FLEXSHOPPER, INC. The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-K. All references to our business operations refer toFlexShopper, LLC and its wholly-owned subsidiaries, unless the context indicates otherwise. Overview
SinceDecember 2013 , we have developed a business that focuses on improving the quality of life of our customers by providing them the opportunity to obtain ownership of high-quality durable products, such as consumer electronics, home appliances, computers (including tablets and wearables), smartphones, tires, jewelry and furniture (including accessories), under affordable payment lease-to-own ("LTO") purchase agreements with no long-term obligation, including through an extensive online experience. Our customers can acquire well-known brands such as Samsung, Frigidaire, Hewlett-Packard, LG, Whirlpool, Simmons, Philips, Ashley, Apple and more. We believe that the introduction ofFlexShopper's LTO programs support broad untapped expansion opportunities within theU.S. consumer e-commerce and retail marketplaces. We have successfully developed and are currently processing LTO transactions using our "LTO Engine,"FlexShopper's proprietary technology that automates the process of consumers receiving spending limits and entering into leases for durable goods to within seconds. The LTO Engine is the basis forFlexShopper's primary sales channels, which include business to consumer ("B2C") and business to business ("B2B") channels, as described in further detail below. Concurrently, e-tailers 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 onlineFlexShopper.com LTO Marketplace featuring thousands of durable goods, (2) utilizing our LTO payment method at check-out on our partners' e-commerce sites and (3) facilitating LTO transactions with retailers in their physical locations both through their in store terminals andFlexShopper applications accessed via the Internet.
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 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 aforementioned manner. The accounts receivable balances consisted of the following as ofDecember 31, 2020 andDecember 31, 2019 : December 31, December 31, 2020 2019 Accounts receivable$ 32,171,255 $ 18,249,273
Allowance for doubtful accounts (22,138,541 ) (9,976,941 )
Accounts receivable, net
18
The allowance for doubtful accounts is a significant percentage of the balance
because FlexShopper does not charge off any customer account until it has
exhausted all collection efforts with respect to each account, including
attempts to repossess items. In addition, while collections are pursued, the
same delinquent customers will continue to accrue weekly charges until all
collection efforts are exhausted. During the years ended December 31, 2020 and
2019, 19,769,114 and $28,615,411 of accounts receivable balances, respectively,
were charged off against the allowance.
December 31 , December 31,
2020 2019
Beginning balance
$ 22,138,541 $ 9,976,941 Lease Merchandise - Until all payment obligations for ownership are satisfied under the lease agreement, the Company maintains ownership of the lease merchandise. Lease merchandise consists primarily of residential furniture, consumer electronics, computers, appliances and household accessories and is recorded at cost net of accumulated depreciation. The Company depreciates leased merchandise using the straight-line method over the applicable agreement period for a consumer to acquire ownership, generally twelve months with no salvage value. Upon transfer of ownership of merchandise to customers resulting from satisfaction of their lease obligations, the related cost and accumulated depreciation are eliminated from lease merchandise. For lease merchandise returned or anticipated to be returned either voluntarily or through repossession, the Company provides an impairment reserve for the undepreciated balance of the merchandise net of any estimated salvage value with a corresponding charge to cost of lease revenue. The cost, accumulated depreciation and impairment reserve related to such merchandise are written off upon determination that no salvage value is obtainable.
The net leased merchandise balances consisted of the following as of
December 31, December 31,
2020 2019
Lease merchandise at cost $ 64,335,971 $ 46,807,570
Accumulated depreciation (19,162,357 ) (13,518,181 )
Impairment reserve (2,351,274 ) (2,226,285 )
Lease merchandise, net $ 42,822,340 $ 31,063,104 Lease merchandise at cost represents the undepreciated cost of rental merchandise at the time of purchase.
Stock Based Compensation - The fair value of transactions in which the Company 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 pricing model (BSM) to determine the fair value of all stock option awards. Key Performance Metrics We regularly review a number of 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 years endedDecember 31, 2020 and 2019 are as follows: Gross Profit 2020 2019 $ Change % Change
Gross lease billings and fees$ 128,870,481 $ 120,169,406 $ 8,701,075 7.2 Lease merchandise sold 5,144,747 3,458,529 1,686,218 48.8 Gross billings 134,015,228 123,627,935 10,387,293 8.4 Provision for doubtful accounts (31,930,714 ) (34,838,046
) 2,907,332 (8.3 ) Net revenues 102,084,514 88,789,889 13,294,625 15.0 Cost of merchandise sold (3,424,880 ) (2,282,036 ) (1,142,844 ) 50.1 Cost of lease revenues, consisting of depreciation and impairment of lease merchandise (63,308,210 ) (57,939,899 ) (5,368,311 ) 9.3 Gross profit$ 35,351,424 $ 28,567,954 $ 6,783,470 23.7 Gross profit margin 35 % 32 % 19 Adjusted EBITDA 2020 2019 $ Change % Change Net (loss) / income$ (339,896 ) $ 577,415 $ (917,311 ) (158.9 ) Provision for income taxes 663,050 216,400 446,650 206.4 Amortization of debt costs 305,797 324,686 (18,889 ) (5.8 ) Other amortization and depreciation 2,271,287 2,199,737
71,550 3.3
Interest expense 3,996,764 3,985,736 11,028 0.3
Stock compensation 981,261 595,833 385,428 64.7Product/ infrastructure expense 299,287 401,896 (102,609 ) (25.5 ) Warrants compensation- consulting agreement 139,480 127,561 11,919 9.3 Executive separation agreement 396,090 -
396,090 -
Adjusted EBITDA $ 8,713,120 $ 8,429,264 $ 283,856 3.4
We refer to Gross Profit and Adjusted EBITDA in the above tables as we use these measures to evaluate our operating performance and make strategic decisions about the Company. 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. Gross Profit represents GAAP revenue less the provision for doubtful accounts and cost of leased inventory and inventory sold as a percentage of cost of these revenues. Gross Profit provides us with an understanding of the results from the primary operations of our business. We use Gross Profit to evaluate our period-over-period operating performance. This measure may be useful to an investor in evaluating the underlying operating performance of our business. 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 substitutes for GAAP metrics such as operating income/ (loss), net income or any other performance measures derived in accordance with GAAP. Results of Operations
The following table details the operating results from operations for the years
ended
2020 2019 $ Change % Change
Gross lease billings and fees 128,870,481 $ 120,169,406 $ 8,701,075 7.2
Provision for doubtful accounts (31,930,714 ) (34,838,046 ) 2,907,332 (8.3 )
Net lease billings and fees 96,939,767 85,331,360 11,608,407 13.6
Lease merchandise sold 5,144,747 3,458,529 1,686,218 48.8
Total revenues 102,084,514 88,789,889 13,294,625 15.0
Cost of lease revenues and merchandise sold 66,733,090 60,221,935 6,511,155 10.8
Marketing 5,880,063 3,649,292 2,230,771 61.1
Salaries and benefits 10,440,693 8,469,334 1,971,359 23.3
Other operating expenses 14,404,953 11,345,091 3,059,862 27
Operating income 4,625,715 5,104,237 (478,522 ) (9.4 )
Interest expense 4,302,561 4,310,422 (7,861 ) (0.2 )
Provision for income taxes 663,050 216,400 446,650 206.4
Net (loss) / income (339,896 ) $ 577,415 $ (237,519 ) 41.1
20
Total lease revenues for the twelve months ended December 31, 2020 were
$96,939,767 compared to $85,331,360 for the twelve months ended December 31,
2019 , representing an increase of $11,608,407 , or 13.6 %. Continued growth in
repeat customers coupled with acquiring new customers and more efficient
marketing spend is primarily responsible for the increase in leases and related
revenue.
Cost of lease revenue and merchandise sold for the twelve months ended December
31, 2020 was $66,733,090 compared to $60,221,935 for the twelve months ended
December 31, 2019 , representing an increase of $6,511,155 increase, or 10.8 %.
Cost of lease revenue and merchandise sold for the twelve months ended December
31, 2020 was comprised of depreciation expense and impairment of lease
merchandise of $64,263,603 , the net book value of merchandise sold of $3,424,880
partially offset by merchant rebates of $955,393 . Cost of lease revenue and
merchandise sold for the twelve months ended December 31, 2019 is comprised of
depreciation expense on lease merchandise of $58,253,095 , the net book value of
merchandise sold of $2,282,036 partially offset by merchant rebates of $313,196 .
As the Company's lease revenues increase, the direct costs associated withthem also increase. Marketing expenses in the twelve months endedDecember 31, 2020 was$5,880,063 compared to$3,649,292 in the twelve months endedDecember 31, 2019 , an increase of 2,230,771 or 61.1%. 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 twelve months endedDecember 31, 2020 was$10,440,693 compared to$8,469,334 in the twelve months endedDecember 31, 2019 , an increase of$1,971,359 , or 23.3%. The hire of certain key management and the increase in contractors that took place mainly in the fourth quarter of 2020 to handle the volume increase of the holiday season were the drivers for the increase in salaries and benefits expenses.
Other operating expenses for the years ended
Key operating expenses for the years ended
2020 2019
Amortization and depreciation
1,879,978 1,834,897
Stock compensation expense 981,261 595,833
Customer verification expense 2,791,114 1,791,557
Other 2,699,385 2,015,532
Total $ 14,404,953 $ 11,345,091
Legal and professional fees in the twelve months ended December 31, 2020 were
$1,932,287 compared to $1,249,284 in the twelve months ended December 31, 2019 ,
an increase of $683,003 , or 54.7%. This increase was due to legal and consulting
fees related to underwriting, marketing, business intelligence enhancements
and
new product initiatives.
21
Stock compensation expense in the twelve months endedDecember 31, 2020 was 981,261 compared to$595,833 in the twelve months endedDecember 31, 2019 , an increase of$385,428 , or 64.7%. The increase was due to the election of some of the Company's directors to receive their quarterly fees in stock options instead of cash and to the grant of stock options to key employees during the year
ended onDecember 31, 2020 .
Customer verification expense in the twelve months endedDecember 31, 2020 was$2,791,114 compared to$1,791,557 in the twelve months endedDecember 31, 2019 , an increase of$999,557 , or 55.8%. The increase in marketing expenses was the main driver for more lease applications and therefore for the increase in customer verification expenses. The increased revenues were offset by the increase in expenses to enhance and scale the Company's LTO channels and support its growth resulting in net loss of$399,896 for the year endedDecember 31, 2020 and a net income of$577,415 for the year endedDecember 31, 2019 . 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 LTO 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,
Patented LTO Payment In-store LTO technology
Online LTO Marketplace Method platform
Search engine Direct to Direct to
optimization; pay-per retailers/e-tailers retailers/e-tailers
click
Partnerships with payment Consultants & strategic
Online affiliate networks aggregators relationships
Direct response Consultants & strategic
television 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-tailers. 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 "Liquidity and Capital Resources" below.
Liquidity and Capital Resources
As of
As ofDecember 31, 2020 , the Company had accounts receivables of$32,171,255 net of an allowance for doubtful accounts of$22,138,541 totaling$10,032,714 . 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. Credit Agreement OnMarch 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") withWells Fargo Bank, National Association as paying agent, various lenders from time to time party thereto and WE 2014-1, LLC, an affiliate ofWaterfall Asset Management, LLC , as administrative agent and lender (the "Lender"). The Borrower is permitted to borrow funds under the Credit Agreement based onFlexShopper'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$47,500,000 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). OnJanuary 29, 2021 , pursuant to an amendment to the Credit Agreement, the Commitment Termination Date was extended toApril 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. OnFebruary 26, 2021 an amendment to the Credit Agreement was signed to extend the deadline to receive approval from a third party to enter into a Backup Servicer Agreement. 22 The Credit Agreement provides thatFlexShopper 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 requiringFlexShopper 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 certainFlexShopper 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. 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 is pursuing a refinancing of both related party subordinated notes with a non-related party note with a term that is similar to the Credit Agreement. Besides extending the maturity date, no material changes are expected in the terms of the interest rate of the new subordinated facility. If the Company is unsuccessful refinancing the related party notes, then the Company does not foresee any difficulty in extending the maturity of the current related party subordinated notes The Company applied for and received a loan (the "Loan") onMay 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 enactedMarch 27, 2020 , and administered through theU.S. Small Business Administration (the "SBA"). 23 The Loan is evidenced by a promissory note (the "Note"), datedApril 30, 2020 , issued by the Borrower to the PPP 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 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 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 believes that it used the entire Loan amount for designated qualifying expenses and has submitted a loan forgiveness application to the PPP Lender
that is pending review. Cash Flow Summary
Cash Flows from Operating Activities
Net cash used by operating activities was$5,207,547 for the year endedDecember 31, 2020 and was primarily due to the purchases of leased merchandise and the add back of provision for doubtful accounts, partially offset by the change in accounts receivable and the add back of depreciation and impairment on leased merchandise. Net cash used by operating activities was$469,461 for the year endedDecember 31, 2019 and was primarily due to the purchases of leased merchandise and the change in accounts receivable partially offset by net income and the add back of depreciation and impairment on leased merchandise and provision for doubtful accounts.
Cash Flows from Investing Activities
For the year endedDecember 31, 2020 , net cash used in investing activities was$3,098,194 comprised of$732,582 for the purchase of property and equipment and$2,365,612 for capitalized software costs. For the year endedDecember 31, 2019 , net cash used in investing activities was$2,241,172 comprised of$110,249 for the purchase of property and equipment and$2,130,923 for capitalized software costs.
Cash Flows from Financing Activities
Net cash provided by financing activities was$9,978,501 for the year endedDecember 31, 2020 primarily due to the funds drawn on the Credit Agreement of$15,033,000 and$1,914,100 of proceeds received under the Paycheck Protection Program, offset by repayments of amounts borrowed under the Credit Agreement of$7,023,250 .
Net cash provided by financing activities was$3,437,895 for the year endedDecember 31, 2019 primarily due to the funds drawn on the Credit Agreement of$12,396,078 and$2,940,000 of net funds drawn on promissory notes, offset by repayments of amounts borrowed under the Credit Agreement of$11,815,488 .
Capital Resources and Financial Condition
To date, funds derived from the sale ofFlexShopper's common stock, warrants and series 2 convertible preferred stock and the Company's ability to borrow funds against the lease portfolio have provided the liquidity and capital resources necessary to fund its operations.
Impact of Inflation and Changing Prices
During the two most recent fiscal years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.
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 ofDecember 2020 , 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. 24 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 first half of the third quarter and will continue to have a limited impact while COVID-19 mandates limit operations of retailers. Same-store origination amounts in these channels have recovered to their pre-pandemic levels. However, it is still unclear when our retailer partners will allow our sales support staff to resume training in many of these store locations due to COVID-19 restrictions. 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 covenants contained in its Credit Agreement.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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