S-1/A: FlexShopper Announces Rights Offering to Raise Capital and Repurchase Preferred Stock

FlexShopper is conducting a rights offering to raise capital, repurchase preferred stock, and reduce debt.

Summary

• FlexShopper is offering non-transferable subscription rights to existing shareholders to purchase units, each consisting of one share of common stock and three series of common stock purchase rights.
• The company aims to raise capital to repurchase series 2 convertible preferred stock, reduce debt, and fund potential acquisitions.
• The offering includes a basic subscription right and an over-subscription privilege, with the maximum number of shares available for issuance being 70 million.
• The Series Rights are exercisable at a price equal to the higher of the Unit Subscription Price or a percentage of the VWAP of the common stock over the last three trading days prior to the expiration date of each Series Right, with a maximum price cap.
• NRNS Capital Holdings LLC, managed by FlexShopper's Chairman, may purchase up to $10.6 million of units through the conversion of outstanding promissory notes.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the company is taking steps to improve its capital structure, the offering also carries risks of dilution and potential stock price decline. The company is also facing legal challenges with patent infringement lawsuits.

Positives

• The rights offering provides a mechanism for existing shareholders to participate in the company's growth.
• The company is taking steps to improve its capital structure by repurchasing preferred stock at a discount and reducing debt.
• The offering could provide additional liquidity for general corporate needs and potential acquisitions.
• The company has a proprietary LTO engine and a scalable business model.

Negatives

• The offering may cause the price of the common stock to decline.
• Existing shareholders who do not participate in the offering will experience dilution.
• The Subscription Rights and Series Rights are non-transferable, limiting flexibility for shareholders.
• The company has broad discretion in the use of the net proceeds from the offering.
• The market price of the common stock may never exceed the exercise price of the Series Rights.

Risks

• The offering may cause the price of the common stock to decline, and the price may not recover.
• Shareholders who do not fully exercise their rights will experience dilution.
• The Subscription Rights and Series Rights are non-transferable and there will be no market for them.
• The market price of the common stock may never exceed the exercise price of the Series Rights.
• The company may have broad discretion in the use of the net proceeds from the offering and may not use those net proceeds effectively.
• The company may terminate the offering at any time.
• The company may not receive all of the units for which shareholders subscribe under the over-subscription privilege.
• The receipt of Subscription Rights may be treated as a taxable dividend to shareholders.
• The company's ability to use net operating loss carryforwards may be subject to certain limitations.
• Moody Capital, as dealer-manager, is not acting as an underwriter.
• The company does not have a standby purchase agreement, backstop commitment or similar arrangement in connection with this offering.
• The company has not paid dividends and does not expect to pay dividends in the future.
• Because shareholders may not revoke or change their exercise of the Series Rights, they could be committed to buying shares above the prevailing market price at the time this offering is completed.
• Because the Series Rights are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.
• The company's executive officers may face clawback and compliance obligations, including insider trading restrictions, which could impact the business, financial position and reputation.

Future Outlook

The company intends to use the net proceeds from this offering to (i) provide funding for the repurchase of our series 2 convertible preferred stock from B2 FIE V LLC, (ii) reduce a portion of the outstanding balance under our credit facility with Waterfall, (iii) finance the costs of potential acquisitions or investments in competitive and complementary payment solution businesses, and (iv) apply the balance for working capital and general corporate purposes.

Management Comments

• Our board of directors has approved this offering and has evaluated and determined the pricing and financial terms of the securities offered.
• After careful review and analysis by our board of directors, we believe this offering is in the best interests of our company and its stockholders.
• We believe we have created a unique platform in which our B2B and B2C sales channels complement each other.

Industry Context

The non-prime consumer lease and finance industry is experiencing growth due to factors such as declining purchasing power, high credit card balances, and technological advancements in underwriting.

Comparison to Industry Standards

• The document mentions competitors such as Upbound Group, Inc. (including its Acima subsidiaries) and Katapult Holdings, Inc., which are also in the lease-to-own space.
• FlexShopper differentiates itself through its proprietary LTO Engine, risk analytics-powered underwriting model, and a custom e-commerce platform.
• Unlike some competitors that focus on in-store consumers, FlexShopper has a strong online presence and instant underwriting process for all consumer channels.
• FlexShopper also emphasizes its relationships with distributors and manufacturers to increase retail margins on its marketplace.

Legal Proceedings

• The company has filed patent infringement lawsuits against Upbound Group, Inc. and Katapult Holdings, Inc.

Related Party Transactions

• NRNS Capital Holdings LLC, managed by FlexShopper's Chairman, may purchase up to $10.6 million of units through the conversion of outstanding promissory notes.

Stakeholder Impact

• Shareholders who do not participate in the offering will experience dilution.
• Shareholders who do participate in the offering may experience a decline in the stock price.
• The company's employees may be impacted by the company's financial performance and strategic decisions.
• Customers may benefit from the company's improved financial position and expanded payment options.
• Suppliers and creditors may be impacted by the company's financial performance and debt reduction efforts.

Next Steps

• Shareholders need to decide whether to exercise their Subscription Rights and Series Rights.
• The company will proceed with the offering and use the proceeds as outlined in the prospectus.
• The company will continue to pursue strategic retail and liquidity partnerships.
• The company will continue to optimize marketing across all channels.

Key Dates

Keywords

rights offering, subscription rights, common stock, preferred stock, capital raise, debt reduction, series rights, dilution, non-transferable, Moody Capital, FlexShopper