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, 2024

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 May 20, 2024, 105,882,010 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, 2024

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	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	72
PART II . OTHER INFORMATION
Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78
	Signatures	81

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:

● Presto’s current liquidity resources raise substantial doubt about its ability to continue as a going concern and to comply with its debt covenants unless it raises additional capital to meet its obligations in the near term.

● Presto’s limited operating history in a new and developing market makes it difficult to evaluate its current business and predict its future results.

● Presto’s success depends on increasing the number of franchisees of our existing restaurant customers that use its solution, and, in particular, Presto Voice, and the timing of the deployments of contracted locations.

● We have been evaluating strategic alternatives of our Presto Touch solution such as a sale, partial sale or abandonment of the Presto Touch business in the coming months and we may be unable to realize the benefits we expect from doing so.

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

● Presto may be adversely affected if it is unable to optimize the number of human agents required to operate its Presto Voice solution to improve its unit cost structure.

● Changes in Presto’s senior management team have impacted its organization’s focus and it is dependent on the continued services and performance of its current senior management team.

● Presto’s ability to recruit, retain, and develop qualified personnel is critical to its success and growth.

● Defects, errors or vulnerabilities in third party technology that is used in Presto’s solutions could harm its reputation and brand and adversely impact its business, financial condition, and results of operations.

● Presto’s pricing decisions and pricing models may adversely affect its ability to attract new customers and retain existing customers.

● If Presto fails to maintain a consistently high level of customer service or fails to manage its reputation, brand, business and financial results may be harmed.

● Changes to Presto’s AI solutions could cause it to incur additional expenses and impact its product development program.

ii

● Presto is subject to legal proceedings and government investigations which are costly and time-consuming to defend and may adversely affect its business, financial position, and 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 their 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.

● Security breaches, denial of service attacks, or other hacking and phishing attacks on Presto’s systems or the systems with which Presto’s solutions integrate could harm its reputation or subject Presto to significant liability, and adversely affect its business and financial results.

● Presto is dependent upon its customers continued and unimpeded access to the internet, and upon their willingness to use the internet for commerce.

● Presto’s efforts to generate revenues and/or reduce expenditures may not be sufficient and may make it difficult for Presto to implement its business strategy.

● Presto has faced challenges complying with the covenants contained in its credit facility and, unless it can raise additional capital, it may need additional waivers which may not be forthcoming.

● Presto requires additional capital, which additional financing is likely to 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.

● Unfavorable conditions in the restaurant industry or the global economy could limit Presto’s ability to grow its business and materially impact its financial performance.

● Presto’s results of operations may fluctuate from quarter to quarter and if it fails to meet the expectations of securities analysts or investors with respect to results of operations, its stock price and the value of your investment could decline.

● Presto’s ability to use its net operating loss carryforwards and certain other tax attributes may be limited.

● 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.

● The restaurant technology industry is highly competitive. Presto may not be able to compete successfully against current and future competitors.

● Mergers of or other strategic transactions by Presto’s competitors, its customers, or its partners could weaken its competitive position or reduce its revenue.

● Presto’s growth depends in part on reliance on third parties and its ability to integrate with third-party applications and software.

● Presto’s transaction revenue is partly dependent on its partners to develop and update third-party entertainment applications. The decisions of developers to remove their applications or change the terms of our commercial relationship could adversely impact Presto’s transaction revenue.

● Payment transactions processed on Presto’s solutions may subject Presto to regulatory requirements and the rules of payment card networks, and other risks that could be costly and difficult to comply with or that could harm its business.

iii

● Presto relies upon Amazon Web Services, Microsoft Azure and other infrastructure to operate its platform, and any disruption of or interference with its use of these providers would adversely affect its business, results of operations, and financial condition.

● Certain estimates and information contained in this report are based on information from third-party sources, and Presto does not independently verify the accuracy or completeness of the data contained in such sources or the methodologies for collecting such data.

● Presto’s business is subject to a variety of U.S. laws and regulations, many of which are unsettled and still developing, and Presto or its customers’ failure to comply with such laws and regulations could subject Presto 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.

● 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.

● Presto may be unable to continue to use the domain names that it uses in its business or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of its brand, trademarks, or service marks.

● Presto’s senior management team has limited experience managing a public company, and regulatory compliance obligations may divert its attention from the day-to-day management of its business.

● As a public reporting company, Presto is subject to filing deadlines for reports that are filed pursuant to the Exchange Act, and its failure to timely file such reports may have material adverse consequences on its business.

● As a public reporting company, Presto is subject to rules and regulations established from time to time by the Securities and Exchange Commission (the “SEC”) regarding its internal control over financial reporting. If Presto fails to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, it may not be able to accurately report its financial results or report them in a timely manner.

● Presto has identified material weaknesses in its internal controls 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 is an emerging growth company, and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make its common stock less attractive to investors.

● Presto has and will continue to incur significant costs as a result of operating as a public company.

● Provisions in Presto’s Charter and Bylaws may discourage, delay or prevent a merger, acquisition or other change in control in Presto’s company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.

● Presto’s Charter provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America are the exclusive forums for substantially all disputes between it and our stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with Presto or its directors, officers, or employees.

iv

● A market for Presto’s securities may not continue, which would adversely affect the liquidity and price of its securities.

● The Nasdaq Stock Market LLC (“Nasdaq”) may delist Presto’s securities from trading on its exchange, which could limit investors’ ability to make transactions in its securities and subject Presto to additional trading restrictions.

● Future offerings of debt or offerings or issuances of equity securities by Presto may adversely affect the market price of Presto’s common stock or otherwise dilute all other stockholders.

● If securities or industry analysts do not publish or cease publishing research or reports about Presto, its business, or its market, or if they change their recommendations regarding Presto’s securities adversely, the price and trading volume of Presto’s securities could decline.

● Presto may be subject to securities litigation, which is expensive and could divert management’s attention and strategic alternatives.

We may also be impacted by other factors disclosed in this Quarterly Report on Form 10-Q and the Company’s other filings with the SEC.

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

v

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,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	4,235	$	15,143
Restricted cash		—		10,000
Accounts receivable, net of allowance of $415 and $746, respectively		1,246		1,831
Inventories		181		629
Deferred costs, current		1,068		2,301
Prepaid expenses and other current assets		1,427		1,162
Total current assets		8,157		31,066
Deferred costs, net of current portion		125		92
Investment in non-affiliate		2,000		2,000
Property and equipment, net		577		909
Intangible assets, net		8,126		10,528
Goodwill		1,156		1,156
Other long-term assets		291		936
Total assets	$	20,432	$	46,687
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,106	$	3,295
Accrued liabilities		4,167		4,319
Financing obligations, current		3,540		1,676
Debt, current		50,271		50,639
Convertible promissory notes		8,490		—
Deferred revenue, current		960		1,284
Total current liabilities		71,534		61,213
Financing obligations, net of current		—		3,000
Warrant liabilities		7,043		25,867
Deferred revenue, net of current portion		15		299
Other long-term liabilities		8		1,535
Total liabilities		78,600		91,914
Commitments and Contingencies (Refer to Note 8)
Stockholders’ deficit:
Preferred stock, $0.0001 par value–1,500,000 shares authorized as of March 31, 2024 and June 30, 2023, respectively; no shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively		—		—
Common stock, $0.0001 par value–100,000,000,000 and 180,000,000 shares authorized as of March 31, 2024 and June 30, 2023, respectively, and 107,175,894 shares issued with 104,175,894 shares outstanding as of March 31, 2024 and 57,180,531 shares issued and outstanding as of June 30, 2023		10		5
Treasury stock at cost, 3,000,000 and 0 shares held at March 31, 2024 and June 30, 2023, respectively		(750)		—
Additional paid-in capital		208,612		190,031
Accumulated deficit		(266,040)		(235,263)
Total stockholders’ deficit		(58,168)		(45,227)
Total liabilities and stockholders’ deficit	$	20,432	$	46,687

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,
	2024		2023		2024		2023
Revenue
Platform	$	2,191	$	3,088	$	6,432	$	11,617
Transaction		2,261		3,519		7,798		9,699
Total revenue		4,452		6,607		14,230		21,316
Cost of revenue
Platform		1,642		2,743		4,165		10,951
Transaction		2,032		3,084		6,992		8,561
Depreciation, amortization and impairments		612		291		3,656		873
Total cost of revenue		4,286		6,118		14,813		20,385
Gross profit (loss)		166		489		(583)		931
Operating expenses:
Research and development		2,661		5,496		14,443		16,877
Sales and marketing		2,048		2,127		5,883		6,753
General and administrative		10,757		7,408		27,556		19,608
Total operating expenses		15,466		15,031		47,882		43,238
Loss from operations		(15,300)		(14,542)		(48,465)		(42,307)
Change in fair value of warrants and convertible promissory notes		626		1,599		26,937		61,043
Interest expense		(3,126)		(2,991)		(10,441)		(9,397)
Loss on extinguishment of debt and financing obligations		—		—		—		(8,095)
Other financing and financial instrument income (costs), net		(250)		—		1,141		(1,768)
Other income, net		—		257		92		2,612
Total other income (expense), net		(2,750)		(1,135)		17,729		44,395
Income (loss) before provision (benefit) for income taxes		(18,050)		(15,677)		(30,736)		2,088
Provision for income taxes		45		3		41		8
Net income (loss) and comprehensive income (loss)	$	(18,095)	$	(15,680)	$	(30,777)	$	2,080
Reconciliation of net income (loss) and comprehensive income (loss) attributable to common stockholders for net income (loss) per share:
Less deemed dividend attributable to the anti-dilution provision		(9,000)		—		(10,500)		—
Net income (loss) and comprehensive income (loss) attributable to common stockholders		(27,095)		(15,680)		(41,277)		2,080
Net income (loss) per share attributable to common stockholders, basic	$	(0.32)	$	(0.30)	$	(0.60)	$	0.05
Net income (loss) per share attributable to common stockholders, diluted		(0.32)		(0.30)		(0.60)		0.04
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, basic		83,744,950		51,453,368		68,395,804		44,173,570
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, diluted		83,744,950		51,453,368		68,395,804		54,539,795

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)

						Additional				Total
	Common Stock			Treasury		Paid-In		Accumulated		Stockholders’
	Shares	Amount		Stock		Capital		Deficit		Deficit
Beginning balance at June 30, 2023	57,180,531	$	5	$	—	$	190,031	$	(235,263)	$	(45,227)
Issuance of common stock upon exercise of stock options	3,805,155		1		—		281		—		282
Issuance of common stock upon vesting of restricted stock units	1,205,089		—		—		—		—		—
Cancellation of restricted stock awards issued in connection with the CyborgOps acquisition	(97,881)		—		—		—		—		—
Fair value of common stock warrants issued to a customer	—		—		—		148		—		148
Issuance of common stock, net of issuance costs of $1,778	22,583,000		2		—		11,495		—		11,497
Issuance of common stock upon trigger of anti-dilution adjustments	22,500,000		2		—		(2)		—		—
Share repurchase and forfeited anti-dilution adjustment in connection with $3.0 million exchange for January 2024 Note	—		—		(750)		(2,250)		—		(3,000)
Earnout shares stock-based compensation	—		—		—		3,934		—		3,934
Stock-based compensation	—		—		—		4,975		—		4,975
Net loss	—		—		—		—		(30,777)		(30,777)
Balance at March 31, 2024	107,175,894	$	10		(750)	$	208,612	$	(266,040)	$	(58,168)

	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)
Recapitalization upon Merger	(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	—		—	143,333		—		1,100		—		1,100
Issuance of common stock upon vesting of restricted stock units	—		—	798,239		—		—		—		—
Issuance of shares and transfer of warrants upon termination of convertible note agreement	—		—	323,968		—		2,412		—		2,412
Conversion of convertible notes into common stock	—		—	8,147,938		1		41,391		—		41,392
Warrants issued with Credit Agreement	—		—	—		—		2,076		—		2,076
Reclassification of liability classified warrants to equity	—		—	—		—		830		—		830
Contribution by shareholder in conjunction with Credit Agreement	—		—	—		—		2,779		—		2,779
Earnout shares stock-based compensation	—		—	—		—		3,478		—		3,478
Merger and PIPE Financing	—		—	13,879,828		1		35,737		—		35,738
Stock-based compensation	—		—	—		—		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)

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

3

PRESTO AUTOMATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

(in thousands, except share data)

						Additional				Total
	Common Stock			Treasury		Paid-In		Accumulated		Stockholders’
	Shares	Amount		Stock		Capital		Deficit		Deficit
Balance at December 31, 2023	70,335,628	$	7	$	—	$	206,109	$	(247,945)	$	(41,829)
Issuance of common stock upon exercise of stock options	2,355,276		—		—		45		—		45
Issuance of common stock upon vesting of restricted stock units	151,990		—		—		—		—		—
Issuance of common stock, net of issuance costs of $709	13,333,000		1		—		2,625		—		2,626
Issuance of common stock upon trigger of anti-dilution adjustments	21,000,000		2		—		(2)		—		—
Share repurchase and forfeited anti-dilution adjustment in connection with $3.0 million exchange for January 2024 Note	—		—		(750)		(2,250)		—		(3,000)
Earnout shares stock-based compensation	—		—		—		1,260		—		1,260
Stock-based compensation	—		—		—		825		—		825
Net loss	—		—		—		—		(18,095)		(18,095)
Balance at March 31, 2024	107,175,894	$	10	$	(750)	$	208,612	$	(266,040)	$	(58,168)

				Additional					Total
	Common Stock			Paid-In			Accumulated		Stockholders’
	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
Issuance of common stock upon vesting of restricted stock units	309,641		—		—	<