UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

PRESTO AUTOMATION INC.

(Exact name of registrant as specified in its charter)

Delaware	001-39830	84-2968594
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)

985 Industrial Road San Carlos, California	94070
(Address Of Principal Executive Offices)	(Zip Code)

(650) 817-9012

Registrant’s telephone number, including area code

NOT APPLICABLE

(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
Common Stock, par value $0.0001 per share	PRST	The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Common Stock, each at an exercise price of $8.21 per share	PRSTW	The Nasdaq Stock Market LLC

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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data 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 such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-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 ☐  No ☒

As of April 30, 2023, 51,997,674 shares of Common Stock, par value $0.0001 per share were issued and outstanding.

PRESTO AUTOMATION INC.

Form 10-Q

For the Quarter Ended March 31, 2023

Table of Contents

		Page
Cautionary Statement Regarding Forward-Looking Statements		ii
PART I . FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	2
	Condensed Consolidated Statements of Stockholders’ Deficit	3
	Condensed Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62
PART II . OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
	Signatures	67

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that Presto Automation Inc. and its subsidiaries (together, the “Company” or “Presto”) believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for our business. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot provide assurance that it will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, the following:

● If Presto fails to manage its growth effectively, to sustain its recent revenue growth or attract new customers, it may be unable to execute its business plan, maintain high levels of service and customer satisfaction, or adequately address competitive challenges.

● Presto’s limited operating history with its new AI Platform (previously Vision and Voice) products in a new and developing market makes it difficult to evaluate its current business and future prospects and may increase the risk that it will not be successful.

● Presto has a history of generating net losses, and if it is unable to achieve adequate revenue growth while its expenses increase, it may not achieve or maintain profitability in the future.

● The COVID-19 pandemic has adversely impacted (including as a result of global supply chain shortages that Presto expects to continue for the foreseeable future) and may continue to adversely impact Presto’s results of operations and financial condition.

● Presto generates a significant portion of its revenue from its three largest customers, and the loss or decline in revenue from any of these customers could harm its business, results of operations, and financial condition.

● If Presto fails to continue to improve and enhance the functionality, performance, reliability, design, security, or scalability of its platform in a manner that responds to its customers’ evolving needs, its business may be adversely affected.

● Since Presto recognizes revenue from the sale of its products over a multi-year term, downturns or upturns in sales are not immediately reflected in full in its results of operations.

● Presto and certain of its third-party partners, service providers, and sub processors transmit and store personal information of its customers and consumers. If the security of this information is compromised, Presto’s reputation may be harmed, and it may be exposed to liability and loss of business.

● Presto is subject to stringent and changing privacy laws, regulations and standards, and contractual obligations related to data privacy and security, and noncompliance with such laws could adversely affect its business.

● Unfavorable conditions in the restaurant industry or the global economy, including with respect to food, labor, and occupancy costs, could limit Presto’s ability to grow its business and materially impact its financial performance.

ii

● Presto may require additional capital, which additional financing may result in restrictions on its operations or substantial dilution to its stockholders, to support the growth of its business, and this capital might not be available on acceptable terms, if at all.

● Presto has outstanding secured debt that contains financial covenants and other restrictions on its actions that may limit its operational flexibility or otherwise adversely affect its results of operations.

● Presto’s sales cycles can be long and unpredictable, and its sales efforts require considerable investment of time and expense.

● Presto has identified material weaknesses in its internal control over financial reporting and, if it fails to remediate these deficiencies, it may not be able to accurately or timely report its financial condition or results of operations.

● Presto’s current liquidity resources raise substantial doubt about the Company’s ability to continue as a going concern and unless Presto raises additional capital to meet its obligations, this doubt may not be alleviated.

● Recent turmoil in the banking industry may negatively impact Presto’s ability to acquire financing on acceptable terms if at all, and worsening conditions or additional bank failures could result in a loss of deposits over federally insured levels.

● Presto relies on a limited number of suppliers to provide part of the technology it offers and is therefore at risk of shortages, price increases, changes, delays or discontinuations of hardware or software providers.

● Presto relies substantially on a select few payment processors to facilitate payments made by or to guests and customers, and if it cannot manage risks related to its relationships with its payment processors, its business, financial condition, and results of operations could be adversely affected.

● Presto relies on computer hardware, licensed software and services rendered by third parties and the interoperability thereof in order to run its business.

● Presto’s business is subject to a variety of U.S. laws and regulations (including with respect to payment transaction processing), many of which are unsettled and still developing, and Presto or its customers’ failure to comply with such laws and regulations could subject it to claims or otherwise adversely affect its business, financial condition, or results of operations.

● Significant changes in U.S. and international trade policies that restrict imports or increase tariffs could have a material adverse effect on Presto’s results of operations.

● Presto could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs its customers would have to pay for its products and adversely affect its results of operations.

● If Presto fails to adequately protect its intellectual property rights, its competitive position could be impaired and it may lose valuable assets, generate reduced revenue and become subject to costly litigation to protect its rights.

● Presto has been, and may in the future be, subject to claims by third parties of intellectual property infringement, which, if successful could negatively impact operations and significantly increase costs.

● Presto uses open-source software in its platform, which could negatively affect its ability to sell its services or subject it to litigation or other actions.

● The other factors disclosed in this Quarterly Report on Form 10-Q and the Company’s other filings with the Securities and Exchange Commission (the “SEC”).

● The Company’s forward-looking statements speak only as of the date of their initial issuance, and the Company does not undertake aby obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise.

iii

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

PRESTO AUTOMATION INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share amounts)

	As of		As of
	March 31,		June 30
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	26,978	$	3,017
Accounts receivable, net of allowance for doubtful accounts of $135 and $353, respectively		2,207		1,518
Inventories		395		869
Deferred costs, current		3,772		8,443
Prepaid expenses and other current assets		1,851		707
Total current assets		35,203		14,554
Deferred costs, net of current portion		22		2,842
Investment in non-affiliate		2,000		—
Deferred transaction costs		—		5,765
Property and equipment, net		1,215		1,975
Intangible assets, net		8,436		4,226
Goodwill		1,156		1,156
Other long-term assets		578		18
Total assets	$	48,610	$	30,536
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	3,267	$	5,916
Accrued liabilities		4,152		6,215
Financing obligations, current		3,720		8,840
Term loans, current		53,979		25,443
Convertible promissory notes and embedded warrants, current		—		89,663
Deferred revenue, current		1,551		10,532
Total current liabilities		66,669		146,609
Financing obligations, net of current		1,860		—
PPP loans		—		2,000
Warrant liabilities		1,623		4,149
Deferred revenue, net of current portion		264		237
Other long-term liabilities		426		—
Total liabilities		70,842		152,995
Commitments and Contingencies (Refer to Note 8)
Stockholders’ deficit:
Preferred stock, $0.0001 par value–1,500,000 shares authorized as of March 31, 2023 and June 30, 2022, respectively; no shares issued and outstanding as of March 31, 2023 and June 30, 2022 respectively		—		—
Common stock, $0.0001 par value–180,000,000 shares authorized as of March 31, 2023 and June 30, 2022, and 51,921,941 and 27,974,439 shares issued and outstanding as of March 31, 2023 and June 30, 2022, respectively		5		3
Additional paid-in capital		176,466		78,321
Accumulated deficit		(198,703)		(200,783)
Total stockholders’ deficit		(22,232)		(122,459)
Total liabilities and stockholders’ deficit	$	48,610	$	30,536

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

PRESTO AUTOMATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands, except share and per share amounts)

	Three months ended				Nine months ended
	March 31,				March 31,
	2023		2022		2023		2022
Revenue
Platform	$	3,088	$	5,083	$	11,617	$	14,754
Transaction		3,519		2,451		9,699		7,705
Total revenue		6,607		7,534		21,316		22,459
Cost of revenue
Platform		2,743		4,057		10,951		11,872
Transaction		3,084		2,185		8,561		6,749
Depreciation and impairment		291		279		873		1,206
Total cost of revenue		6,118		6,521		20,385		19,827
Gross profit		489		1,013		931		2,632
Operating expenses:
Research and development		5,496		3,927		16,877		11,733
Sales and marketing		2,127		1,966		6,753		4,791
General and administrative		7,408		2,978		19,608		7,110
Loss on infrequent product repairs		—		119		—		582
Total operating expenses		15,031		8,990		43,238		24,216
Loss from operations		(14,542)		(7,977)		(42,307)		(21,584)
Change in fair value of warrants and convertible promissory notes		1,599		18,102		61,043		(11,668)
Interest expense		(2,991)		(1,162)		(9,397)		(3,418)
Loss on extinguishment of debt and financing obligations		—		—		(8,095)		—
Other financing and financial instrument expenses, net		—		—		(1,768)		—
Other income (expense), net		257		(12)		2,612		2,629
Total other income (expense), net		(1,135)		16,928		44,395		(12,457)
Income (loss) before provision for income taxes		(15,677)		8,951		2,088		(34,041)
Provision (benefit) for income taxes		3		(3)		8		21
Net income (loss) and comprehensive income (loss)	$	(15,680)	$	8,954	$	2,080	$	(34,062)
Numerator adjustments for diluted earnings per share:
Less: Change in fair value of convertible notes		—		(16,307)		—		—
Net income (loss) attributable to common stockholders, diluted	$	(15,680)	$	(7,353)	$	2,080	$	(34,062)
Net income (loss) per share attributable to common stockholders, basic	$	(0.30)	$	0.33	$	0.05	$	(1.25)
Net income (loss) per share attributable to common stockholders, diluted		(0.30)		(0.23)		0.04		(1.25)
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, basic		51,453,368		27,316,602		44,173,570		27,213,403
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, diluted		51,453,368		31,838,707		54,539,795		27,213,403

​
The accompanying notes are an integral part of these condensed consolidated financial statements

2

PRESTO AUTOMATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

(in thousands, except share data)

	Convertible						Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at December 31, 2022	—	$	—	51,231,608	$	5	$	170,794	$	(183,023)	$	(12,224)
Issuance of common stock upon exercise of stock options	—		—	370,692		—		220		—		220
Fair value of issued warrants on common stock	—		—	—		—		499		—		499
Issuance of common stock	—		—	10,000		—		100		—		100
Issuance of common stock upon vesting of restricted stock units (Note 11)	—		—	309,641		—		—		—		—
Earnout shares stock-based compensation (Note 1)	—		—	—		—		1,604		—		1,604
Stock-based compensation (Note 11)	—		—	—		—		3,249		—		3,249
Net loss	—		—	—		—		—		(15,680)		(15,680)
Balance at March 31, 2023	—	$	—	51,921,941	$	5	$	176,466	$	(198,703)	$	(22,232)

	Convertible						Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at December 31, 2021	—	$	—	27,260,624		3		75,459		(187,485)		(112,023)
Issuance of common stock upon exercise of stock options	—		—	93,529		—		46		—		46
Stock-based compensation	—		—	—		—		430		—		430
Fair value of newly issued common stock warrants	—		—	—		—		348		—		348
Net income	—		—	—		—		—		8,954		8,954
Balance at March 31, 2022	—	$	—	27,354,153	$	3	$	76,283	$	(178,531)	$	(102,245)

3

PRESTO AUTOMATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

(in thousands, except share data)

	Convertible						Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at June 30, 2022	28,343,420	$	28	6,196,257	$	6	$	78,290	$	(200,783)	$	(122,459)
Retrospective application of recapitalization (Note 1)	(28,343,420)		(28)	21,778,182		(3)		31		—		—
Adjusted balance, beginning of period	—		—	27,974,439		3		78,321		(200,783)		(122,459)
Issuance of common stock upon exercise of stock options	—		—	517,515		—		280		—		280
Fair value of issued warrants on common stock	—		—	—		—		1,352		—		1,352
Issuance of common stock upon net exercise of warrants	—		—	136,681		—		—		—		—
Issuance of common stock (Note 9)	—		—	143,333		—		1,100		—		1,100
Issuance of common stock upon vesting of restricted stock units (Note 11)	—		—	798,239		—		—		—		—
Issuance of shares and transfer of warrants upon termination of convertible note agreement (Note 9)	—		—	323,968		—		2,412		—		2,412
Conversion of convertible notes into common stock (Note 7)	—		—	8,147,938		1		41,391		—		41,392
Warrants issued with Credit Agreement (Note 7)	—		—	—		—		2,076		—		2,076
Reclassification of liability classified warrants to equity (Note 10)	—		—	—		—		830		—		830
Contribution by shareholder in conjunction with Credit Agreement (Note 7)	—		—	—		—		2,779		—		2,779
Earnout shares stock-based compensation (Note 1)	—		—	—		—		3,478		—		3,478
Merger and PIPE Financing (Note 1)	—		—	13,879,828		1		35,737		—		35,738
Stock-based compensation (Note 11)	—		—	—		—		6,710		—		6,710
Net income	—		—	—		—		—		2,080		2,080
Balance at March 31, 2023	—	$	—	51,921,941	$	5	$	176,466	$	(198,703)	$	(22,232)

	Convertible						Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at June 30, 2021	28,343,420	$	28	5,132,354	$	5	$	74,417	$	(144,469)	$	(70,019)
Retrospective application of recapitalization (Note 1)	(28,343,420)		(28)	21,980,406		(2)		30		—		—
Adjusted balance, beginning of period	—		—	27,112,760		3		74,447		(144,469)		(70,019)
Issuance of common stock upon exercise of stock options	—		—	241,393		—		104		—		104
Stock-based compensation	—		—	—		—		1,384		—		1,384
Fair value of newly issued common stock warrants	—		—	—		—		348		—		348
Net loss	—		—	—		—		—		(34,062)		(34,062)
Balance at March 31, 2022	—	$	—	27,354,153	$	3	$	76,283	$	(178,531)	$	(102,245)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

a

PRESTO AUTOMATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine months ended
	March 31,
	2023		2022
Cash Flows from Operating Activities
Net income (loss)	$	2,080	$	(34,062)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, amortization and impairment		1,262		1,524
Stock-based compensation		5,794		1,384
Earnout share stock-based compensation		3,478		—
Contra-revenue associated with warrant agreement (Refer to Note 2)		1,073		—
Noncash expense attributable to fair value liabilities assumed in Merger		34		—
Change in fair value of liability classified warrants		(12,555)		1,066
Change in fair value of warrants and convertible promissory notes		(48,271)		10,602
Amortization of debt discount and debt issuance costs		2,433		405
Loss on extinguishment of debt and financing obligations		8,095		—
Paid-in-kind interest expense		4,604		15
Share and warrant cost on termination of convertible note agreement		2,412		—
Forgiveness of PPP Loan		(2,000)		(2,599)
Change in fair value of unvested founder shares liability		(1,392)		—
Noncash lease expense		264		—
Loss on disposal off property and equipment		16		—
Changes in operating assets and liabilities:				—
Accounts receivable, net		(689)		(524)
Inventories		474		(905)
Deferred costs		7,769		8,978
Prepaid expenses and other current assets		(742)		538
Other long-term assets		—		(80)
Accounts payable		1,480		(4,297)
Vendor financing facility		—		(6,792)
Accrued liabilities		(2,137)		(2,551)
Deferred revenue		(8,954)		(10,917)
Other long-term liabilities		(247)		(200)
Net cash used in operating activities		(35,719)		(38,415)
Cash Flows from Investing Activities
Purchase of property and equipment		(229)		(214)
Payments relating to capitalized software		(3,584)		(1,249)
Investment in non-affiliate		(2,000)		—
Net cash used in investing activities		(5,813)		(1,463)
Cash Flows from Financing Activities
Proceeds from the exercise of common stock options		280		104
Proceeds from the issuance of term loans		60,250