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Aug. 16, 2021, 4:42 p.m. EDT

10-Q: ALFI, INC.

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless the context requires otherwise, references to the "Company," "Alfi," "we," "us" and "our" refer to Alfi, Inc., a Delaware corporation and its wholly owned subsidiary, Alfi NI Ltd. formed in Belfast, Northern Ireland on September 18, 2018. Unless otherwise noted, the share and per share information in this Quarterly Report on Form 10-Q reflect a forward stock split of the Common Stock privately held before the IPO at a percentage of 1.260023 effective on March 15, 2021.

Cautionary Note Regarding Forward-Looking Statements

Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Registration Statement on Form S-1, as amended, (File No. 333-251959) filed with the SEC, with the understanding that our actual future results may be materially different from what we expect. We qualify all our forward-looking statements by these cautionary statements.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, the impact of COVID-19 on our business, operations, and the markets and communities in which we, our clients, and partners operate, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition.

In some cases, you can identify forward-looking statements because they contain words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "suggests," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions.

These statements are not guaranteeing 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 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 the Securities and Exchange Commission (the "SEC"). Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, 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.


Alfi is a Delaware corporation, incorporated in July 2018, to solve some of the most significant problems facing the global digital advertising industry.

We provide solutions that bring transparency and accountability to the digital out of home, or "DOOH," advertising marketplace. Alfi uses artificial intelligence and big data analytics to measure and predict human response. Our computer vision technology is powered by proprietary artificial intelligence, to determine the age, gender, ethnicity, geolocation, and emotion of someone in front of an Alfi-enabled device, such as a tablet or kiosk. Alfi can then deliver in real-time, advertisements to that particular viewer based on the viewer's demographic and psychographic profile. Alfi delivers the right content, to the right person at the right time in a responsible and ethical manner. By delivering advertisements a viewer wants, we deliver our advertising customers the viewers they want, and the result is higher click through rates, or CTRs and higher CPM, cost per thousand, rates.

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Alfi has created an enterprise grade, multimedia computer vision and machine learning platform, generating powerful advertising recommendations and insights. Multiple technologies work together in Alfi with viewer privacy and reporting objectives as our two goals. Alfi uses 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 don't need to know your name and invade your privacy to gain a deeper understanding of the consumers who view their content. By providing age, gender, ethnicity and geolocation information, brand owners have all of the data they need for meaningful interaction. The artificial intelligence and machine learning components of Alfi also gather retina tracking data, keyword recognition and voice intonation without compromising the privacy of the end-user. From an analytics perspective, these data points give meaningful reporting instead of arbitrary calculations of ad engagement.

Alfi solves the problem of providing real time, accurate and rich reporting on customer demographics, usage, interactivity and engagement while never storing any personal identifiable information. No viewer is ever required, or requested by us, to enter any information about themselves on any Alfi-enabled device. Alfi was designed to be fully compliant with all privacy regulations. Alfi is fully compliant with the General Data Protection Regulation, in Europe, California Consumer Privacy Act, and the Health Insurance Portability and Accountability Act.

Our focus continues to place our Alfi-enabled devices in rideshares and airports. According to Harvard Business School study published in February 2018, Americans are estimated to have spent more than 37 billion hours waiting in rideshares. Alfi has been beta testing Alfi-enabled devices in these locations to determine market receptivity to smart screens. From our testing, Alfi has been able to achieve CTRs, of between 6% and 9%, but believes it could achieve CTRs exceeding 15% as Alfi- enabled devices are deployed more widely. By comparison, according to Acquiso in 2018, the average CTR for a display banner ad was less than 1%.

We began generating revenue from our Alfi-enabled devices (kiosks) in the first quarter of 2021 and are in the process of rolling out our rideshare tablets. Based on current customer requests, we now charge customers in one of the following ways: CPM, ads placed, or share-of-voice. As we continue to expand Alfi in the market, we expect to charge customers based on a combination of CPM, share-of-voice, and CTR, and that we will generate higher CPM rates than typical DOOH advertising platforms because we will only deliver ads to the customer's desired demographic. In addition, we will provide the aggregated data to the brands, on a subscription basis, so they can make more informed advertising decisions.

Alfi generates revenues in three different fashions. First, Alfi sells advertising and content on its Alfi-enabled tablets and other devices such as kiosks. Second, Alfi licenses its technology to other companies as a Software-as-a-Service (SaaS) product. Third, Alfi sells the aggregated data reflecting viewer engagement it derives from users of an Alfi-enabled device to advertisers and content providers. Alfi has different customers for each of its revenue streams: (1) companies that buy content space, like CNN, NBC, etc., or companies that buy ad space like Coke, Ford, etc.; (2) companies that pay a per screen fee on a SaaS basis to operate Alfi software on their network, where they sell ads and content and on their own devices; and (3) companies that purchase viewer engagement data on a subscription basis.

With respect to Alfi-enabled tablets placed in rideshares or devices placed into service by Alfi, Alfi will recognize revenue on a cost per thousand impression (CPM) basis or a related basis based on a customer's request - ad placed, CPM or share-of-voice, for both the content and advertisements. Alfi has contracts (insertion orders) for both the advertiser and the content provider that specify the amounts to be paid to Alfi for displaying the advertisement or content. The number of impressions, share-of-voice or ad placed by the advertiser or content provider is willing to pay and the duration of each campaign is set by the advertiser or content provider on the insertion order. Content and advertisements are provided to Alfi by companies desiring to deliver content for viewer engagement. Additionally, Alif is in the process of engaging programmatic ad providers to operate in its tablets and kiosks. In general, Alfi does not pay for content, to the extent it does, the cost of acquiring content is expensed as cost of sales. Alfi recognizes revenue under these contracts upon the validated delivery of impressions, share-of-voice purchased, or ads placed / viewed on the Alfi-enabled devices.

With respect to SaaS licenses, Alfi has enter into two signed license agreements with third parties; both agreements use Alfi placed devices on customer's property and share in advertising revenues. The customer and Alfi work together for advertising revenue generation and the devices have remote management access and data reporting that the Alfi platform provides. Alfi expects that revenue from these two contracts will begin in the fourth quarter of 2021. Alfi will recognize the revenue from these contracts monthly, in accordance with Topic 606.

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Alfi believes that the aggregated data of viewer engagement has significant value for advertisers and content providers. Alfi plans to offer such data to third parties on a subscription basis and recognize revenue as the subscription payments are received depending on the nature of the contract, beginning in the first quarter of 2022. For subscriptions that are prepaid, revenue will be recognized as earned; with respect to subscriptions that are not prepaid, revenue will be recognized when the data is delivered to the subscriber.

As of June 30, 2021 Alfi has distributed and is in the process of activating 1,500 devices tablets and kiosks at no cost to rideshare, mall, or airport owner(s). Alfi has 8,100 devices on hand and placed an order for an additional 10,000 devices bringing the total devices used in rideshares to 19,600. It is the viewers of the Alfi-enabled device, rather than the rideshare driver, mall or airport owner that the Alfi-enabled device engages with and to whom Alfi delivers advertising and content. It is projected that Alfi will begin selling advertising and content for those tablets placed into operation in the third quarter of 2021.

Alfi has not yet recognized revenue from any of its three potential revenue sources. Irrespective of revenue generation on devices, when they are physically placed into service, devices are expensed in accordance with the Company's Cost of Sales policy.

Recent Developments

Initial Public Offering

On May 3, 2021, the Company's registration statement on Form S-1(File No. 333-251959) was declared effective by the SEC. In connection with the IPO, the Company issued and sold 4,291,045 shares of Common Stock and warrants to purchase 4,291,045 shares of Common Stock (including 559,701 shares and warrants to purchase 559,701 shares issued pursuant to the exercise in full of the underwriters' overallotment option) at the combined public offering price of $4.15 for aggregate gross proceeds of approximately $17.8 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by Alfi.

Warrants Exercised

As of June 30, 2021, warrant holders have exercised 3,385,746 warrants providing Alfi with $15,472,859 in additional funding. As of August 13, 2021, warrant holders have exercised a total of 3,507,237 warrants providing a total of $16,028,073 in additional funding. As of August 13, 2021, there were 783,808 warrants outstanding.

Share Buy-Back

On June 23, 2021, Alfi announced a $2.0M buy-back of its stock. The buy-back was completed on July 9, 2021, with Alfi acquiring 137,650 shares that are recorded as treasury stock.

Office Condo

The Company signed a contract to acquire additional office space for $1,100,000 in Miami Beach, FL on July 12, 2021. The purchase is expected to close late August.

Results of Operations

Revenues, net

In general, Alfi has three main revenue streams; rideshares via the Alfi Network, SaaS contracts with operating companies who maintain their own network and lease the Alfi platform, and annual data subscriptions of Alfi's impressions gathered from the platform. Net revenue represents gross revenue less any commissions or related expenses required based on the contract with a customer.

Cost of Sales

The cost of goods sold expenses consists of costs associated with the operation of our technology platform, including compensation expenses related to our technology personnel (including salaries, commissions, bonuses, stock-based compensation and taxes), fees for independent contractors, computer hosting and technology-related subscription costs.

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Operating Expenses

General and administrative expenses consist primarily of compensation expenses related to our executive, finance, and administrative personnel (including salaries, commissions, bonuses, stock-based compensation, and taxes), professional fees, selling and marketing fees, amortization & depreciation, legal, rent expense, general and administrative costs, and fees for vendors, independent contractors and bad debt expense.

Three Months Ended June 30, 2021, compared to three months ending June 30, 2020

                                                        Unaudited         Unaudited
                                                       Three months      Three months
                                                      ended June 30,    ended June 30,
                                                           2021              2020
        Revenues, net                                            936                 -
        Cost of sales, net                                   161,377                 -
        Gross margin                                       (160,441)                 -
        Operating expenses
        General and adminstrative                          4,255,404                 -
        Depreciation and amortization                        229,317             5,859
        Total operating expenses                           4,484,721             5,859
        Other income (expense)
        Other income                                          14,478                 -
        Interest expense                                    (61,787)          (17,913)
        Total other income (expense)                        (47,309)          (17,913)
        Net income (loss)                                (4,692,471)          (23,772)
        Earnings (loss) per share (EPS) - basic               (0.44)            (0.01)
        Weighted average common shares outstanding        10,701,717         3,150,000

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Revenues, net

For the three months ended June 30, 2021, net revenues were $936, compared to -0- revenues realized for the three months ending June 30, 2020.

Alfi began its rideshared program roll-out in the second quarter in Miami, Florida. As of June 30, 2021, the Company has installed 500 tablets as it begins its roll-out implementation plan across fourteen major metro areas in the United States.

Cost of Sales

For the three months ended June 30, 2021, cost of goods sold expense of $161,377 represent a 100% increase when compared to the three months ended June 30, 2020. The increase is primarily due to material and labor costs for SaaS contracts and the rideshare rollouts.

Operating Expenses

For the three months ended June 30, 2021, operating expenses increased to $4,484,721 from $5,859 an increase of $4,478,862 when compared to the three months ended June 30, 2020. The increases are primarily due to staffing and general business launch expenses post-IPO and changes in amortization and depreciation. Alfi continues to staff up with full time employees to support the company's launch and stock-based compensation incurred as a component of the bridge loan agreements.

Other Expense

For the three months ended June 30,2021, other expense increased to ($47,309) from ($17,913) an increase of ($29,396) for the three months ended June 30, 2020. The increase is primarily due to interest expense associated with related party financing.

Net Loss

For the three months ended June 30, 2021, the net loss increased to ($4,692,471) from ($23,772), an increase of ($4,668,699) vs. the three months ended June 30, 2020. The increase is primarily due to stock-based compensation (a non-cash expense) and general increases in all other expense categories as Alfi expanded its staff, prepared for its IPO, and launched its technology platform.

Liquidity and Capital Resources

From the inception of Alfi in 2018 until our IPO, Alfi's liquidity was provided by equity and related party debt financing. Post IPO, all outstanding debt, including the Senior Related Party Note and all Bridge Loan Agreements, totaling $5,808,808 were paid off utilizing a portion of the IPO proceeds. The IPO proceeds and proceeds from the exercise of warrants through June 30, 2021 totaled approximately $24.9 million. The Company is using these funds to acquire staff, tablet, and kiosk devises, make marketing investments, effect a stock buyback and fund general operating costs.

Alfi's operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and adequacy of available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, enter collaborations with other companies, or acquire other companies or technologies to enhance and/or complement our product and service offerings. We believe that our current cash balances and our anticipated cash flows from operations will be sufficient to fund the Company for the next twelve months.

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, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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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 with accounting principles generally accepted in the United States, or 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.

The accounting estimates that require our most significant, difficult, and subjective judgments have an impact on revenue recognition, financial instruments and the determination of share-based compensation and the useful lives of long-lived assets. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.

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 condensed 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 condensed consolidated financial statements (Note 3) included elsewhere in this quarterly report.

Recently Issued Accounting Standards

Our analysis of recently issued accounting standards are more fully described in our condensed consolidated financial statements (Note 3) included elsewhere in this quarterly report.

Aug 16, 2021


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