FLEXSHOPPER, INC. 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 endedDecember 31, 2019 . 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 endedDecember 31, 2019 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. As a result of the evolving impact of COVID-19 on the economy, onMay 6, 2020 , we withdrew our 2020 full-year guidance. AtFlexShopper , 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 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 impact of COVID-19 on our
industry becomes clearer. Executive Overview The results of operations reflect the operations ofFlexShopper, 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 inDecember 2013 . Management believes that the introduction ofFlexShopper's LTO programs support broad untapped expansion opportunities within theU.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 withFlexShopper may increase their sales by utilizingFlexShopper'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, anLTO Marketplace featuring thousands of durable goods, (2) utilizingFlexShopper's patent pending LTO payment method at check out on e-commerce sites and through in-store terminals and (3) facilitating LTO transactions with retailers that have not yet become part of the FlexShopper.com LTO marketplace.
Summary of Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to credit provisions, intangible assets, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experience as well as various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, reflect the more significant judgments and estimates used in the preparation of our financial statements. Accounts Receivable and Allowance for Doubtful Accounts -FlexShopper seeks to collect amounts owed under its leases from each customer on a weekly or biweekly basis by charging their bank accounts or credit cards. Accounts receivable are principally comprised of lease payments currently owed toFlexShopper which are past due asFlexShopper 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 ofSeptember 30, 2020 andDecember 31, 2019 : September 30, December 31, 2020 2019 Accounts receivable$ 24,645,435 $ 18,249,273
Allowance for doubtful accounts (16,790,115 ) (9,976,941 )
Accounts receivable, net
The allowance is a significant percentage of the balance becauseFlexShopper 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. Accounts receivable balances charged off against the allowance were$4,813,162 and$16,830,382 for the three and nine months endedSeptember 30, 2020 , respectively, and$9,838,873 and$19,215,275 for the three and nine months endedSeptember 30, 2019 , respectively. 18 Lease Merchandise - Until all payment obligations required for ownership are satisfied under the lease agreement,FlexShopper maintains ownership of the lease merchandise. Lease merchandise consists primarily of residential furniture, consumer electronics, computers, appliances and household accessories and is recorded at cost net of accumulated depreciation. The Company depreciates leased merchandise using the straight-line method over the applicable agreement period for a consumer to acquire ownership, generally twelve months with no salvage value. Upon transfer of ownership of merchandise to customers resulting from satisfaction of their lease obligations, the related cost and accumulated depreciation are eliminated from lease merchandise. For lease merchandise returned or anticipated to be returned either voluntarily or through repossession, the Company provides an impairment reserve for the undepreciated balance of the merchandise net of any estimated salvage value with a corresponding charge to cost of lease revenue. The cost, accumulated depreciation and impairment reserve related to such merchandise are written off upon determination that no salvage value is obtainable. Stock Based Compensation - The fair value of transactions in whichFlexShopper exchanges its equity instruments for employee services (share-based payment transactions) is recognized as an expense in the financial statements as services are performed. Compensation expense is determined by reference to the fair value of an award on the date of grant and is amortized on a straight-line basis over the vesting period. We have elected to use the Black-Scholes-Merton pricing model ("BSM") to determine the fair value of all stock option awards. Key Performance Metrics We regularly review several metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Key performance metrics for the three months endedSeptember 30, 2020 and 2019 are as follows: Three months ended September 30, 2020 2019 $ Change % Change Gross Profit:
Gross lease billings and fees$ 31,470,706 $ 31,567,587 $ (96,881 ) (0.3 ) Lease merchandise sold 1,178,716 665,074 513,642 77.2 Gross billings 32,649,422 32,232,661 416,761 1.3 Provision for doubtful accounts and revenue adjustments (8,079,358 ) (9,300,326 ) 1,220,968 (13.1 ) Net revenues 24,570,064 22,932,335 1,637,729 7.1 Cost of merchandise sold (763,728 ) (457,399 ) (306,329 ) 67.0 Cost of lease revenues, consisting of depreciation and impairment of lease merchandise (14,886,798 ) (14,248,969 ) (637,829 ) 4.5 Gross profit$ 8,919,538 $ 8,225,967 $ 693,571 8.4 Gross profit margin 36 % 37 % 19 Three months ended September 30, 2020 2019 $ Change % Change Adjusted EBITDA: Net income$ 289,360 $ 1,387,982 (1,098,622 ) (79.2 ) Amortization of debt costs 50,050 111,506 (61,456 ) (55.1 ) Other amortization and depreciation 593,267 531,289
61,978 11.7
Interest expense 901,286 950,288 (49,002 ) (5.2 )
Stock compensation 169,393 117,134 52,259 44.6Non-recurring product/infrastructure expenses 97,390 79,272
18,118 22.9
Adjusted EBITDA $ 2,100,746 $ 3,177,471 (1,076,725 ) (33.9 )
Key performance metrics for the nine months ended September 30, 2020 and 2019
are as follows:
Nine months ended
September 30,
2020 2019 $ Change % Change
Gross Profit:Gross lease billings and fees$ 93,632,889 $ 89,028,352 4,604,537 5.2 Lease merchandise sold 3,953,609 2,374,876 1,578,733 66.5 Gross billings 97,586,498 91,403,228 6,183,270 6.8 Provision for doubtful accounts and revenue adjustments (23,643,556 ) (25,075,156 ) 1,431,600 (5.7 ) Net revenues 73,942,942 66,328,072 7,614,870 11.5 Cost of merchandise sold (2,685,599 ) (1,521,244 ) (1,164,355 ) 76.5 Cost of lease revenues, consisting of depreciation and impairment of lease merchandise (46,982,002 ) (43,787,216 ) (3,194,786 ) 7.3 Gross profit$ 24,275,341 $ 21,019,612 3,255,729 15.5 Gross profit margin 33 % 32 % Nine months ended September 30, 2020 2019 $ Change % Change Adjusted EBITDA: Net income$ 78,983 $ 1,581,579 $ (1,502,596 ) (95.0 ) Amortization of debt costs 234,283 230,340 3,943 1.7 Other amortization and depreciation 1,655,406 1,649,597
5,809 0.4
Interest expense 2,979,800 3,035,431 (55,631 ) (1.8 )
Stock compensation 793,241 445,906 347,335 77.9Non-recurring product/infrastructure expenses 281,830 306,383 (24,553 ) (8.0 ) Warrants compensation- consulting agreement 139,480 43,200
96,280 222.9
Adjusted EBITDA $ 6,163,023 $ 7,292,436 $ (1,129,413 ) (15.0 )
Management believes that Gross Profit and Adjusted EBITDA provide relevant and useful information which is widely used by analysts, investors and competitors in our industry in assessing performance. Adjusted EBITDA represents net income before interest, stock-based compensation, taxes, depreciation (other than depreciation of leased inventory), amortization, and one-time or non-recurring items. We believe that Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because this measure:
? is widely used by investors to measure a company's operating performance
without regard to items excluded from the calculation of such measure, which
can vary substantially from company to company;
? is a financial measurement that is used by rating agencies, lenders and other
parties to evaluate our credit worthiness; and
? is used by our management for various purposes, including as a measure of
performance and as a basis for strategic planning and forecasting.
Adjusted EBITDA is a supplemental measure ofFlexShopper'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. 20 Results of Operations
Three Months Ended
The following table details operating results for the three months ended
2020 2019 $ Change % Change
Gross lease revenues and fees$ 31,470,706 $ 31,567,587 $ (96,881 ) (0.3 ) Provision for doubtful accounts 8,079,358 9,300,326 (1,220,968 ) (13.1 ) Lease revenues and fees, net of bad debt expense 23,391,348 22,267,261 1,124,087 5.0 Lease merchandise sold 1,178,716 665,074 513,642 77.2 Total revenues 24,570,064 22,932,335 1,637,729 7.1 Cost of lease revenue and merchandise sold 15,650,526 14,706,368 944,158 6.4 Marketing 1,650,717 868,452 782,265 90.1 Salaries and benefits 2,499,235 2,189,629 309,606 14.1
Other operating expenses 3,528,890 2,718,110
810,780 29.8
Operating income 1,240,696 2,449,776 (1,209,080 ) (49.4 )
Interest expense 951,336 1,061,794 (110,458 ) (10.4 )
Net income $ 289,360 $ 1,387,982 $ 1,098,622 (79.2 )
FlexShopper originated 47,317 gross leases less same day modifications and cancellations with an average origination value of$480 for the three months endedSeptember 30, 2020 compared to 36,531 gross leases less same day modifications and cancellations with an average origination value of$468 for the comparable period last year. Total lease revenues for the three months endedSeptember 30, 2020 were$23,391,348 compared to$22,267,261 for the three months endedSeptember 30, 2019 , representing an increase of$1,124,087 , or 5%. Continued growth in repeat customers coupled with acquiring new customers with more efficient marketing spend is primarily responsible for the increase in leases and related revenue. Cost of lease revenue and merchandise sold for the three months endedSeptember 30, 2020 was$15,650,526 compared to$14,706,368 for the three months endedSeptember 30, 2019 , representing an increase of$944,158 , or 6.4%. Cost of lease revenue and merchandise sold for the three months endedSeptember 30, 2020 is comprised of depreciation expense and impairment of lease merchandise of$14,886,798 and the net book value of merchandise sold of$763,728 . Cost of lease revenue and merchandise sold for the three months endedSeptember 30, 2019 is comprised of depreciation expense on lease merchandise of$14,248,969 and the net book value of merchandise sold of$457,399 . As the Company's lease revenues increase, the direct costs associated with them also increase. Marketing expenses in the three months endedSeptember 30, 2020 were$1,650,717 compared to$868,452 in the three months endedSeptember 30, 2019 , an increase of$782,265 , or 90.1%. The Company strategically increased marketing expenditures in its digital channels where it is acquiring customers efficiently at its targeted acquisition cost. Also, the amortization of direct acquisition cost increased due to more capitalized commission earned based on lease originations. Salaries and benefits in the three months endedSeptember 30, 2020 were$2,499,235 compared to$2,189,629 in the three months endedSeptember 30, 2019 , an increase of$309,606 or 14.1%. The hire of certain key management was the driver for the increase in salaries and benefits expenses. 21
Other operating expenses for the three months ended
2020 2019
Amortization and depreciation
464,295 446,217
Stock compensation expense 169,393 117,134
Customer verification expenses 826,351 526,616
Other 576,910 429,268
Total $ 3,528,890 $ 2,718,110 Nine Months Ended
The following table details operating results for the nine months endedSeptember 30, 2020 and 2019: 2020 2019 $ Change % Change Gross lease revenues and fees$ 93,632,889 $ 89,028,352 $ 4,604,537 5.2
Provision for doubtful accounts 23,643,556 25,075,156 (1,431,600 ) (5.7 ) Lease revenues and fees, net of bad debt expense 69,989,333 63,953,196 6,036,137 9.4 Lease merchandise sold 3,953,608 2,374,876 1,578,732 66.5 Total revenues 73,942,941 66,328,072 7,614,869 11.5 Cost of lease revenue and merchandise sold 49,667,601 45,308,460 4,359,141 9.6 Marketing 3,619,911 2,031,227 1,588,684 78.2 Salaries and benefits 7,324,620 5,984,797 1,339,823 22.4
Other operating expenses 10,037,743 8,156,238
1,881,505 23.1
Operating income 3,293,066 4,847,350 (1,554,284 ) (32.1 )
Interest expense 3,214,083 3,265,771 (51,688 ) (1.6 )
Net income $ 78,983 $ 1,581,579 $ (1,502,596 ) (95.0 )
FlexShopper originated 117,294 gross leases less same day modifications and cancellations with an average origination value of$470 for the nine months endedSeptember 30, 2020 compared to 95,731 gross leases less same day modifications and cancellations with an average origination value of$466 for the comparable period last year. Total lease revenues for the nine months endedSeptember 30, 2020 were$69,989,333 compared to$63,953,196 for the nine months endedSeptember 30, 2019 , representing an increase of$6,036,137 , or 9.4%. Continued growth in repeat customers coupled with acquiring new customers with more efficient marketing spend is primarily responsible for the increase in leases and related revenue. Cost of lease revenue and merchandise sold for the nine months endedSeptember 30, 2020 was$49,667,601 compared to$45,308,460 for the nine months endedSeptember 30, 2019 , representing an increase of$4,359,141 , or 9.6%. Cost of lease revenue and merchandise sold for the nine months endedSeptember 30, 2020 is comprised of depreciation expense and impairment of lease merchandise of$46,982,002 and the net book value of merchandise sold of$2,685,599 . Cost of lease revenue and merchandise sold for the nine months endedSeptember 30, 2019 is comprised of depreciation expense on lease merchandise of$43,787,216 and the net book value of merchandise sold of$1,521,244 . As the Company's lease revenues increase, the direct costs associated with them also increase. Marketing expenses in the nine months endedSeptember 30, 2020 were$3,619,911 compared to$2,031,227 in the nine months endedSeptember 30, 2019 , an increase of$1,588,684 , or 78.2%. The Company strategically increased marketing expenditures in its digital channels where it is acquiring customers more efficiently at its targeted acquisition cost. Salaries and benefits in the nine months endedSeptember 30, 2020 were$7,324,620 compared to$5,984,797 in the nine months endedSeptember 30, 2019 , an increase of$1,339,823 , or 22.4%. Head count increase that took place in the fourth quarter of 2019 to handle the volume increase of the holiday season plus the hire of certain key management resulted in the increase in salaries and
benefits expenses.
22
Other operating expenses for the nine months ended
2020 2019
Amortization and depreciation
1,407,008 1,374,283
Stock compensation expense 793,241 445,906
Customer verification expenses 1,744,862 1,224,059
Other 1,660,901 1,402,547
Total $ 10,037,743 $ 8,156,238
Legal and professional fees in the nine months ended September 30, 2020 were
$1,463,191 compared to $877,156 in the nine months ended June 30, 2019 ,
representing an increase of $586,035 , or 66.8%. This increase was due to legal
and consulting fees related to underwriting, marketing, business intelligence
enhancements and new product initiatives.
Operations
We promote ourFlexShopper products and services across all sales channels through strategic partnerships, direct response marketing, and affiliate and internet marketing, all of which are designed to increase our lease transactions and name recognition. Our advertisements emphasize such features as instant spending limits and affordable weekly payments. We believe that as theFlexShopper 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,
Patent pending LTO Payment In-store LTO technology
Online LTO Marketplace Method platform
Search engine
optimization; pay-per Direct to Direct to
click retailers/e-retailers retailers/e-retailers
Partnerships with payment Consultants & strategic
Online affiliate networks aggregators
relationships
Direct response television Consultants & strategic
campaigns 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 theFlexShopper business as we are able to penetrate each of our sales channels. To support our anticipated growth,FlexShopper will need the availability of substantial capital resources. See the section captioned "Liquidity and Capital Resources" below. 23
Liquidity and Capital Resources
As ofSeptember 30, 2020 , the Company had cash of$6,750,019 compared to$3,172,362 at the same date in 2019. As ofDecember 31, 2019 , the Company had cash of$6,868,472 . The increase in cash fromDecember 31, 2019 , was primarily due to the proceeds received under the Paycheck Protection Program. As ofSeptember 30, 2020 , the Company had accounts receivable of$24,645,435 offset by an allowance for doubtful accounts of$16,790,115 , resulting in net accounts receivable of$7,855,320 . Accounts receivable are principally comprised of lease payments owed to the Company. An allowance for doubtful accounts is estimated based upon historical collection and delinquency percentages. Financing Activity OnJanuary 25, 2019 ,FlexShopper, LLC (the "Borrower) entered into a subordinated debt financing letter agreement with 122Partners, LLC , as lender, pursuant to whichFlexShopper, LLC issued a subordinated promissory note to 122Partners, LLC (the "January Note") in the principal amount of$1,000,000 .H. Russell Heiser , Jr.,FlexShopper's Chief Financial Officer, is a member of 122Partners, LLC . Payment of the principal amount and accrued interest under the January Note was due and payable by the borrower onApril 30, 2020 and the borrower can prepay principal and interest at any time without penalty. Amounts outstanding under the January 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 January Note are subordinated to obligations under the Credit Agreement. The January Note is subject to customary representations and warranties and events of default. If an event of default occurs and is continuing, the Borrower may be required to repay all amounts outstanding under the January Note. Obligations under the January Note are secured by substantially all of the Borrower's assets, subject to the senior rights of the lenders under the Credit Agreement. OnApril 30, 2020 , pursuant to an amendment to the subordinated debt financing letter agreement, the Borrower and 122Partners, LLC agreed to extend the maturity date of the January Note toApril 30, 2021 . OnFebruary 19, 2019 , the Borrower entered into a letter agreement withNRNS Capital Holdings LLC ("NRNS"), the manager of which is the Chairman of the Company's Board of Directors, pursuant to which the Borrower issued a subordinated promissory note to NRNS (the "February Note") in the principal amount of$2,000,000 . Payment of principal and accrued interest under the February Note is due and payable by the Borrower onJune 30, 2021 and the Borrower can prepay principal and interest at any time without penalty. Amounts outstanding under the February 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 February Note are subordinated to obligations under the Credit Agreement. The February Note is subject to customary representations and warranties and events of default. If an event of default occurs and is continuing, the Borrower may be required to repay all amounts outstanding under the February Note. Obligations under the February Note are secured by substantially all of the Borrower's assets, subject to rights of the lenders under the Credit Agreement. The Company applied for and received a loan (the "Loan") onMay 4, 2020 , from Customers Bank (the "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 enactedMarch 27, 2020 , and administered through theU.S. Small Business Administration (the "SBA"). The Loan is evidenced by a promissory note (the "Note"), datedApril 30, 2020 , issued by the Borrower to the Lender. The Note matures onApril 30, 2022 , and bears interest at the rate of 1.00% per annum, payable monthly commencing the later of onNovember 30, 2020 or the SBA review of the forgiveness application. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalty. Proceeds from the Loan will be 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 may be forgiven to the extent the Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by theU.S. Small Business Administration under the PPP. The Company used the entire Loan amount for designated qualifying expenses and has submitted a loan forgiveness application to the Lender that is pending review. 24 Cash Flow Summary
Cash Flows from Operating Activities
Net cash provided by operating activities was$4,555,130 for the nine months endedSeptember 30, 2020 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.
Net cash provided by operating activities was
Cash Flows from Investing Activities
For the nine months ended
For the nine months ended
Cash Flows from Financing Activities
Net cash used in financing activities was$2,573,929 for the nine months endedSeptember 30, 2020 due to loan repayments on the Credit Agreement of$7,023,250 partially offset by$2,412,000 of funds drawn on the Credit Agreement and by$1,914,100 of proceeds received under the Paycheck Protection Program. Net cash used in financing activities was$5,294,911 for the nine months endedSeptember 30, 2019 due to loan repayments on the Credit Agreement of$10,528,488 and$243,750 of debt issuance related costs partially offset by$2,940,000 of net funds drawn on the Promissory Notes and$2,523,828 of funds drawn on the Credit Agreement. Capital Resources To date, funds derived from the sale ofFlexShopper's common stock, warrants, Series 1 Convertible Preferred Stock and Series 2 Convertible Preferred Stock and the Company's ability to borrow funds against the lease portfolio have provided the liquidity and capital resources necessary to fund its operations. The Commitment Termination Date of the Credit Agreement (see Note 7) isFebruary 28, 2021 and, accordingly, the Company would then start to repay all borrowed amounts under the facility throughFebruary 21, 2022 . Additionally,$ 3,750,000 and$1,000,000 of Promissory Notes (see Note 6) are due byJune 30, 2021 andApril 30, 2021 , respectively. The Company anticipates either renegotiating the terms of the Credit Agreement and Promissory Notes with the existing lenders or entering into agreements to refinance the existing arrangements with new lenders prior to the maturity of these agreements. While the Company has been previously successful in refinancing these agreements and the holders of both the Credit Agreement and Promissory Notes are significant equity holders, the Company cannot provide any assurance that any such refinancing's will be available on terms favorable to the Company, or available at all. The inability to refinance the Credit Agreement and/or Promissory Notes could have a material negative impact to the Company's operations. 25
Financial Impact of COVID-19 Pandemic
COVID-19 has had an impact on the Company. The primary impacts have included a transition to a significant amount of remote workers as well as changes to customer origination sources. Fortunately, regarding tele-work, ourSouth Florida location required a thorough Hurricane Impact plan that enabled all our employees to work remotely if required. Early in the second quarter of 2020,FlexShopper pivoted that Hurricane Plan to a COVID-19 plan in order to allow employees to work outside of the office. As of the end of October, approximately 85% of our employees are working remotely. 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.FlexShopper continues to explore options to bring employees back into the workplace on a rotational basis. The other primary impact has been on customer origination sources. 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 over the second quarter and will continue to have an impact while COVID-19 mandates limit operations of retailers. Same-store origination amounts in these channels are currently 81% of their February results, have recovered substantially from their lowest point and continue to show improvement as time goes on. However, it is still unclear when this origination channel, on a per location basis, will recover to pre-COVID-19 levels. Additionally, in mid-March, both in the B2C and B2B verticals,FlexShopper reduced approval rates in order to add only new customers that would exhibit exceptional payment performance given the unknown time and breadth of the COVID-19 pandemic. In August, the Company reverted to approval rates in line with pre-Covid-19 results. Finally, the COVID-19 environment delayed the rollout of some B2B initiatives, although since June the Company has partnered with additional retailers and launched
a new pilot. Areas of the business that have not been negatively impacted by COVID-19, but potentially positively impacted, include the payment rate of the portfolio from April until August. The percentage of delinquent consumers has decreased during the government stimulus period. That has resulted in better portfolio performance than was observed prior to COVID-19. While a portion of this is related to modification to underwriting that started in the fourth quarter of 2019, there is also an unknown portion of this improved performance attributable to the government stimulus. Moreover, the improved performance coupled with participation in the CARES Act programs has enabledFlexShopper to increase cash. COVID-19 has not jeopardizedFlexShopper's ability to satisfy the Credit Agreement covenants.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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