ALFI, INC. Unless the context requires otherwise, references to the "Company," "Alfi ," "we," "us" and "our" refer toAlfi, Inc. , aDelaware corporation and its wholly owned subsidiary,Alfi (N.I.), Ltd , formed inBelfast, Northern Ireland onSeptember 18, 2018 . Unless otherwise noted, the share and per share information in this Quarterly Report reflect a forward stock split of the Common Stock privately held before the IPO at a ratio of 1.260023:1 effective onMarch 15, 2021 .
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements generally relate to future events or our future
financial or operating performance. Forward-looking statements in this Quarterly
Report include statements regarding our business and technology development, our
strategy, future operations, anticipated financial position, estimated revenues
and losses, projected costs, prospects, plans and objectives of management. In
some cases, you can identify forward-looking statements because they contain
words such as "may," "should," "expects," "plans," "anticipates," "could,"
"intends," "target," "projects," "contemplates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these words or other
similar terms or expressions that concern our expectations, strategy, plans or
intentions. These forward-looking statements are not guarantees of future
performance; they reflect our current views with respect to future events and
are based on assumptions and are subject to known and unknown risks,
uncertainties and other factors that
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may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
We discuss many of these risks in other filings we make from time to time with theSEC . Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements. Investors should read this Quarterly Report, and the documents that we reference in this Quarterly Report and have filed with theSEC , with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Overview
We seek to provide solutions that bring transparency and accountability to the DOOH advertising marketplace.Alfi uses artificial intelligence and big data analytics to measure and disseminate audience presence and audience demographics. Our computer vision technology is powered by proprietary artificial intelligence, to determine the relevant demographic and geospecific information of the audience in front of anAlfi -enabled device, such as a tablet or kiosk.Alfi can then deliver in real-time, the advertisements to that particular viewer based on the viewer's demographic profile and/or geolocation.Alfi is designed to deliver the right marketing content, to the right person at the right time in a responsible and ethical manner. By delivering the advertisements most relevant to the audience in front of the device, we connect our advertising customers to the viewers they seek to target. The result is higher click through rates ("CTRs"), higher QR code scans and higher cost per thousand rates ("CPMs").Alfi seeks to solve the problems facing advertisers in the DOOH marketplace, as its proprietary technology is designed to measure the audience when an advertisement is displayed. Our data rich reporting functionality is able to inform the advertiser exactly when someone viewed each ad, as well as the general demographic and geospecific characteristics of the viewing audience.Alfi gives large and small businesses access to data-driven insights by expanding their advertising capabilities, providing analytical sophistication and delivering it all over multiple devices. In addition to the traditional Content Management System model that delivers adverts on a scheduled loop,Alfi's technology is able to first analyze the audience and determine the most relevant content to be displayed.Alfi has created an enterprise grade, multimedia computer vision and machine learning platform, capable of generating powerful advertising recommendations and insights. Multiple technologies work together with viewer privacy and data-rich reporting as our primary objectives.Alfi is able to use a facial fingerprinting process to make demographic determinations. As such,Alfi makes no attempt to identify the individual in front of the screen. Brand owners do not need to know someone's name or invade their privacy to gain a deeper understanding of the consumerswho view their content. By providing age, gender and geolocation information, we believe brand owners should have the pertinent data they need for meaningful insight. From an analytics perspective, these data points are intended to provide meaningful reporting instead of arbitrary calculations based on estimates of ad engagement.Alfi seeks to solve the problem of providing real time, accurate and rich reporting on customer demographics, usage, interactivity and engagement while never storing any personally identifiable information. No viewer is ever required, or requested by us, to enter any information about themselves on anyAlfi -enabled device. Our initial focus was to place ourAlfi -enabled devices in malls, airports rideshares and taxis. We recently shifted our focus to prioritize placement of devices in rideshares with a view toward growing that business to operate it profitably. Currently, we intend to charge customers solely based on a CPM, or ads delivered, model. As we continue to proveAlfi in the marketplace, we expect to charge customers based on a combination of CPM and CTR, and we expect we will generate higher CPM rates than typical DOOH advertising platforms because of our unique ability to only deliver ads to the customer's desired demographic. In addition, we also intend to provide the aggregated data to the brands so they can make more informed advertising decisions. 17 Table of Contents Recent Developments
Credit and Security Agreement -
OnJune 27, 2022 , the Company and a related party lender,Lee Aerospace , entered into Amendment No. 1 to the Credit Agreement and the Amended Note, pursuant to which the non-revolving line of credit available to the Company from the lender was increased to$2,750,000 (see Note 6 Debt - Related Parties). The Amendment No. 1 and the Amended Note do not otherwise amend the terms of the Credit Agreement and related documents. ThroughJune 30, 2022 , the related party lender funded to the Company$2,750,000 under the Credit Agreement.
Warrants Issued
During the six months ended
Changes in Executive Officers and Board Members
Impact of COVID-19
OnJanuary 30, 2020 , theWorld Health Organization ("WHO") announced a global health emergency caused by a new strain of the coronavirus and advised of the risks to the international community as the virus spread globally. InMarch 2020 , theWHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move and travel. COVID-19 has adversely affected the Company's financial condition and results of operations. The impact of the COVID-19 outbreak on businesses and the economy inthe United States is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact businesses and the economy is highly uncertain. Accordingly, the Company cannot predict the extent to which its financial condition and results of operation will be affected.
Results of Operations
Revenues
In general, the Company earns revenue from rideshares or SaaS contracts with
operating companies
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Operating Expenses
Compensation and benefits expenses include compensation expenses related to our
executive, finance, and administrative personnel (including salaries,
commissions, bonuses, stock-based compensation, payroll taxes, and contract
labor costs). Other general and administrative expenses include communications
and technology costs, professional fees, selling and marketing fees, legal fees,
and rent and occupancy expense.
Three-Month Period Ended
For the three months endedJune 30, 2022 , the Company's net loss increased to$5,549,426 , an increase of$1,247,704 compared with the net loss of$4,301,722 for the three months endedJune 30, 2021 . The increase was primarily due to higher operating expenses, as discussed below. Three months Three months ended Jun 30, ended Jun 30, 2022 2021 $ Change % Change Revenues$ 129,302 $ 936$ 128,366 N/M Operating expenses Compensation and benefits 1,473,201 1,197,742 275,459 23.0 % Other general and administrative 2,688,297 2,311,290 377,007 16.3 % Loss on disposal of property and equipment 849,337 - 849,337 N/M Depreciation and amortization 416,073 248,173 167,900 67.7 % Total operating expenses 5,426,908 3,757,205 1,669,703 44.4 % Operating loss (5,297,606)
(3,756,269) (1,541,337) 41.0 %
Other income (expense) Other income 41,914 16,334 25,580 156.6 % Interest expense (293,734) (561,786) 268,052 (47.7) % Total other expense (251,820) (545,453) 293,633 (53.8) %
Net loss before provision for income taxes (5,549,426) (4,301,722) (1,247,704) 29.0 % Provision for income taxes
- - - 0.0 %
Net loss after provision for income taxes
Revenues
For the three months ended
Compensation Expenses
For the three months endedJune 30, 2022 and 2021, compensation and benefits expenses were$1,473,201 and$1,197,742 , respectively. The increase of$275,459 reflected higher salary and contract labor costs related to increased headcount to support operating the Company's technology platform. The Company initiated changes during the three months endedJune 30, 2022 , including outsourcing certain jobs, to reduce compensation expenses for future periods.
Other General and Administrative Expenses
For the three months ended
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from an increase in the number of tablets in operation, and higher audit fees
related to the restatement of Prior Period Financial Statements. These increases
were partially offset by reductions in marketing and other expenses.
Loss on Disposal of Property and Equipment
During the three months endedJune 30, 2022 , the Company reviewed the carrying value of tablets for impairment and concluded that 5,600 tablets distributed to rideshare drivers were no longer in service and may not be returned to the Company. The Company recorded a charge of$833,337 for the loss on disposal associated with these tablets. In addition, during the three months endedJune 30, 2022 , the Company recorded a charge of$16,000 for the loss on disposal of furniture and fixtures located in itsBelfast , N.I. office. The Company is in negotiations with its landlord to terminate theBelfast , N.I. office lease.
Depreciation and Amortization Expenses
Depreciation and amortization expense for the three months endedJune 30, 2022 and 2021 were$416,073 and$248,173 , respectively. The three months endedJune 30, 2022 included depreciation expense for additional tablets purchased sinceJune 30, 2021 . Other Income (Expense)
Interest expense was$293,734 and$561,786 for the three months endedJune 30, 2022 , and 2021, respectively. During the three months endedJune 30, 2022 , the Company entered into a Credit Agreement with a related party pursuant to which it borrowed$2,750,000 , and it accrued interest expense on this borrowing of$293,734 . The Company incurred interest expense of$561,786 during the three months endedJune 30, 2021 , in connection with related party debt outstanding prior to its IPO. The Company repaid all related party debt inMay 2021 with a portion of the cash proceeds from its IPO.
Six-Month Period Ended
For the six months endedJune 30, 2022 , the Company's net loss increased to$10,842,027 , an increase of$3,831,474 compared with the net loss of$7,010,553 for the six months endedJune 30, 2021 . The increase was primarily due to higher operating expenses, as discussed below. 20 Table of Contents Six months Six months ended Jun 30, ended Jun 30, 2022 2021 $Change % Change Revenues$ 192,605 $ 18,386 $ 174,219 N/M Operating expenses Compensation and benefits 3,259,830 2,080,953 1,178,877 56.7 % Other general and administrative 5,843,029 3,563,149 2,279,880 64.0 % Loss on disposal of property and equipment 849,337 - 849,337 N/M Depreciation and amortization 832,645 495,488 337,157 68.0 % Total operating expenses 10,784,841 6,139,590 4,645,251 75.7 % Operating loss (10,592,236)
(6,121,204) (4,471,032) 73.0 %
Other income (expense) Other income 43,973 29,351 14,622 49.8 % Interest expense (293,764) (918,700) 624,936 (68.0) % Total other expense (249,791) (889,349) 639,558 (71.9) %
Net loss before provision for income taxes (10,842,027) (7,010,553) (3,831,474) 54.7 % Provision for income taxes
- - - 0.0 %
Net loss after provision for income taxes
Revenues For the six months endedJune 30, 2022 and 2021, net revenues were$192,605 and$18,386 , respectively. During the six months endedJune 30, 2022 , the Company earned revenues from customers for advertising delivered throughAlfi -owned devices. The revenues earned during the six months endedJune 30, 2021 related toAlfi's first SaaS contract revenue generated from a retailer that paidAlfi for the cost of the initial pilot for the company.
Compensation Expenses
For the six months endedJune 30, 2022 and 2021, compensation and benefits expenses were$3,259,830 and$2,080,953 , respectively. The increase of$1,178,877 reflected higher salary and contract labor costs related to increased headcount to support operating the Company's technology platform. The Company initiated changes during the six months endedJune 30, 2022 , including outsourcing certain jobs, to reduce compensation expenses for future periods.
Other General and Administrative Expenses
For the six months ended
Loss on Disposal of Property and Equipment
During the six months endedJune 30, 2022 , the Company reviewed the carrying value of tablets for impairment and concluded that 5,600 tablets distributed to rideshare drivers were no longer in service and may not be returned to the Company. The Company recorded a charge of$833,337 for the loss on disposal associated with these tablets. 21
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In addition, during the six months endedJune 30, 2022 , the Company recorded a charge of$16,000 for the loss on disposal of furniture and fixtures located in itsBelfast , N.I. office. The Company is in final negotiations with its landlord to terminate theBelfast , N.I. office lease.
Depreciation and Amortization Expenses
Depreciation and amortization expense for the six months endedJune 30, 2022 and 2021 were$832,645 and$495,488 , respectively. The six months endedJune 30, 2022 included depreciation expense for additional tablets purchased sinceJune 30, 2021 . Other Income (Expense) Interest expense was$293,764 and$918,700 for the six months endedJune 30, 2022 , and 2021, respectively. DuringApril 2022 , the Company entered into a Credit Agreement with a related party pursuant to which it borrowed$2,750,000 , and it accrued interest expense on this borrowing of$293,734 . The Company incurred interest expense of$918,700 during the six months endedJune 30, 2021 , in connection with related party debt outstanding prior to its IPO. The Company repaid all related party debt inMay 2021 with a portion of the cash proceeds from its IPO.
Liquidity and Capital Resources
As of the date of this Quarterly Report, the Company has not yet generated substantial revenue from customers and business activity has mainly consisted of cash outflows associated with its business development activities. These conditions indicate that there is substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of the consolidated financial statements. The Company's primary source of operating funds since inception throughApril 2021 was cash proceeds from the private placements of preferred equity and debt securities. During 2021, the Company completed its IPO yielding net proceeds to the Company of approximately$15.7 million from the sale of Common Stock and warrants and approximately$16.0 million from the exercise of warrants. The capital raised included funding for working capital to launch and expand operations in accordance with its business model. OnApril 12, 2022 , the Company entered into the Credit Agreement with a related party lender,Lee Aerospace , pursuant to which the Company could borrow under a non-revolving line of credit up to$2,500,000 for up to one year. OnJune 27, 2022 , the Company and the related party lender entered into Amendment No. 1 and an Amended Note, pursuant to which the non-revolving line of credit available to the Company from the lender was increased to$2,750,000 . The Company's ability to draw on the non-revolving line of credit, to the extent available under the Credit Agreement, is in the lender's sole discretion and subject to the Company requesting such additional funds from the lender in accordance with the Credit Agreement, the accuracy of the Company's representations in the Credit Agreement and related documents, and that no default under the Credit Agreement has occurred and is continuing under the Credit Agreement. ThroughJune 30, 2022 , the lender funded to the Company$2,750,000 under the Credit Agreement. The Amended Note matures on the earlier of: (i) the date upon which the Company consummates a debt or equity financing in an amount equal to or greater than$4,000,000 or (ii)April 12, 2023 . The Company has borrowed the maximum amount available under the Credit Agreement. Since its inception, the Company has generated only nominal revenue from customers and business activity and currently has very limited cash on hand. The Company is endeavoring to raise additional capital through debt or equity financing, but there is no assurance that additional capital will be available on terms acceptable to the Company or will be sufficient to enable the Company to complete its development activities or sustain operations. If the Company is unable to raise sufficient additional capital to sustain operations, then it will have to further extend payables, reduce overhead, or scale back its current business plan until such additional capital is raised, any of which could have a material adverse effect on the Company. There is no assurance that such a plan will be successful. If the Company is unable to raise sufficient additional capital to sustain operations, then the Company will be required to pursue other alternatives which may include selling assets, selling or merging its business, ceasing operations or filing a petition for bankruptcy (either liquidation or reorganization) under applicable bankruptcy laws. 22
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Off-Balance Sheet Arrangements
We did not have, during the period presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Significant Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements as well as the reported expenses during the reporting periods. Actual results may differ materially from these estimates. We believe that the assumptions and estimates associated with the evaluation of revenue recognition criteria, including the determination of revenue recognition as net versus gross in our revenue arrangements, useful lives of long-lived assets and stock-based compensation expense have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ materially from these estimates.
Our significant accounting policies are more fully described in our consolidated financial statements (Note 2) included in this Quarterly Report.
Recently Issued Accounting Standards
Our analysis of recently issued accounting standards are more fully described in our consolidated financial statements (Note 2) included in this Quarterly Report.
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