing, the marketing of our bank partner's loans has become a
strategic solution that we offer to many of our current customers and through
our retailer partners.



To support our anticipated growth, FlexShopper will need the availability of
substantial capital resources. See the section captioned "Liquidity and Capital
Resources" below.


Cash and capital resources



As of March 31, 2022, the Company had cash of $4,319,701 compared to $6,315,815
at the same date in 2021. As of December 31, 2021, the Company had cash of
$5,094,642. The decrease in cash from December 31, 2021, was primarily due to
the increase in accounts receivable and lease merchandise acquired.



As of March 31, 2022, the Company had accounts receivable of $51,988,768 offset
by an allowance for doubtful accounts of $22,450,828, resulting in net accounts
receivable of $29,537,940. Accounts receivable is principally comprised of past
due lease payments owed to the Company. An allowance for doubtful accounts is
estimated based upon historical collection and delinquency percentages.



As of March 31, 2022, the Company had loans receivable of $7,137,503 which is
measured at fair value. The company primarily estimates the fair value of its
loans receivable using a discounted cash flow models that have been internally
developed.



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
recently collected payments 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 currently
borrow up to $82,500,000 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
January 29, 2021, pursuant to an amendment to the Credit Agreement, the
Commitment Termination Date was extended to April 1, 2024, the Lender was
granted a security interest in certain leases as collateral under the Credit
Agreement and the interest rate charged on amounts borrowed was set at LIBOR
plus 11% per annum.



                                       29





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
cash and liquidity 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 may refinance the debt under the Credit Agreement, subject to the
payment of an early termination fee.



In addition, the Lender and its affiliates have a right of first refusal on
certain FlexShopper transactions involving leases or other financial products.
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 the Borrower in the Credit Agreement and related documents
(including certain financial and expense covenants), deficiencies in the
borrowing base, certain judgments against the Borrower and bankruptcy events.



From March 31, 2022the company had $1,735,977 available under the credit agreement.

On March 5, 2021, the applicable regulators announced that LIBOR will cease to
be provided and will no longer be representative (i) immediately after December
31, 2021 for all sterling, euro, Swiss franc and Japanese yen settings, and the
one-week and two-month U.S. dollar settings and (ii) immediately after June
30,2023 for the remaining U.S. dollar settings. The Company's debt bears
interest based on the one-month LIBOR rate. If there is a LIBOR Disruption Event
as defined in the Credit Agreement, LIBOR will be replaced with the Prime Rate.



Financing Activity



On January 25, 2019, FlexShopper, LLC (the "Borrower") entered into a
subordinated debt financing letter agreement with 122 Partners, LLC, as lender,
pursuant to which FlexShopper, LLC issued a subordinated promissory note to 122
Partners, LLC (the "122 Partners 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 the principal amount and accrued interest under
the 122 Partners Note was due and payable by the borrower on April 30, 2020 and
the borrower can prepay principal and interest at any time without penalty.
Amounts outstanding under the 122 Partners Note bear interest at a rate equal to
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 122 Partners Note
are subordinated to obligations under the Credit Agreement. The 122 Partners
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 122 Partners Note.
Obligations under the 122 Partners Note are secured by substantially all of the
Borrower's assets, subject to the senior rights of the lenders under the Credit
Agreement. On April 30, 2020, pursuant to an amendment to the subordinated debt
financing letter agreement, the Borrower and 122 Partners, LLC agreed to extend
the maturity date of the 122 Partners Note to April 30, 2021. On March 22, 2021,
FlexShopper, LLC executed a second amendment to the 122 Partners Note such that
the maturity date of the 122 Partners Note was extended to April 1, 2022. On
March 31, 2022, FlexShopper, LLC executed a third amendment to the 122 Partners
Note such that the maturity date of the 122 Partners Note was extended to April
1, 2023. No other changes were made to such Note. As of March 31, 2022,
$1,041,252 of principal and accrued and unpaid interest was outstanding on
the
122 Partners Note.



The Borrower previously entered into letter agreements with NRNS Capital
Holdings LLC ("NRNS"), the manager 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") in the total principal amount of
$3,750,000. Payment of principal and accrued interest under the NRNS Note was
due and payable by the Borrower on June 30, 2021 and FlexShopper, LLC can prepay
principal and interest at any time without penalty. Amounts outstanding under
the NRNS Note bear interest at a rate equal to 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 NRNS Note are subordinated to obligations under
the Credit Agreement. The NRNS 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 NRNS Note. Obligations under the NRNS Note is secured by substantially all
of the Borrower's assets, subject to rights of the lenders under the Credit
Agreement. On March 22, 2021, FlexShopper, LLC executed an amendment to the NRNS
Note such that the maturity date was extended to April 1, 2022. On February 2,
2022, FlexShopper LLC executed another amendment to the NRNS Note. This last
amendment extended the maturity date from April 1, 2022 to July 1, 2024 and
increased the credit commitment from $3,750,000 to $11,000,000. No other changes
were made to such Note. As of March 31, 2022, $6,933,875 of principal and
accrued and unpaid interest was outstanding on the NRNS Note.



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The Company applied for and received a loan (the "Loan") on May 4, 2020, from
Customers Bank (the "PPP Lender") in the principal amount of $1,914,100,
pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus
Aid, Relief, and Economic Security Act (the "CARES Act"), which was enacted
March 27, 2020, and administered through the U.S. Small Business Administration
(the "SBA").



The Loan was evidenced by a promissory note (the "Note"), dated April 30, 2020,
issued by the Borrower to the PPP Lender. The Note matured on April 30, 2022 and
bore interest at the rate of 1.00% per annum, payable monthly commencing the
later of on November 30, 2020 or the SBA review of the forgiveness application.
The Note might be prepaid by the Borrower at any time prior to maturity with no
prepayment penalty. Proceeds from the Loan were available to the Borrower to
fund designated expenses, including certain payroll costs, group health care
benefits and other permitted expenses, in accordance with the PPP. Under the
terms of the PPP, up to the entire sum of the principal amount and accrued
interest might be forgiven to the extent the Loan proceeds were used for
qualifying expenses as described in the CARES Act and applicable implementing
guidance issued by the U.S. Small Business Administration under the PPP.



On June 21, 2021 we were notified that effective April 7, 2021, the U.S. Small
Business Administration confirmed the waiver of FlexShopper's repayment of a
$1,914,000 Paycheck Protection Program promissory note issued to the Company on
May 4, 2020. As a result of the PPP promissory note forgiveness, the Company
recognized a gain from the extinguishment of the loan, including accrued
interest, of $1,931,825.



Cash Flow Summary


Cash flow from operating activities



Net cash used in operating activities was $7,940,659 for the three months ended
March 31, 2022 primarily due to the purchases of leased merchandise and the
change in accounts receivable and accounts payable partially offset by the add
back of depreciation and impairment on leased merchandise and provision for
doubtful accounts.



Net cash used in operating activities was $563,007 for the three months ended
March 31, 2021 primarily due to the add back of depreciation and impairment on
leased merchandise and provision for doubtful accounts partially offset by the
purchases of leased merchandise and the change in accounts receivable and
accounts payable.



Cash flow from investing activities



For the three months ended March 31, 2022, net cash used in investing activities
was $1,553,810 comprised of $568,816 for the purchase of property and equipment
and $984,994 for capitalized software costs.



For the three months ended March 31, 2021, net cash used in investing activities
was $734,122 comprised of $145,130 for the purchase of property and equipment
and $588,992 for capitalized software costs.



Cash flow from financing activities



Net cash provided by financing activities was $8,719,528 for the three months
ended March 31, 2022 due to $6,800,000 of funds drawn on the Credit Agreement as
well as $3,000,000 of funds drawn on the Promissory Notes offset by loan
repayments on the Credit Agreement of $1,125,000.



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Net cash used in financing activities was $928,290 for the three months ended
March 31, 2021 due to loan repayments on the credit agreement of $3,910,000
partially offset by $3,500,000 funds drawn on the credit agreement and the payment of the costs related to the issuance of the debt of $526,656.


Capital Resources



To date, funds derived from the sale of FlexShopper's common stock, warrants,
Series 1 Convertible Preferred Stock 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.



Management believes that liquidity needs for future growth through at least the
next 12 months can be met by cash flow from operations generated by the existing
portfolio and/or additional borrowings against the Credit Agreement (see Note
7).


Also, from March 31, 2022the company had $4,250,000 commitments available under the NRNS promissory note (see Note 6).

Financial impact of the COVID-19 pandemic



The COVID-19 Pandemic and the related stimulus programs had an impact on the
Company. The immediate impact early in the second quarter of 2020 was a
transition to a significant percentage of the Company's employees working
remotely. Fortunately, our South Florida location requires a thorough Hurricane
Impact plan enabling all our employees to work remotely, if necessary. All
employees, via specially configured laptops, are able to access the same data
and have the same functionality as if they were in the office. Throughout the
pandemic, FlexShopper rotated select groups of employees into the office in
order to adjust to the other business impacts on the business. As of the end of
March 2022, approximately 10% of our employees are working remotely.



The other impacts of the business can be broken into three categories. The first
is the decrease is the availability of our lease financing product.
Pre-COVID-19, approximately 40% of new customers were obtained through brick and
mortar or B2B retailers. The pandemic-related closing and limited operations of
retailers, as well as shelter in place orders, limited our new customers from
this channel substantially over the second quarter and third quarter of 2020.
Through the first half of the second quarter of 2021 there was diminished demand
from our B2B retailers resulting from pandemic related issues. Moreover, since
the crisis began, a number of our brick and mortar rollouts and pilots have been
delayed or put on hold as our retailer partners attempt to return to a more
stable operational environment. Fortunately, by the end of 2021, the percentage
of new customers obtained from brick and mortar locations exceeded pre-pandemic
levels.



The second impact was a Company reaction in the second quarter of 2020 to the
uniqueness of the pandemic. Not knowing what the potential impact to consumer
payment patterns would be, the Company significantly tightened approval rates.
It was not until the end of the third quarter of 2020, that approval rates
returned to the pre-pandemic levels. This decreased approval rate, both online
and in third party stores, coupled with the retailer closures mentioned above,
significantly reduced new lease originations. In 2021, the uniqueness of the
pandemic had resulted in significant growth in BNPL (buy now pay later) options
that were offered to our consumer segment. Despite a return to near pre-pandemic
approval rates, the Company still experienced reduced demand for its product in
2021.



The third impact was on consumer behavior and payment patterns. The combination
of stimulus payments and enhanced unemployment benefits measures provided by the
Federal and/ or State Government throughout 2020 and early 2021 were especially
impactful to our typical customer. As a result of enhanced income, the demand
for our products was reduced, the likelihood of consumers choosing early payoff
options increased substantially and, on a positive note, the asset level
performance of our full-term customer, relative to their expected performance,
increased substantially. The first sign of the return to more normal payment
patterns was a reduction in the elevated amount of early pay offs experienced by
the Company which occurred in the middle of 2021.



Despite the availability of COVID-19 vaccines in 2021, the number of COVID-19 cases has increased at various times throughout 2021 due to the emergence of new variants.



As of the end of 2021, the reduced demand was evident in our digital marketing
channels through the conversion rate of new applicants. However, the enhanced
payment performance, versus our expected performance, began to wane which would
seem to be a potential initial indicator of a return to the Pre-COVID-19
environment.



Finally, throughout the pandemic, the Company has been able to grow the overall
size of the lease portfolio, net of early payoffs, despite the items mentioned
previously. At no point, have there been liquidity concerns or covenant
complications. In fact, our credit facility was upsized, our product breadth
increased and our covenants reduced in 2021.



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Off-balance sheet arrangements

The Company has no off-balance sheet arrangements.

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