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Leases

9 Months Ended

Sep. 30, 2021

4. LEASES

Refer to Note 2 to these consolidated financial statements for further information about the Company’s revenue generating activities as a lessor. All the Company’s customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.

Lease Commitments

In August 2017, FlexShopper entered into a 12-month lease with two additional three-year options for retail store space in West Palm Beach, Florida. In April 2018, FlexShopper exercised its option to extend the term of the lease to September 30, 2021. In March 2021, FlexShopper and the lessor agreed on the early termination of the lease for this property. The monthly rent for this space was approximately $2,300 per month.

In January 2019, FlexShopper entered into a 108-month lease with an option for one additional five-year term for 21,622 square feet of office space in Boca Raton, FL to accommodate FlexShopper’s business and its employees (the “January 2019 Lease”). The monthly rent for this space is approximately $31,500 with annual three percent increases throughout the initial 108-month lease term beginning on the anniversary of the commencement date.

The rental expense for the nine months ended September 30, 2021 and 2020 was approximately $492,000 and $519,000 respectively. At September 30, 2021, the future minimum annual lease payments are approximately as follows:

2021	$	103,000
2022		417,000
2023		427,000
2024		435,000
2025		443,000
Thereafter		1,230,000
	$	3,055,000

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included in the Company’s consolidated balance sheets beginning January 1, 2019.

Supplemental balance sheet information related to leases is as follows:

	Balance Sheet Classification	September 30, 2021		December 31, 2020
Assets
Operating Lease Asset	Property and Equipment, net	$	1,566,055	$	1,673,432
Finance Lease Asset	Property and Equipment, net		20,890		27,106
Total Lease Assets		$	1,586,945	$	1,700,538

Liabilities
Operating Lease Liability - current portion	Current Lease Liabilities	$	155,766	$	153,019
Finance Lease Liability - current portion	Current Lease Liabilities		8,508		7,707
Operating Lease Liability - net of current portion	Long Term Lease Liabilities		1,806,562		1,925,498
Finance Lease Liability - net of current portion	Long Term Lease Liabilities		15,373		21,857
Total Lease Liabilities		$	1,986,209	$	2,108,081

Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company generally uses the base, non-cancelable, lease term when determining the lease assets and liabilities. Under the short-term lease exception provided within ASC 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement.

Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company’s leases:

	Weighted Average Discount Rate			Weighted Average Remaining Lease Term (in years)
Operating Leases		13.03	%		7
Finance Leases		13.32	%		3

Operating lease expense is recognized on a straight-line basis over the lease term within operating expenses in the Company’s consolidated statements of operations. Finance lease expense is recognized over the lease term within interest expense and amortization in the Company’s consolidated statements of operations. The Company’s total operating and finance lease expense all relate to lease costs and amounted to $97,063 and $110,021 for the three months ended September 30, 2021 and 2020, respectively and $303,871 and $329,094 for the nine months ended September 30, 2021 and 2020, respectively.

Supplemental cash flow information related to operating leases is as follows:

	Nine Months ended
	September 30,
	2021		2020
Cash payments for operating leases	$	300,415	$	116,860
Cash payments for finance leases		8,388		8,253
New finance lease asset obtained in exchange for lease liabilities		-		4,033

Below is a summary of undiscounted operating lease liabilities as of September 30, 2021. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the operating lease liabilities included in the consolidated balance sheet.

	Operating Leases
2021	$	100,357
2022		405,443
2023		417,606
2024		430,134
2025		443,038
2026 and thereafter		1,229,925
Total undiscounted cash flows		3,026,503
Less: interest		(1,064,175	)
Present value of lease liabilities	$	1,962,328

Below is a summary of undiscounted finance lease liabilities as of September 30, 2021. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance lease liabilities included in the consolidated balance sheet.

	Finance Leases
2021	$	2,796
2022		11,184
2023		9,699
2024		4,782
Total undiscounted cash flows		28,461
Less: interest		(4,580	)
Present value of lease liabilities	$	23,881