UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from to
Commission File Number:
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(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: |
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(Former name or former address, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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| The | ||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Accelerated filer | ☐ |
☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 30, 2022, there were
ALFI, INC.
TABLE OF CONTENTS
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Alfi, Inc.
f/k/a Lectrefy, Inc.
Consolidated Balance Sheets
Unaudited |
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Sep 30, 2021 | Dec 31, 2020 | |||||
Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | |
| $ | |
Prepaid expenses and other |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Operating lease right-of-use asset, net |
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Asset held for sale and other assets |
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Total assets |
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| $ | |
Liabilities and Stockholders' Equity (Deficit) |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | |
| $ | |
Debt, related parties |
| — |
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Lease liability |
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Interest payable, related parties |
| — |
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Total current liabilities | | | ||||
Total liabilities |
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Stockholders' Equity (Deficit) |
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Series Seed convertible preferred stock, $ |
| — |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Common stock held in treasury at cost, $ | ( | — | ||||
Total stockholders' equity (deficit) |
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| ( | ||
Total liabilities and stockholders' equity (deficit) |
| $ | |
| $ | |
See accompanying notes to the consolidated financial statements
2
Alfi, Inc.
f/k/a Lectrefy, Inc.
Consolidated Statement of Operations
(Unaudited)
Three months | Three months |
| Nine months | Nine months | ||||||||
ended Sep 30, | ended Sep 30, |
| ended Sep 30, | ended Sep 30, | ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Revenues |
| $ | |
| $ | — | $ | | $ | — | ||
Operating expenses |
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Compensation and benefits | | | | | ||||||||
Other general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating loss | ( | ( | ( | ( | ||||||||
Other income (expense) |
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Other income |
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Interest expense |
| ( |
| ( | ( | ( | ||||||
Total other income (expense) |
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Net loss before provision for income taxes |
| ( |
| ( | ( | ( | ||||||
Provision for income taxes |
| — |
| — | — | — | ||||||
Net loss |
| $ | ( |
| $ | ( | $ | ( | $ | ( | ||
Loss per share, basic and diluted |
| ( |
| ( | ( | ( | ||||||
Weighted average shares outstanding, basic and diluted |
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See accompanying notes to the consolidated financial statements
3
Alfi, Inc.
f/k/a Lectrefy, Inc.
Consolidated Statement of Changes to Stockholders’ Equity
(Unaudited)
Total | ||||||||||||||||||||||
Series Seed Convertible | Additional | Common | Stockholders' | |||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stock Held | Equity | |||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| in Treasury |
| (Deficit) | |||||||
Balance - January 1, 2020 |
| |
| $ | |
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| $ | |
| $ | — |
| $ | ( |
| $ | — |
| $ | |
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance - March 31, 2020 |
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| — |
| ( |
| — |
| ( | ||||||
Share based compensation |
| — |
| — |
| — |
| — |
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| — |
| — |
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Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
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Balance - June 30, 2020 |
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| ( |
| — |
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Shares issued for services |
| — |
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| — |
| — |
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Share based compensation |
| — |
| — |
| — |
| — |
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| — |
| — |
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Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance - September 30, 2020 |
| | $ | |
| | $ | | $ | | $ | ( | $ | — | $ | ( | ||||||
Total | ||||||||||||||||||||||||
Series Seed Convertible | Additional | Common | Stockholders' | |||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Stock Held | Equity | |||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| in Treasury |
| (Deficit) | |||||||||
Balance - January 1, 2021 |
| | $ | |
| | $ | | $ | | $ | ( | $ | — | $ | ( | ||||||||
Shares issued with debt |
| — |
| — |
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| | — |
| — |
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Share based compensation | — | — | — | — | | — | — | | ||||||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||
Balance - March 31, 2021 |
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Shares issued with debt | — | — | | | | — | — | | ||||||||||||||||
Conversion of convertible preferred stock to common | ( | ( | | | | — | — | — | ||||||||||||||||
Shares issued for cash |
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Warrants issued for cash | — | — | — | — | | — | — | | ||||||||||||||||
Exercise of warrants | — | — | | | | — | — | | ||||||||||||||||
Shares issued for services | — | — | | | | — | — | | ||||||||||||||||
Share based compensation | — | — | — | — | | — | — | | ||||||||||||||||
Exercise of options | — | — | | | | — | — | | ||||||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||
Balance - June 30, 2021 | — | — | | | | ( | — | | ||||||||||||||||
Exercise of warrants | — | — | | | | — | — | | ||||||||||||||||
Share based compensation | — | — | — | — | | — | — | | ||||||||||||||||
Shares issued for services | — | — | | — | — | — | — | — | ||||||||||||||||
Treasury shares purchased | — | — | ( | — | — | — | ( | ( | ||||||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||
Balance - September 30, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||||
See accompanying notes to the consolidated financial statements
4
Alfi, Inc.
f/k/a Lectrefy, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine months | Nine months | |||||
ended Sep 30, | ended Sep 30, | |||||
| 2021 |
| 2020 | |||
Operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Shares issued with debt | | — | ||||
Share based compensation |
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Share based payments for services | | | ||||
Amortization of operating lease right-of-use asset | | | ||||
Changes in assets and liabilities: |
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Prepaid expenses and other assets | ( | | ||||
Other assets |
| ( |
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Accounts payable and accrued expenses |
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Lease liability |
| ( |
| ( | ||
Interest payable, related parties | ( | | ||||
Net cash used in operating activities |
| ( |
| ( | ||
Investing activities |
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Capital expenditures | ( | ( | ||||
Purchase of condominium |
| ( |
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Acquisition of intangible assets |
| — |
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Net cash used in investing activities |
| ( |
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Financing activities |
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Proceeds from related party debt payable |
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Proceeds from issuance of common stock, net |
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| — | ||
Proceeds from exercise of warrants | | — | ||||
Proceeds from exercise of options | | — | ||||
Repayments of related party debt payable |
| ( |
| — | ||
Purchase of treasury shares |
| ( |
| — | ||
Net cash provided by financing activities | | | ||||
Net change in cash and cash equivalents | | | ||||
Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period | $ | | $ | | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | | $ | — | ||
Cash paid for income tax | $ | — | $ | — | ||
Supplemental disclosure of non-cash investing and financing activities | ||||||
Conversion of preferred stock to common stock | $ | | $ | — | ||
See accompanying notes to the consolidated financial statements
5
ALFI, INC.
f/k/a LECTREFY, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS DESCRIPTION BACKGROUND
Alfi, Inc. is a C-corporation incorporated in Delaware that operates in the technology sector; specifically, Software as a Service (“SaaS”) in the Digital Out Of Home (“DOOH”) Smart Advertising segment. This segment includes artificial intelligence, machine deep learning, edge computing, Big Data, telecommunications, and the Internet of Things (IoT). Alfi, Inc. includes its wholly owned subsidiary Alfi (N.I.) Ltd, the results of which are presented on a consolidated basis in the financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). Alfi (N.I.) Ltd is a registered business in Belfast, Ireland. Collectively, the consolidated entity is referred to as the “Company” or “Alfi” throughout this Quarterly Report.
The Company's timeline of events relative to its current formation above began on April 4, 2018, when Lectrefy, Inc., a Florida corporation, was incorporated. On July 6, 2018, Lectrefy, Inc., a Delaware corporation, was incorporated. On July 11, 2018, Lectrefy, Inc., the Florida corporation, was merged into the newly created entity Lectrefy, Inc., the Delaware corporation. On July 25, 2018, Lectrefy, Inc., the Delaware corporation, became qualified to do business in Florida. On January 31, 2020, Lectrefy, Inc., the Delaware corporation, changed its name to Alfi, Inc.
On September 18, 2018, Lectrefy, (N.I.) Ltd was organized in Belfast, Ireland. On February 4, 2020, Lectrefy, (N.I.) Ltd’s name was changed to Alfi (N.I.) Ltd. On February 13, 2020, Lectrefy Inc., the Delaware corporation, registered its name change to Alfi, Inc. in the State of Florida.
Alfi seeks 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. The Company’s computer vision technology is powered by proprietary artificial intelligence, to determine the relevant demographic and geospecific information of the audience in front of an Alfi-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. By delivering the advertisements most relevant to the audience in front of the device, Alfi connects its advertising customers to the viewers they seek to target.
The Company’s initial focus is to place Alfi-enabled devices in malls, airports, rideshares and taxis. In addition, the Company has begun offering its software solution to other DOOH media operators as a SaaS product.
The Company’s primary activities since inception have been research and development, managing collaborations, and raising capital.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Alfi, Inc. and its wholly owned subsidiary, Alfi (N.I.) Ltd. Collectively, these entities make up the consolidated financial statements during the periods presented in this Quarterly Report. All significant intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
6
Revenue Recognition
Under Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606) “Revenue from Contracts with Customers” (“Topic 606”), revenue from contracts with customers is measured based on the consideration specified in the contract with the customer.
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 (“CPM”) basis or a related basis for both the content and advertisements delivered. Alfi contracts (also called insertion orders) for both the advertiser and the content provider specify the amounts to be paid to Alfi for displaying the advertisement or content. Content and advertisements are provided to Alfi by companies desiring to deliver content for viewer engagement.
With respect to SaaS licenses, Alfi has entered into two license agreements with third parties to use Alfi-placed devices on customer property and share in advertising revenues. Under these agreements, the customer and Alfi work together to generate advertising revenue, and the devices have remote management access and data reporting that the Alfi platform provides. Alfi began to earn revenue from advertisers during the fourth quarter of 2021. Alfi will recognize the revenue from these contracts monthly, in accordance with Topic 606.
Through September 30, 2021, the Company has distributed and activated into operations over
The Company recognizes revenue when earned from rideshare sources, advertisers, and content providers. Each contract for placing a device in service with rideshare, mall, or airport owners generally does not trigger a payment from such party to the Company. The Company’s contract with a device host may provide that the Company pays a revenue sharing amount, or fee, based on the revenue the Company derives from that device. The Company will expense that fee in other general and administrative expenses. Removing a tablet from the vehicle or returning it to the Company would automatically cancel the opportunity for a rideshare to receive commissions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
Property and Equipment
Property and equipment includes tablets recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of three years.
Property and equipment also includes office equipment recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which for office equipment is to
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Intangible Assets
The Company's intangible assets include capitalized software development and patent acquisition costs associated with creation of its technology. The Company places intangible assets into service upon the date in which they are available for use. Intangible assets are amortized over a
7
Prepaid Expenses and Other Assets
The Company records up-front payments for insurance and professional services as prepaid expenses.
Assets Held for Sale and Other Assets
Assets held for sale and other assets include a condominium purchased in August 2021 and sold in April 2022. The purchase and was approximately $
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. Fair values approximate carrying values for cash, accounts payable, notes payable, fixed assets, and amortizable intangible assets.
Loss Per Share
The Company computes basic net loss per share by dividing net loss per share available to stockholders of the Company’s common stock $
Potentially dilutive securities excluded from the computation of basic net loss per share as of are as follows:
September 30, | September 30, | |||
| 2021 |
| 2020 | |
Convertible Series (“Seed”) Preferred stock |
| — |
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Warrants | | — | ||
Employee stock options |
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Total potentially dilutive securities |
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Common Stock
The Company issued
Convertible Instruments
Through September 30, 2021, the Company did not record or issue convertible notes with beneficial conversion features and did not record debt discounts related to beneficial conversion features. During 2020 and 2019, the Company issued Series Seed Preferred Stock, which is convertible into Common Stock on a 1:
8
U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional.
The Company has determined that the embedded conversion options should not be bifurcated from their host instruments and the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments (the beneficial conversion feature) based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Thus,
Common Stock Purchase Warrants
The Company accounts for warrants to purchase its Common Stock in accordance with ASC 815. Proceeds from the issuance of warrants indexed to the Company’s own stock are classified in stockholders’ equity (deficit).
Stock based compensation
The Company maintains a stock equity incentive plan, the Alfi, Inc. 2018 Stock Incentive Plan (the “2018 Plan”) under which it may grant non-qualified stock options, incentive stock options, stock appreciation rights, stock awards, performance and performance-based awards, or stock units to employees, non-employee directors and consultants. The Company measures compensation expense for stock-based grants at fair value. Compensation expense is recognized over the vesting period relevant to the award.
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will be realized. The Company carries a 100% valuation reserve against deferred tax assets. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. The Company’s policy is to record tax-related interest as interest expense and tax-related penalties as general and administrative expenses in the statements of operations. The Company did not recognize any such penalties or interest during the periods presented under this Quartely Report.
Forward Stock Split
On March 1, 2021, the Company enacted a forward stock split on a
NOTE 3 GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
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.
9
The Company’s primary source of operating funds since inception through April 2021 was cash proceeds from the private placements of preferred equity and debt securities. During the nine months ended September 30, 2021, the Company completed its IPO yielding net proceeds to the Company of approximately $
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There is no assurance that such a plan will be successful.
Accordingly, the accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
NOTE 4 RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Prior Period Restatements
On March 11, 2022, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) and the Company’s management concluded that the previously issued audited financial statements for the years ended December 31, 2019 and 2020, included in the Company’s Registration Statement on Form S-1 (File No. 333-251959), and the Company’s previously issued interim financial statements included in the Company’s Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2021 and June 30, 2021 (collectively, the “Prior Period Financial Statements”), should no longer be relied upon as a result of the accounting errors described below and should be restated. Similarly, any previously furnished or filed reports, press releases, earnings releases, investor presentations or other communications describing the Prior Period Financial Statements and related financial information should not be relied upon.
In connection with the Company’s evaluation of the issues and findings identified in the Company’s previously disclosed internal independent investigation (the “Investigation”), the Company reviewed the Prior Period Financial Statements and identified the following accounting errors:
| (a) | The Company incorrectly capitalized certain general and administrative expenses incurred during the years ended December 31, 2018, 2019, and 2020, and incorrectly included those costs in intangible assets in its balance sheets as of December 31, 2019 and 2020, March 31, 2021, and June 30, 2021. |
| (b) | The Company overstated the carrying value of tablets by incorrectly reporting them at cost with no allowance for depreciation, resulting in an overstatement of other assets (complimentary devices), net, in its balance sheets as of December 31, 2019 and 2020, March 31, 2021, and June 30, 2021. |
| (c) | The Company overstated total assets and total liabilities as of December 31, 2020, by incorrectly recording a note receivable (related parties) and a liability included in current portion of long-term debt (related parties). This note receivable represents a bridge loan provided to the Company by certain related parties that was executed in December 2020 but not fully funded until April 2021. |
| (d) | The Company did not recognize and report on its balance sheets as of December 31, 2019 and 2020, March 31, 2021, and June 30, 2021, an office lease in accordance with FASB Accounting Standards Update No. 2018-11, Leases (Topic 842). |
The accompanying financial statements as of December 31, 2020 have been restated to correct the accounting errors and conform to current period presentation.
10
Impact of the Restatements
The impact of the restatements on the consolidated balance sheet as of December 31, 2020 is presented below:
As of December 31, 2020 | |||||||||
As Previously | Restatement | ||||||||
| Reported |
| Adjustments |
| As Restated | ||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | — | $ | | |||
Note receivable (related parties) |
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Prepaid expenses and other |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Other assets (complimentary devices), net |
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Operating lease right-of-use asset, net |
| — |
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Other assets |
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Total assets | $ | | $ | ( | $ | | |||
Liabilities and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable | $ | | $ | | $ | | |||
Debt payable, related parties |
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| ( |
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Derivative liability |
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| ( |
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Lease liability |
| — |
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Interest payable, related parties |
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| — |
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Total current liabilities |
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Total liabilities |
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Stockholders' Equity (deficit) |
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Series Seed convertible preferred stock, $ |
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| — |
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Common stock, $ |
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| — |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( |
| ( | |||
Total stockholders' equity (deficit) |
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| ( |
| ( | |||
Total liabilities and stockholders' equity (deficit) | $ | | $ | ( | $ | | |||
NOTE 5 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company also follows a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable based on an entity’s own assumptions, as there is little, if any, related market activity (e.g., cash flow modeling inputs based on assumptions).
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The risk-free interest rate is the United States Treasury rate on the measurement date having a term equal to the remaining contractual life of the instrument. The volatility is a measure of the amount by which the comparable companies’ share price has fluctuated or is expected to fluctuate. Since the Common Stock was not publicly traded prior to the IPO, an average of the historical volatility of comparative companies was used.
Level 3 financial assets and liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of fair value. The determination of fair value and the assessment of a measurement's placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management's assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods.
An increase or decrease in volatility or interest free rate, in isolation, can significantly increase or decrease the fair value of financial assets and liabilities. Changes in the values of the assets and liabilities are recorded as a component of other income (expense) on the accompanying consolidated statement of operations.
Non-financial assets that are measured on a non-recurring basis include our intellectual property and property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.
NOTE 6 DEBT – RELATED PARTIES
During 2019 and 2020, the Company entered into six promissory note agreements with a related party pursuant to which the Company could borrow up to $
During the year ended December 31, 2020, a related party provided financing of approximately $
On December 30, 2020, the Company entered into a $
During the year ended December 31, 2020, the Company received a cash advance of $
During the nine-month period ended September 30, 2021, the Company entered into bridge loans totaling $
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A summary of borrowings from related parties follows.
Interest | ||||||||||
| Lender |
| Loan Payable |
| Rate |
| Accrual | |||
Balance at January 1, 2019 |
|
| $ | — |
|
|
| $ | — | |
Note borrowings | Affiliated entity |
| |
| | % |
| | ||
Balance at December 31, 2019 | $ | |
|
|
| $ | | |||
Interest on prior borrowings |
|
| N/A |
|
| | ||||
Note borrowings | Affiliated entity |
| |
| | % |
| | ||
Tablet financing | Affiliated entity |
| |
| N/A |
|
| — | ||
Bridge loan | Affiliated entity |
| |
| | % |
| | ||
Bridge loan | Affiliated entity |
| |
| N/A |
|
| — | ||
Balance at December 31, 2020 | $ | |
|
|
| $ | | |||
Interest on prior borrowings |
|
| N/A |
|
| | ||||
Bridge loans | Affiliated entities |
| |
| | % |
| | ||
Bridge loans | Affiliated persons |
| |
| | % |
| | ||
Repayments |
| ( |
|
|
|
| ( | |||
Balance at September 30, 2021 | $ | — |
|
|
| $ | — | |||
All borrowings from related parties were paid in full upon completion of the Company’s IPO in May 2021.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
Generally, the Company’s cash balances, which are deposited in non-interest-bearing accounts may exceed FDIC insurance limits from time to time. The financial stability of these institutions is periodically reviewed by senior management. At September 30, 2021 and December 31, 2020, cash balances in excess of FDIC requirements were $
Litigation, Claims, and Assessments
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. See Note 11 Subsequent Events for further discussion.
NOTE 8 STOCKHOLDERS’ EQUITY (DEFICIT)
Common shares issued before the IPO were recorded at estimated fair value. In May 2021, the Company completed its IPO of its Common Stock, creating liquidity and a visible fair market value for its Common Stock. The Common Stock is listed on the Nasdaq Capital Market under the symbol “ALF”.
In 2018, the Company created a class of Series Seed Preferred Stock and
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Dividends
Holders of preferred stock are not entitled to dividend payment but do have liquidation preference in the event of dissolution of the Company. Holders of Common Stock are not entitled to dividend payments but would receive such payments in the event dividend payments were made to stockholders. There was
Common Stock
The Company is authorized to issue
During the year ended December 31, 2020, the Company issued
During the year ended December 31, 2020, the Company issued
During the nine-month period ended September 30, 2021, the Company arranged two bridge loans with related party investors. The Company issued
During the nine-month period ended September 30, 2021, the Company also issued
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 Securities and Exchange Commission (the “SEC”) and the Company completed its IPO on May 6, 2021. In connection with the IPO, the Company issued and sold
On May 3, 2021, pursuant to the underwriting agreement for the IPO, we issued to the underwriters warrants to purchase up to an aggregate of
Warrants Issued and Exercised
Warrants to purchase
14
Share Buy-Back
On June 23, 2021, Alfi announced a $
Employee Equity (Stock) Incentive Plan
The Company has a stock equity incentive plan, the 2018 Plan, in which, at its sole discretion, it may award employees Common Stock or Common Stock options, among other awards, as an incentive for performance. Total shares of Common Stock reserved under the plan for employee grants is not to exceed
On September 30, 2021, and December 31, 2020, total Common Stock options issued and outstanding under the 2018 Plan were
During the nine months ended September 30, 2021,
Stock option and warrant valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices for comparable entities. For warrants and stock options issued to non- employees, the Company accounts for the expected life based on the contractual life of the warrants and stock options. For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
NOTE 9 PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation, consists of the following:
| Sep 30, 2021 |
| Dec 31, 2020 | |||
Tablets | $ | | $ | | ||
Office furniture and fixtures |
| |
| | ||
Property and equipment, gross |
| |
| | ||
Less accumulated depreciation |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | | ||
The Company incurred depreciation expense of $
Property and equipment includes approximately
15
NOTE 10 INTANGIBLE ASSETS – INTELLECTUAL PROPERTY
Intellectual Property – Software Development and Patent Acquisition Costs
The Company’s intellectual property includes capitalized software development and patent acquisition costs associated with creation of its technology (see Note 1). During the period between the Company’s formation in 2018 through June 2020, the Company created and developed the proprietary software that is the basis of its ability to deliver targeted digital advertising. The Company considers this software to be internal-use software, as it is used exclusively by the Company on devices it controls to deliver the advertising services it is engaged to provide. The Company determined that the application development phase for this software began in May 2018 and ended in June 2020, and its first release of production software was activated in a tablet in July 2020.
On July 1, 2020 forward, the Company commenced depreciation of these intangible assets. The Company estimated a
Intangible assets, net of accumulated amortization, consists of the following:
| Sep 30, 2021 |
| Dec 31, 2020 | |||
Capitalized software | $ | | $ | | ||
Patents |
| |
| | ||
Intangible assets, gross |
| |
| | ||
Less accumulated amortization |
| ( |
| ( | ||
Intangible assets, net | $ | | $ | | ||
The Company incurred amortization expense of $
Future amortization of intangible assets as of September 30, 2021, is as follows:
2021 |
| $ | |
2022 | | ||
2023 | | ||
2024 | | ||
2025 | | ||
Thereafter | | ||
$ | |
NOTE 11 SUBSEQUENT EVENTS
Warrants Exercised
During the quarter ended December 31, 2021, warrant holders exercised warrants to purchase
16
Changes in Management
As previously disclosed in the Company’s filings with the SEC on October 22, 2021, the Board placed each of Paul Pereira, the Company’s then President and Chief Executive Officer, Dennis McIntosh, the Company’s then Chief Financial Officer and Treasurer, and Charles Pereira, the Company’s then Chief Technology Officer, on paid administrative leave and authorized an Investigation into certain corporate transactions and other matters.
Also as previously disclosed, since placing the former executives on leave, the Board has appointed: (i) James Lee as Chairman of the Board, replacing Mr. P. Pereira in such role; (ii) new management personnel, including Peter Bordes as Interim Chief Executive Officer, Louis Almerini as Interim Chief Financial Officer and David Gardner as Chief Technology Officer; (iii)
Findings of the Investigation
The Investigation was conducted by a special committee of the Board (the “Special Committee”) consisting of Mr. Capsuto, the Audit Committee Chair, who was appointed to the Special Committee on November 8, 2021. The Special Committee retained outside legal counsel to assist in conducting the Investigation, and such counsel retained additional advisors to provide forensic accounting services, computer forensics and e-discovery services and other legal services.
The Investigation found, among other things, that the Company’s former senior management caused the Company to enter into certain transactions and certain agreements that were not approved by the Board, some of which included the unauthorized issuance of shares of Common Stock, as follows:
| ● | The Company’s former senior management caused the Company to purchase a condominium in Miami Beach, Florida for a purchase price of approximately $ |
| ● | The Company’s former senior management caused the Company to enter into an agreement to sponsor a sports tournament for |
| ● | The Company’s former senior management caused the Company to enter into agreements with |
These findings and other conduct by the Company’s former senior management were previously disclosed in the Company’s Current Report on Form 8-K filed on February 23, 2022.
The Investigation found the Company’s internal control over financial reporting to be deficient with respect to: (i) the disbursement process for third-party vendors; (ii) the review and approval process for significant vendor contracts; (iii) the use of Company credit cards by executives; (iv) the supervision and approval of travel and entertainment expenses incurred by executives; (v) the segregation of duties in connection with the payment and recording of invoices and related bank reconciliations; (vi) the lack of a sufficient accounting manual; and (vii) guidelines for the capitalization of fixed assets.
17
Litigation, Claims, and Assessments
The Company may be involved in legal proceedings, claims and assessments. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.
On December 2, 2021, the Company and certain of its present and former officers and directors were named as defendants in a putative class action lawsuit styled Steppacher v. Alfi, Inc., et al., Case No. 1:21-cv-24232, brought in the United States District Court for the Southern District of Florida. On December 15, 2021, the Company, certain of its present and former officers and directors, and the underwriters in the IPO were named as defendants in a second putative class action styled Kleinschmidt v. Alfi, Inc., et al., Case No. 1:21-cv-24338, also brought in the United States District Court for the Southern District of Florida. The complaints in both actions allege that the Company and other named defendants violated Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to allegedly false and misleading statements included in the registration statement and prospectus supplements issued in connection with the IPO (the “Offering Documents”) in May 2021, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, by allegedly making false and materially misleading statements and failing to disclose material adverse facts in the Company’s public filings with the SEC. Both complaints assert that the putative plaintiff class includes: (i) persons or entities, other than the defendants, who purchased or acquired the Common Stock or warrants to purchase the Common Stock pursuant and/or traceable to the Offering Documents; and (ii) persons or entities, other than the defendants, who purchased or acquired the Company’s securities between May 4, 2021, and November 15, 2021 (both dates inclusive). The plaintiffs seek unspecified compensatory damages, including interest, and costs and expenses, including attorney’s and expert fees. On February 3, 2022, the court consolidated the two actions under the caption Steppacher, Jr., et al. v. Alfi, Inc. et al., Case No. 21-cv-24232-KMW. Three putative stockholders (or groups of stockholders) moved to be appointed as lead plaintiff, and the court appointed Candido Rodriguez as lead plaintiff. The consolidated actions are now captioned Rodriguez, et al. v. Alfi, Inc., et al., Case No. 21-cv-24232-KMW. The Company intends to vigorously defend these actions and is currently unable to estimate the costs and timing of the resolution of this matter.
On April 27, 2022, Ryan Dodgson filed a Verified Shareholder Derivative Complaint on behalf of the Company styled Ryan Dodgson, derivatively on behalf of Alfi, Inc., Plaintiff, v. Paul Pereira, Dennis McIntosh, Charles Pereira, Peter Bordes, John M. Cook, II, Justin Elkouri, Allison Ficken, Jim Lee, Richard Mowser, and Frank Smith, Defendants, and Alfi, Inc., Nominal Defendant, Case 1:22-cv-21318, in the United States District Court for the Southern District of Florida. The complaint alleges, as to the defendants: (i) violations of Section 10(b) and Rule 10b-5 of the Exchange Act; (ii) violations of Section 20(a) of the Exchange Act; (iii) breach of fiduciary duties; (iv) unjust enrichment; (v) abuse of control; (vi) gross mismanagement; and (vii) waste of corporate assets, in connection with alleged improper corporate transactions, an alleged pattern and practice of abuse of control of the Company and allegedly deficient internal controls, among other things. The complaint also seeks contribution under Section 11(f) of the Securities Act and Section 21D of the Exchange Act as to the defendants, and seeks contribution under Sections 10(b) and 21D of the Exchange Act as to defendants Mr. P. Pereira and Mr. McIntosh. Plaintiff requests a declaration that the defendants have breached or aided and abetted the breach of their fiduciary duties to the Company, an award of damages to the Company, restitution, and an award of plaintiff’s costs and disbursements in the action, including reasonable attorneys’ and experts’ fees, costs and expenses, and alleged improvements to the Company’s corporate governance and internal procedures regarding compliance with laws. The Company is currently unable to estimate the costs and timing of the resolutions of this matter.
During February and March 2022,
Other Matters
As previously disclosed, on November 9, 2021, the Company received a letter from the staff of the SEC indicating that the Company, its affiliates and agents may possess documents and data relevant to an ongoing investigation being conducted by the staff of the SEC and notifying the Company that such documents and data should be reasonably preserved and retained until further notice. The materials to be preserved and retained include documents and data created on or after April 1, 2018 that: (i) were created, modified or accessed by certain named former and current officers and directors of the Company or any other officer or director of the Company; or (ii) relate or refer to the condominium or the sports tournament sponsorship identified in the Company's Current Report on Form 8-K filed on November 1, 2021, or financial reporting and disclosure controls, policies or procedures. On March 8, 2022, the Company received a subpoena from the SEC relating to the investigation. The Company intends to cooperate fully with the SEC in this matter. The Company is currently unable to estimate the costs and timing of the resolution of this matter.
18
The Company’s former Chief Executive Officer and former Chief Financial Officer have made claims that the Company indemnify and advance the legal fees and expenses incurred by them in connection with the Investigation and the putative class action litigations and the SEC investigation, each referred to above. With respect to the advancement of fees and expenses incurred in connection with the Investigation prior to December 31, 2021, the amount of such fees and expenses that is subject to advancement is approximately $
Credit and Security Agreement – Related Party
On April 12, 2022, the Company entered into a Credit and Security Agreement (the “Credit Agreement”) with a related party lender. Pursuant to the agreement, the Company may borrow up to $
The line of credit 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 $
19
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 (N.I.) Ltd, formed in Belfast, Northern Ireland on September 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 percentage of 1.260023 effective on March 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 and 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 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 SEC. 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 the SEC, 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 an Alfi-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 (“CPM”).
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, by providing analytical sophistication and by 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.
20
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 consumers who 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 any Alfi-enabled device.
Our initial focus is to place our Alfi-enabled devices in malls, airports rideshares and taxis. We also have begun offering our software solution to other DOOH media operators as a SaaS product.
Currently, we intend to charge customers solely based on a CPM, or ads delivered, model. As we continue to prove Alfi 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 we have the 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.
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 and the Company completed its IPO on May 6, 2021. 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 of Common Stock and warrants to purchase 559,701 shares of Common Stock pursuant to the full exercise 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. The warrants were exercisable immediately upon issuance and at any time up to the date that is five years from the date of issuance and have an exercise price of $4.57 per share.
On May 3, 2021, pursuant to the underwriting agreement for the IPO, we issued to the underwriters warrants to purchase up to an aggregate of 186,567 shares of Common Stock (“Underwriter’s Warrants”). The Underwriter’s Warrants may be exercised beginning on May 3, 2022 until May 3, 2026. The initial exercise price of each Underwriter’s Warrant is $5.19 per share.
Warrants Exercised
During the quarter ended December 31, 2021, warrant holders exercised warrants to purchase 748 shares of Common Stock, providing $3,418 in additional capital. As of December 31, 2021, warrant holders have exercised warrants to purchase 3,508,227 shares of Common Stock, providing Alfi with $16,034,189 in additional funding. As of December 31, 2021, there were warrants outstanding to purchase 969,385 shares of Common Stock.
Share Buy-Back
On June 23, 2021, Alfi announced a $2.0 million buy-back of its Common Stock. The buyback was completed on July 9, 2021, with Alfi acquiring 137,650 shares of Common Stock, for an aggregate price of $1,999,997, which are recorded as treasury stock.
Changes in Management
As previously disclosed in the Company’s filings with the SEC on October 22, 2021, the Board placed each of Paul Pereira, the Company’s then President and Chief Executive Officer, Dennis McIntosh, the Company’s then Chief Financial Officer and Treasurer, and Charles Pereira, the Company’s then Chief Technology Officer, on paid administrative leave and authorized an Investigation into certain corporate transactions and other matters.
21
Also as previously disclosed, since placing the former executives on leave, the Board has appointed: (i) James Lee as Chairman of the Board, replacing Mr. P. Pereira in such role; (ii) new management personnel, including Peter Bordes as Interim Chief Executive Officer, Louis Almerini as Interim Chief Financial Officer and David Gardner as Chief Technology Officer; (iii) two new independent directors to the Board, Allen Capsuto and Patrick Dolan; and (iv) Mr. Capsuto as Chair of the Audit Committee and Mr. Dolan as a member of the Compensation Committee and the Nominating and Corporate Governance Committee. Furthermore, Mr. P. Pereira resigned as a director and from all positions he held with the Company, Mr. McIntosh resigned from all positions he held with the Company, and Mr. C. Pereira’s employment with the Company was terminated.
Findings of the Investigation
The Investigation was conducted by a Special Committee. The Special Committee retained outside legal counsel to assist in conducting the Investigation, and such counsel retained additional advisors to provide forensic accounting services, computer forensics and e-discovery services and other legal services.
The Investigation found, among other things, that the Company’s former senior management caused the Company to enter into certain transactions and certain agreements that were not approved by the Board, some of which included the unauthorized issuance of shares of Common Stock, as follows:
| ● | The Company’s former senior management caused the Company to purchase a condominium in Miami Beach, Florida for a purchase price of approximately $1.1 million without the Board’s knowledge or approval. After the conclusion of the Investigation, the Company sold the condominium for a price of $1.1 million on April 15, 2022. Net proceeds after commissions and other expenses of the sale were approximately $990,000. |
| ● | The Company’s former senior management caused the Company to enter into an agreement to sponsor a sports tournament for two years, for a $640,000 sponsorship fee, which the Company paid $320,000 in cash and $320,000 through the issuance of 31,683 shares of Common Stock, without the Board’s knowledge or approval. The Company has since obtained, in connection with the Company’s termination of the sponsorship agreement, the return of the 31,683 shares of Common Stock. In addition, of the $320,000 in cash paid by the Company, $295,000 was converted to a charitable contribution and the remaining $25,000 was retained by the tournament organizer. |
| ● | The Company’s former senior management caused the Company to enter into agreements with three vendors: (i) an investor relations firm to provide investor relations and strategic consulting services and capital introductions; (ii) a consultant to provide financial and business advice; and (iii) a start-up call center to provide customer service, sales and onboarding services. Pursuant to these agreements, cash payments totaling approximately $1,200,000 were made to these vendors and 300,000 shares of Common Stock were issued to them without the Board’s knowledge or approval. |
These findings and other conduct by the Company’s former senior management were previously disclosed in the Company’s Current Report on Form 8-K filed on February 23, 2022.
The Investigation found the Company’s internal control over financial reporting to be deficient with respect to: (i) the disbursement process for third-party vendors; (ii) the review and approval process for significant vendor contracts; (iii) the use of Company credit cards by executives; (iv) the supervision and approval of travel and entertainment expenses incurred by executives; (v) the segregation of duties in connection with the payment and recording of invoices and related bank reconciliations; (vi) the lack of a sufficient accounting manual; and (vii) guidelines for the capitalization of fixed assets.
Credit and Security Agreement – Related Party
On April 12, 2022, the Company entered into a Credit and Security Agreement with a related party lender. Pursuant to the agreement, the Company may borrow up to $2,500,000 for up to one year. Through May 10, 2022, the lender has funded to the Company $1,000,000 under the Credit Agreement. Prior to the maturity date, the Company may borrow an additional $1.5 million under the Credit Agreement, 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.
22
The line of credit 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. Borrowings under the Credit Agreement are collateralized by a security interest in the Company’s assets. Interest on the unpaid principal amount accrues at an annual rate of 6% through October 12, 2022 and an annual rate of 9% thereafter, except that in event of default additional penalty interest at an annual rate of 3% will accrue on borrowings through October 12, 2022. In connection with the Credit Agreement, the Company issued a warrant to the lender pursuant to which the lender may purchase up to 1,250,000 shares of the Common Stock at a price of $1.51 per share. The warrant can be exercised commencing on the three-month anniversary of the Credit Agreement (i.e., on July 12, 2022) and expires on April 12, 2025.
Impact of COVID-19
On January 30, 2020, the World 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. In March 2020, the WHO 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 in the 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.
In addition, the Company is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world and the extent of any resurgences of the virus or emergence of new variants of the virus, such as the Delta variant and the Omicron variant, will impact the stability of economic recovery and growth. The Company may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business.
Results of Operations
Revenues
In general, Alfi earns revenue from rideshares or SaaS contracts with operating companies who maintain their own network and lease the Alfi platform.
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.
23
Three-Month Period Ended September 30, 2021, Compared to Three-Month Period Ended September 30, 2020
Three months | Three months | |||||||||||
ended Sep 30, | ended Sep 30, | |||||||||||
| 2021 |
| 2020 |
| $ Change |
| % Change | |||||
Revenues |
| $ | 112 |
| $ | — | $ | 112 | N/M | |||
Operating expenses |
|
| ||||||||||
Compensation and benefits |
| 1,743,607 |
| 283,967 | 1,459,640 | 514.0 | % | |||||
Other general and administrative | 3,126,452 | 181,565 | 2,944,887 | N/M | ||||||||
Depreciation and amortization |
| 223,339 |
| 240,623 | (17,284) | (7.2) | % | |||||
Total operating expenses |
| 5,093,398 |
| 706,155 | 4,387,243 | 621.3 | % | |||||
Operating loss |
| (5,093,286) |
| (706,155) | (4,387,131) | 621.3 | % | |||||
Other income (expense) |
|
|
|
|
| |||||||
Other income |
| 9,542 |
| 110,726 | (101,184) | (91.4) | % | |||||
Interest expense |
| (89) |
| (72,341) | 72,252 | (99.9) | % | |||||
Total other income (expense) |
| 9,453 |
| 38,385 | (28,932) | (75.4) | % | |||||
Net loss before provision for income taxes |
| (5,083,833) |
| (667,770) | (4,416,063) | 661.3 | % | |||||
Provision for income taxes | — | — | — | — | ||||||||
Net loss | $ | (5,083,833) | $ | (667,770) | $ | (4,416,063) | 661.3 | % | ||||
Revenues
For the three-month periods ended September 30, 2021 and 2020, net revenues were $112 and $-0-, respectively. The Company entered into no transactions generating significant revenue during either quarter.
Operating Expenses
For the three months ended September 30, 2021 and 2020, total operating expenses were $5,093,398 and $706,155, respectively, an increase of $4,387,243. Compensation and benefits expense increased as independent contractors became full time employees effective March 1, 2021. Other general and administrative expenses increased due to higher costs related to the Company’s growth and launch of its technology platform and the Company’s May 2021 IPO. The increase in other general and administrative expenses reflected higher legal and professional fees, investor relations, insurance, and marketing costs incurred during the three months ended September 30, 2021.
Operating Loss
For the three months ended September 30, 2021, the operating loss increased from $706,155 to $5,093,286, an increase of $4,387,131 compared with the three months ended September 30, 2020. The increase was primarily due to higher operating expenses related to product development and the Company’s May 2021 IPO, as discussed above.
Other Income (Expense)
Other income of $9,542 and $110,726 for the three months ended September 30, 2021 and 2020, respectively, includes realized and collected foreign tax credits of $-0- and $106,235, respectively, associated with its wholly owned subsidiary Alfi (N.I.) Ltd. Interest expense of $89 and $73,341 for the three-month periods ended September 30, 2021 and 2020, respectively, declined since the Company repaid all related party notes with a portion of the cash proceeds from its May 2021 IPO.
24
Net Loss
For the three months ended September 30, 2021, the net loss increased from $667,770 to $5,083,833, an increase of $4,416,063 compared with the three months ended September 31, 2020. The increase was primarily due to higher operating expenses related to the Company’s growth and launch of its technology platform and additional expenses, including higher legal and professional fees related to operating as a public company subsequent to the Company’s May 2021 IPO.
Nine-Month Period Ended September 30, 2021, Compared to Nine-Month Period Ended September 30, 2020
Nine months | Nine months |
| ||||||||||
ended Sep 30, | ended Sep 30, |
| ||||||||||
| 2021 |
| 2020 |
| $ Change |
| % Change |
| ||||
Revenues | $ | 18,498 | $ | — | $ | 18,498 |
| N/M | ||||
Operating expenses |
|
|
|
|
|
|
|
| ||||
Compensation and benefits |
| 3,824,560 |
| 656,672 |
| 3,167,888 |
| 482.4 | % | |||
Other general and administrative |
| 6,689,601 |
| 883,538 |
| 5,806,063 |
| 657.1 | % | |||
Depreciation and amortization |
| 718,827 |
| 449,978 |
| 268,849 |
| 59.7 | % | |||
Total operating expenses |
| 11,232,988 |
| 1,990,188 |
| 9,242,800 |
| 464.4 | % | |||
Operating loss |
| (11,214,490) |
| (1,990,188) |
| (9,224,302) |
| 463.5 | % | |||
Other income (expense) |
|
|
|
|
|
|
|
| ||||
Other income |
| 38,892 |
| 174,830 |
| (135,938) |
| (77.8) | % | |||
Interest expense |
| (918,788) |
| (158,770) |
| (760,018) |
| 478.7 | % | |||
Total other income (expense) |
| (879,896) |
| 16,060 |
| (895,956) |
| N/M | ||||
Net loss before provision for income taxes |
| (12,094,386) |
| (1,974,128) |
| (10,120,258) |
| 512.6 | % | |||
Provision for income taxes |
| — |
| — |
| — |
| N/M | ||||
Net loss | $ | (12,094,386) | $ | (1,974,128) | $ | (10,120,258) |
| 512.6 | % | |||
Revenues, net
For the nine months ended September 30, 2021 and 2020, net revenues were $18,498 and $-0-, respectively. The revenues earned during the nine months ended September 30, 2021 related to Alfi’s first SaaS contract revenue generated from a retailer that paid Alfi for the cost of the initial pilot for the company.
Operating Expenses
For the nine months ended September 30, 2021 and 2020, total operating expenses were $11,232,988 and $1,990,188, respectively, an increase of $9,242,800. Compensation and benefits expense increased as independent contractors became full time employees effective March 1, 2021. Other general and administrative expenses increased due to higher costs related to the Company’s growth and launch of its technology platform and the Company’s May 2021 listing as a public company. The increase in other general and administrative expenses reflected higher investor relations, insurance, recruiting, legal and professional fees, and marketing costs incurred during the nine months ended September 30, 2021. Depreciation and amortization charges increased as the nine-month period ended September 30, 2021 included additional depreciation charges for tablets acquired during 2021.
Operating Loss
For the nine-month period ended September 30, 2021, the operating loss increased from $1,990,188 to $11,214,490, an increase of $9,224,302 compared with the nine-month period ended September 30, 2020. The increase was primarily due to higher operating expenses related to product development and the Company’s May 2021 IPO, as discussed above.
25
Other Income (Expense)
Other income of $38,892 and $174,830 for the nine months ended September 30, 2021 and 2020, respectively, included realized and collected foreign tax credits of $34,736 and $167,089, respectively, associated with its wholly owned subsidiary Alfi (N.I.) Ltd. Interest expense of $918,788 and $158,770 for the nine-month periods ended September 30, 2021 and 2020, respectively, rose primarily due to additional interest expense incurred from related-party financing provided during the 2021 months preceding the Company’s May 2021 IPO.
Net Loss
For the nine months ended September 30, 2021, the net loss increased from $1,974,128 to $12,094,386, an increase of $10,120,258 compared with the nine months ended September 30, 2020. The increase was primarily due to higher operating expenses related to the Company’s growth and launch of its technology platform and additional expenses incurred in connection with the Company’s May 2021 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 through April 2021 was cash proceeds from the private placements of preferred equity and debt securities. During the nine months ended September 30, 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 raise included funding for working capital to launch and expand operations in accordance with its business model. On April 12, 2022, the Company entered into the Credit Agreement with a related party lender, pursuant to which it may borrow up to $2,500,000 for up to one year. Through May 10, 2022, the lender has funded to the Company $1,000,000 under the Credit Agreement.
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There is no assurance that such a plan will be successful.
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 with U.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.
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.
26
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 elsewhere 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
Our Interim Chief Executive Officer and Interim Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of September 30, 2021. In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and the Company necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Our management, with the participation of our Interim Chief Executive Officer and Interim Chief Financial Officer, who serve as our principal executive officer and principal financial and accounting officer, respectively, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. Based on such evaluation, our Interim Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2021.
As noted in Note 4 to the consolidated financial statements included in this Quarterly Report, the Company concluded that the Prior Period Financial Statements should no longer be relied upon and should be restated. As such, management believes material weaknesses exist in its internal controls over financial reporting as of September 30, 2021. The Company does not have a sufficient complement of personnel commensurate with the accounting and reporting requirements of a public company. The material weaknesses identified relate to inadequate controls that address segregation of certain accounting duties and reconciliation and analysis of certain key accounts. We have concluded that these material weaknesses arose because, as a pre-revenue private company recently formed, we did not have the necessary personnel to design effective components of internal control, including risk assessment control activities information/communication and monitoring to satisfy the accounting and financial reporting requirements of a public company.
27
In light of the conclusion that the Company’s internal disclosure controls were ineffective as of September 30, 2021, it has applied additional procedures and processes as necessary to ensure the reliability of financial reporting in regard to this Quarterly Report. Accordingly, the Company believes, based on its knowledge, that: (i) this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in this Quarterly Report.
Changes in Internal Control Over Financial Reporting
Except as disclosed in Note 4 to the consolidated financial statements included in this Quarterly Report, there have been no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management will seek to remediate the material weaknesses described above through hiring additional qualified accounting and financial reporting personnel, and designing and implementing financial reporting systems, processes, policies and internal controls.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are party to the legal proceedings described below. We are unable to provide any assurances as to the ultimate outcome of these proceedings and intend to vigorously defend these matters.
Litigation
On December 2, 2021, the Company and certain of its present and former officers and directors were named as defendants in a putative class action lawsuit styled Steppacher v. Alfi, Inc., et al., Case No. 1:21-cv-24232, brought in the United States District Court for the Southern District of Florida. On December 15, 2021, the Company, certain of its present and former officers and directors, and the underwriters in the Company’s IPO were named as defendants in a second putative class action styled Kleinschmidt v. Alfi, Inc., et al., Case No. 1:21-cv-24338, also brought in the United States District Court for the Southern District of Florida. The complaints in both actions allege that the Company and other named defendants violated Sections 11 and 15 of the Securities Act with respect to allegedly false and misleading statements included in the registration statement and prospectus supplements issued in connection with the Company’s IPO (the “Offering Documents”) in May 2021, and Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, by allegedly making false and materially misleading statements and failing to disclose material adverse facts in the Company’s public filings with the SEC. Both complaints assert that the putative plaintiff class includes: (i) persons or entities, other than the defendants, who purchased or acquired the Common Stock or warrants to purchase the Common Stock pursuant and/or traceable to the Offering Documents; and (ii) persons or entities, other than the defendants, who purchased or acquired the Company’s securities between May 4, 2021, and November 15, 2021 (both dates inclusive). The plaintiffs seek unspecified compensatory damages, including interest, and costs and expenses, including attorney’s and expert fees. On February 3, 2022, the court consolidated the two actions under the caption Steppacher, Jr., et al. v. Alfi, Inc. et al., Case No. 21-cv-24232-KMW. Three putative stockholders (or groups of stockholders) moved to be appointed as lead plaintiff, and the court appointed Candido Rodriguez as lead plaintiff. The consolidated actions are now captioned Rodriguez, et al. v. Alfi, Inc., et al., Case No. 21-cv-24232-KMW.
On April 27, 2022, Ryan Dodgson filed a Verified Shareholder Derivative Complaint on behalf of the Company styled Ryan Dodgson, derivatively on behalf of Alfi, Inc., Plaintiff, v. Paul Pereira, Dennis McIntosh, Charles Pereira, Peter Bordes, John M. Cook, II, Justin Elkouri, Allison Ficken, Jim Lee, Richard Mowser, and Frank Smith, Defendants, and Alfi, Inc., Nominal Defendant, Case 1:22-cv-21318, in the United States District Court for the Southern District of Florida. The complaint alleges, as to the defendants: (i) violations of Section 10(b) and Rule 10b-5 of the Exchange Act; (ii) violations of Section 20(a) of the Exchange Act; (iii) breach of fiduciary duties; (iv) unjust enrichment; (v) abuse of control; (vi) gross mismanagement; and (vii) waste of corporate assets, in connection with alleged improper corporate transactions, an alleged pattern and practice of abuse of control of the Company and allegedly deficient internal controls, among other things. The complaint also seeks contribution under Section 11(f) of the Securities Act and Section 21D of the Exchange Act as to the defendants, and seeks contribution under Sections 10(b) and 21D of the Exchange Act as to defendants Mr. P. Pereira and Mr. McIntosh. Plaintiff requests a declaration that the defendants have breached or aided and abetted the breach of their fiduciary duties to the Company, an award of damages to the Company, restitution, and an award of plaintiff’s costs and disbursements in the action, including reasonable attorneys’ and experts’ fees, costs and expenses, and alleged improvements to the Company’s corporate governance and internal procedures regarding compliance with laws.
Arbitration
On February 23, 2022, Fred Figueroa, a former Executive Assistant at the Company, filed a Demand for Arbitration against the Company with the American Arbitration Association (“AAA”), alleging overtime violations of the Fair Labor Standards Act, as amended, and breach of contract claims involving alleged termination without cause in violation of Mr. Figueroa’s employment agreement. In his Demand for Arbitration, Mr. Figueroa seeks damages in the amount of $81,000 for base salary and 5,000 shares of Common Stock in the amount of $16,650 pursuant to a stock option award from the Company, as well as attorneys’ fees and costs. The arbitration proceeding was initiated pursuant to the arbitration provision in Mr. Figueroa’s employment agreement with the Company. The Company is in the process of responding to Mr. Figueroa’s claims. The Company is currently unable to estimate the costs and timing of the arbitration, including any potential damages, if Mr. Figueroa were to prevail on any of his claims.
29
On March 10, 2022, Charles Pereira, a former Chief Technology Officer of the Company, filed a Statement of Claim against the Company with the AAA, alleging various breaches of contract and torts with respect to his employment, his compensation, and the termination of his employment. In his Statement of Claim, Mr. Pereira seeks damages in an amount to be determined at the hearing, but not less than $10 million dollars, and certain declaratory relief and other money damages. The arbitration proceeding was initiated pursuant to the arbitration provision in Mr. Pereira’s employment agreement with the Company. The Company is in the process of responding to Mr. Pereira’s claims. The Company is currently unable to estimate the costs and timing of the arbitration, including any potential damages, if Mr. Pereira were to prevail on any of his claims.
Other Matters
As previously disclosed, on November 9, 2021, the Company received a letter from the staff of the SEC indicating that the Company, its affiliates and agents may possess documents and data relevant to an ongoing investigation being conducted by the staff of the SEC and notifying the Company that such documents and data should be reasonably preserved and retained until further notice. The materials to be preserved and retained include documents and data created on or after April 1, 2018 that: (i) were created, modified or accessed by certain named former and current officers and directors of the Company or any other officer or director of the Company; or (ii) relate or refer to the condominium or the sports tournament sponsorship identified in the Company’s Current Report on Form 8-K filed on November 1, 2021, or financial reporting and disclosure controls, policies or procedures. On March 8, 2022, the Company received a subpoena from the SEC relating to the investigation. The Company intends to cooperate fully with the SEC in this matter.
The Company’s former Chief Executive Officer and former Chief Financial Officer have made claims that the Company indemnify and advance the legal fees and expenses incurred by them in connection with the Investigation and the putative class action litigations and the SEC investigation, each referred to above. With respect to the advancement of fees and expenses incurred in connection with the Investigation prior to December 31, 2021, the amount of such fees and expenses that is subject to advancement is approximately $147,000. The former officers have also demanded advancement of fees and expenses of additional amounts of approximately $339,000 for the period from January 1, 2022 through March 31, 2022. Additional amounts may be subject to claims for advancement and indemnification, but the Company is unable to estimate the amount of additional fees and expenses that may be subject to advancement or indemnification.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sale of Equity Securities
On August 1, 2018, November 21, 2018, January 23, 2019 and April 18, 2019, the Company issued 1,000,000, 500,000, 500,000 and 500,000 shares, respectively, of Series Seed Preferred Stock to an investor in exchange for $2,500,000 cash consideration. On May 3, 2021, 2,500,000 shares of Series Seed Preferred Stock were converted into 3,150,058 shares of Common Stock at a conversion ratio of 1:1.260023. The Series Seed Preferred Stock, and the shares of Common Stock issued upon conversion of the shares of Series Seed Preferred Stock, were issued in a transaction not involving a public offering, in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act. See Note 8 to our consolidated financial statements included in this Quarterly Report.
In connection with bridge loans entered into on December 30, 2020, March 22, 2021, and April 1, 2021, the Company issued to the lenders, who are all accredited investors, an aggregate of 1,732,532 shares of Common Stock. The shares of Common Stock were issued in a transaction not involving a public offering, in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. See Note 8 to our consolidated financial statements included in this Quarterly Report.
30
On March 31, 2020 and May 13, 2021, the Company issued to an investor relations firm 31,501 and 150,000 shares, respectively, of Common Stock, pursuant to agreements with such firm. On May 13, 2021, the Company issued to a consultant 150,000 shares of Common Stock, pursuant to an agreement with such consultant. These shares of Common Stock were issued in a transaction not involving a public offering, in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act. See Note 8 to our consolidated financial statements included in this Quarterly Report.
On August 31, 2021, the Company issued to the organizer of a sports tournament 31,683 shares of Common Stock, pursuant to an agreement to sponsor such tournament. The shares of Common Stock were issued in a transaction not involving a public offering, in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act. The Company has since obtained, in connection with the Company’s termination of the sponsorship agreement, the return of the 31,683 shares of Common Stock. See “Findings of the Investigation” in Note 11 to our consolidated financial statements included in this Quarterly Report.
Prior to our IPO, from May 1, 2020 through March 15, 2021, the Company issued pursuant to the 2018 Plan to employees, for services rendered or to be rendered, options to purchase an aggregate of 433,927 shares of Common Stock, at an average weighted exercise price of $1.52 per share, which vest over four years. The foregoing securities were issued in reliance upon an exemption from registration under Rule 701 promulgated under the Securities Act.
Use of Proceeds from our IPO Over Allotment
On May 3, 2021, the SEC declared effective our registration statement on Form S-1 (333-251959), as amended, filed in connection with our IPO. Pursuant to the registration statement, we registered the offering and sale of: (i) 3,731,344 shares of Common Stock and warrants to purchase 3,731,344 shares of Common Stock, at a combined public offering price of $4.15; and (ii) an additional 559,701 shares of Common Stock and additional warrants to purchase 559,701 shares of Common Stock, at a combined public offering price of $4.15, pursuant to an over-allotment option granted to the underwriters in our IPO. Each warrant is exerciseable for one share of Common Stock at an exercise price of $4.57 per share. Kingswood Capital Markets, division of Benchmark Investments, Inc., served as the representative of the underwriters in our IPO.
On May 6, 2021, we completed our IPO selling 3,731,344 shares of Common Stock and warrants to purchase 3,731,344 shares of Common Stock at a combined public offering price of $4.15, for aggregate gross proceeds of approximately $15.5 million, prior to deducting underwriting discounts, commissions, and other offering expenses and excluding any exercise of the underwriters’ option to purchase any additional securities. On May 10, 2021, Kingswood Capital Markets exercised the over-allotment option for an aggregate of 559,701 shares of Common Stock, and warrants to purchase 559,701 shares of Common Stock, yielding gross proceeds to the Company of approximately $2.3 million, prior to deducting underwriting discounts, commissions, and other offering expenses.
Total gross proceeds to us from our IPO, including the over-allotment option, were approximately $17.8 million, prior to deducting underwriting discounts, commissions, and other offering expenses. The offering has terminated.
From the effective date of our registration statement on Form S-1 (333-251959), the Company has incurred underwriting discounts, commissions, and other offering expenses in connection with the IPO totaling approximately $2.1 million, resulting in net offering proceeds from the IPO to us of approximately $15.7 million. No payments for such expenses were made directly or indirectly to: (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.
We have used the net proceeds of our IPO to pay: (i) approximately $6.3 million, including accrued and unpaid interest, owed under outstanding promissory notes and borrowings pursuant to bridge loan agreements with related party investors; (ii) approximately $4.5 million for capital expenditures; (iii) approximately $2.0 million to repurchase shares of Common Stock; and (iv) approximately $2.9 million for general corporate purposes, including working capital, business development, and sales and marketing activities. Repayments of related party debt payable included approximately $5.4 million owed to Lee Aerospace, Inc., a corporation controlled by James Lee, one of our Board members and a greater than 10% stockholder, and a total of approximately $927,000 owed to Paul Pereira (our former Chief Executive Officer), Dennis McIntosh (our former Chief Financial Officer), Charles Pereira (our former Chief Technology Officer), Peter Bordes (our Interim CEO), Rachael Pereira (the wife of Paul Pereira) and three unaffiliated investors.
Except for the use of proceeds to repurchase shares of Common Stock, there has been no material change in the use of proceeds of our IPO from the use of proceeds described in the prospectus filed as part of our registration statement on Form S-1 (333-251959).
31
Share Buy-back Program
On June 23, 2021, Alfi announced a $2.0 million buy-back of its Common Stock, which was approved by the Board on such date. The buy-back was completed on July 9, 2021, with Alfi acquiring 137,650 shares, at an average price of $14.5296 per share, and recorded as treasury stock by Alfi.
Issuer Purchases of Equity Securities
|
|
| (c) |
| (d) | |||||
Total Number | Maximum Number | |||||||||
of Shares (or | (or Approximate | |||||||||
Units) | Dollar Value) of | |||||||||
(b) | Purchased as | Shares (or Units) | ||||||||
(a) | Average | Part of Publicly | that May Yet Be | |||||||
Total Number of | Price Paid | Announced | Purchased Under | |||||||
Shares (or units) | per Share | Plans or | the Plans or | |||||||
Period | Purchased | (or Unit) |
| Programs |
| Programs | ||||
Month #1 (July 1-31, 2021) |
| 137,650 |
| $ | 14.5296 |
| 137,650 |
| 0 | |
Month #2 (August 1-31, 2021) |
| — |
| — |
| — |
| — | ||
Month #3 (September 1-30, 2021) |
| — |
| $ | — |
| — |
| $ | — |
Total |
| 137,650 | $ | 14.5296 |
| 137,650 | $ | 0 | ||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
32
Item 6. Exhibits
Exhibit |
| Description |
|
|
|
3.1 |
| Restated Certificate of Incorporation of Alfi, Inc. dated January 31, 2020. (1) |
|
|
|
3.2* |
| Third Amended and Restated Certificate of Incorporation, effective May 3, 2021. |
|
|
|
3.3 |
| |
|
|
|
3.4* | ||
4.1 | ||
4.2 | ||
4.3 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5† | Executive Employment Agreement, dated February 10, 2021, between Alfi, Inc. and Paul Pereira (10) | |
10.6† | Executive Employment Agreement, dated February 10, 2021, between Alfi, Inc. and John Cook, III (11) | |
10.7† | Executive Employment Agreement, dated February 10, 2021, between Alfi, Inc. and Charles Pereira (12) | |
10.8† | Executive Employment Agreement, dated February 10, 2021, between Alfi, Inc. and Dennis McIntosh (13) | |
10.9 | Promissory Note, dated January 15, 2019, between Lectrefy Inc. and Lee Aerospace, Inc. (14) | |
10.10 | Security Agreement, dated January 15, 2020, between Lectrefy Inc. and Lee Aerospace, Inc. (15) | |
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
10.15* | Promissory Note, dated August 8, 2019, between Lectrefy, Inc. and Lee Aerospace, Inc. |
33
10.16* | ||
10.17* | Promissory Note, dated October 25, 2019, between Lectrefy, Inc. and Lee Aerospace, Inc. | |
10.18* | Promissory Note, dated November 12, 2019, between Lectrefy, Inc. and Lee Aerospace, Inc. | |
10.19* | Promissory Note, dated November 26, 2019, between Lectrefy, Inc. and Lee Aerospace, Inc. | |
10.20*† | Form of Incentive Stock Option Award Agreement (under the Alfi, Inc. 2018 Stock Incentive Plan) | |
10.21*† | Stock Option Award Agreement, dated March 15, 2021, between Alfi, Inc. and Ronald Spears | |
31.1* | ||
31.2* | ||
32.1** |
| |
|
|
|
101.INS* |
| Inline XBRL Instance Document |
|
|
|
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
| Inline XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
* Filed herewith.
** Furnished.
† Identifies a management contract or compensatory plan or arrangement.
| (1) | Incorporated by reference to Exhibit 3.1 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (2) | Incorporated by reference to Exhibit 3.3 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (3) | Incorporated by reference to Exhibit 3.4 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (4) | Incorporated by reference to Exhibit 4.2 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (5) | Incorporated by reference to Exhibit 1.2 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (6) | Incorporated by reference to Exhibit 10.1 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (7) | Incorporated by reference to Exhibit 10.2 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (8) | Incorporated by reference to Exhibit 10.3 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (9) | Incorporated by reference to Exhibit 10.4 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (10) | Incorporated by reference to Exhibit 10.5 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (11) | Incorporated by reference to Exhibit 10.6 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (12) | Incorporated by reference to Exhibit 10.7 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
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| (13) | Incorporated by reference to Exhibit 10.8 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (14) | Incorporated by reference to Exhibit 10.9 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (15) | Incorporated by reference to Exhibit 10.10 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (16) | Incorporated by reference to Exhibit 10.11 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (17) | Incorporated by reference to Exhibit 10.12 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (18) | Incorporated by reference to Exhibit 10.13 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
| (19) | Incorporated by reference to Exhibit 10.14 to Alfi, Inc.’s Registration Statement on Form S-1, as amended (No. 333-251959). |
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALFI, INC. | |
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Date: May 16, 2022 | /s/ Peter Bordes | |
| Name: | Peter Bordes |
| Title: | Interim Chief Executive Officer |
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| (Principal Executive Officer) |
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Date: May 16, 2022 | /s/ Louis Almerini | |
| Name: | Louis Almerini |
| Title: | Interim Chief Financial Officer |
|
| (Principal Financial and Accounting Officer) |
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