Filed pursuant to Rule 424(b)(3)

Registration No. 333-267979

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PROSPECTUS SUPPLEMENT NO. 2

(to Prospectus dated January 9, 2023)

PRESTO AUTOMATION INC.

Primary Offering of

16,250,000 Shares of Common Stock

Secondary Offering of

48,149,324 Shares of Common Stock

7,625,000 Warrants to Purchase Shares of Common Stock

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This prospectus supplement updates and supplements the prospectus dated January 9, 2023, as supplemented by that prospectus supplement no. 1 dated February 10, 2023 (as may be further supplemented or amended from time to time, the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (File No. 333-267979).

This prospectus supplement is being filed to update and supplement the Prospectus with the information contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the U.S. Securities and Exchange Commission on October 11, 2023 (the “Annual Report”). Accordingly, we have attached the Annual Report to this prospectus supplement.

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is required to be delivered with this prospectus supplement. If there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our shares of common stock, par value $0.0001 per share (the “Common Stock”), and public warrants to purchase shares of Common Stock (the “Warrants”) are listed on the Nasdaq Stock Market LLC under the symbols “PRST” and “PRSTW”, respectively. On October 10, 2023, the closing price of our Common Stock was $1.71 per share and the closing price of our Warrants was $0.06 per Warrant. 

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We are an “emerging growth company” and a “smaller reporting company” as such terms are defined under the federal securities laws and, as such, are subject to certain reduced public company reporting requirements.

Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 8 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.

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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is October 11, 2023.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 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)

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(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:

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐  No ☒

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.

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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of December 31, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $46.2 million, calculated by using the closing price of the registrant’s Common Stock on such date on the Nasdaq Stock Market LLC of $2.29.

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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 September 30, 2023, 57,855,594 shares of Common Stock, par value $0.0001 per share were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended June 30, 2023. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.

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PRESTO AUTOMATION INC.

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EXPLANATORY NOTE

Unless the context indicates otherwise, references to the “Company,” “we,” “us” and “our” refer to Presto Automation Inc., a Delaware corporation, and its consolidated subsidiaries following the Business Combination (defined below). References to “Ventoux” or “VTAQ” refer to Ventoux CCM Acquisition Corp. prior to the Business Combination and references to “Legacy Presto” refer to E La Carte, Inc. prior to the Business Combination.

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Ventoux was originally formed as a Delaware corporation in July of 2019 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization, or other similar business combination with one or more businesses. On December 30, 2020, Ventoux consummated its initial public offering (the “IPO”), following which its securities began trading on the Nasdaq Capital Market (“Nasdaq”).

On September 21, 2022, Ventoux consummated its previously announced business combination (the “Business Combination”) with E La Carte, a Delaware corporation (d/b/a Presto, Inc. “Presto”) (“Legacy Presto”), pursuant to the terms of that certain Merger Agreement, as subsequently amended (the “Merger Agreement”) by and among Ventoux CCM Acquisition Corp. (“Ventoux” or “VTAQ”), Ventoux Merger Sub I, Ventoux Merger Sub II and Legacy Presto, pursuant to which (a) Ventoux Merger Sub I merged with and into Legacy Presto, with Legacy Presto being the Surviving Corporation in the First Merger and continuing (immediately following the First Merger) as a wholly-owned subsidiary of VTAQ and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the Surviving Corporation merged with and into Ventoux Merger Sub II, with Ventoux Merger Sub II being the surviving entity in the Second Merger and continuing (immediately following the Second Merger) as a wholly-owned subsidiary of VTAQ. Upon the Closing, VTAQ was renamed “Presto Automation Inc.” For accounting purposes, and in accordance with generally accepted accounting principles, Ventoux was treated as the acquired company and Legacy Presto was treated as the acquirer."

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

This Form 10-K 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 in this Form 10-K, 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. Some factors that could cause actual results to differ are described in greater detail in Item 1A of Part I, “Risk Factors.”

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Item 1. Description of Business

Overview

We provide enterprise grade AI and automation solutions to the restaurant enterprise technology industry. Our solutions are designed to decrease labor costs, improve staff productivity, increase revenue and enhance the guest experience. We offer our AI solution, Presto Voice, to quick service restaurants (QSR) and our pay-at-table tablet solution, Presto Touch, to casual dining chains. Some of the most recognized restaurant names in the United States are among our customers, including Carl’s Jr., Hardee’s, Del Taco and Checkers for Presto Voice and Applebee’s, Chili’s and Red Lobster for Presto Touch.

Following our founding in 2008, we initially focused exclusively on Presto Touch. As of June 30, 2023, we had shipped over 277,000 Presto Touch tablets to three of the largest casual dining chains in the United States.  While Presto Touch has accounted for substantially all of our historical revenues, we believe that Presto Voice will contribute an increasing portion of our revenues in the future. Presto Voice, addresses the pressing needs of restaurant operators by improving order accuracy, reducing labor costs and increasing revenue through menu upselling, while also providing guests with an improved drive-thru experience.

The restaurant technology market, while still nascent, continues to rapidly develop and evolve in response to the challenges faced by restaurant operators and the productivity enhancements available to them through the use of technological advances. While growing and robust, the restaurant industry today faces increasing labor and other costs. At the same time, a higher percentage of guests are ordering food and drink via the drive-thru. In an era of high inflation, restaurant operators need to simultaneously lower their costs and generate higher revenues to leverage their cost structures. We believe our solutions help restaurant operators address these concerns with compelling end-to-end solutions that seamlessly integrate into a restaurant’s existing technology stacks.

Industry and Market Overview

The QSR and casual dining market in the United States and Canada consists of approximately 330,000 restaurants and is project to grow to approximately 360,000 restaurants by 2028 according to a 2023 report by IBIS World.¹ These locations are operated by a brand’s corporate owner or, in many cases, their franchisees. We estimate that approximately 13.5 billion guests visit in-store casual dining restaurants in the United States and Canada each year based on 2013 dining habit information from Statista. We believe that dining habits have remained substantially consistent since that time. The drive-thru segment of the market is expanding and grew by 20% from February 2020 to February 2022 according to The NPD Group and today accounts for approximately 40%, or 130,000 locations, of the total QSR store base. We estimate that this equates to an annual market size for the QSR market of $67 billion. We estimate based on 2013-2016 data from the U.S. Centers for Disease Control and Prevention that approximately 56 million customers in the United States and Canada visit drive-thru restaurants daily and, based on data from QSR Magazine in 2023, that the average American spends, on average, $1,200 annually on food and drinks from drive-thru restaurants.

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QSR and casual dining restaurant chains are increasingly leveraging technology solutions to increase profitability from their established store base, with approximately 58% of U.S. restaurant operators saying using technology-enabled solutions to improve efficiency, labor cost management and revenue growth will be common in the future, according a 2023 study by the National Restaurant Association. We estimate that the total addressable spend on restaurant enterprise technology in QSR and casual dining restaurants in the United States and Canada is approximately $3.0 billion per annum and, based on third party projected growth rates, we estimate it will grow by approximately 35% per annum. We are in the early stages of capturing our addressable market opportunity and are well positioned through our Voice AI solution to increase our share of this market over the next five years.

QSR and casual dining restaurant operators face many challenges which are addressed by our solutions. They include the need to:

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We provide restaurant operators with solutions to these challenges. First, our solutions allow restaurants to operate efficiently with fewer staff in drive-thrus and in-store restaurants and, accordingly, lower overall labor costs. Second, customers report that our solutions allow them to improve staff retention rates by reducing the cognitive load and stress on them. Third, the increased efficiencies our solutions provide enhance the guest experience by improving order accuracy and reducing wait and delivery times. Fourth, we integrate our solutions into a restaurant’s existing technology so that operators do not need to make major changes to their existing technology stacks.

Our Solutions

Presto Voice

Our Voice AI solution, Presto Voice, completes complex orders, including large orders with multiple menu modifications and add-ons, with limited on-site restaurant staff intervention. Presto Voice greets the guest, takes her or his order, populates the order in the restaurant’s point of sale (POS) system and delivers the order to the restaurant’s Kitchen Display System (KDS). Our end-to-end solution is designed to integrate with a restaurant's existing technology and not require the restaurant operator to make major changes to its existing technology stack.

We believe that Presto Voice enables orders to be processed with improved accuracy and improves the guest experience by allowing the restaurant staff to build the order using the KDS while Presto Voice finalizes the order with the guest.  This often results in the order being ready for the guest when she or he pulls up to the pick-up window. Presto Voice strives to increase check sizes with automatic upselling functionality. Presto Voice offers upsells on nearly 80% of orders in the drive-thru, with upsells accepted by the guest nearly 35% of the time, resulting in additional revenues to the restaurant. Presto Voice benefits the restaurant staff as well. The platform removes one of the restaurant staff’s previous responsibilities (taking the order through the headset), allowing them to enhance their performance in other areas including order assembly.

Revenues from Presto Voice have not been material to date; however, we expect an increasing portion of our future revenues to be generated by Presto Voice.

Presto Touch

Our Presto Touch pay-at-table tablet solution enables self-serve ordering, payment processing, personalization and gaming experiences for restaurant guests. We believe that Presto Touch provides significant value to restaurant operators and guests alike by allowing restaurants to operate dining rooms with fewer staff, personalizing guest experiences and providing more guest insights to the restaurant’s marketing team. Presto Touch increases the server’s efficiency, thereby increasing the number of tables each server can service and, therefore, tips available per server.

Presto Touch provides guests with the opportunity to purchase premium gaming content during the dining experience. We control the associated gaming licenses and work with our restaurant customers to establish the end price charged to the guest. We also generate revenue from professional services, consisting primarily of fees from installing our products and from developing premium content used on the pay-at-table devices. Presto Touch offers Wi-Fi and LTE connectivity. Its front and rear cameras enable coupon scanning. Presto Touch hosts a wide range of payment options and is PCI-DSS compliant. In addition, Presto Touch offers the latest EMV and mobile payment technologies, as well as the ability to split checks.  

Since our founding in 2008 to June 30, 2023, we have shipped over 277,000 Presto Touch tablets to three of the largest casual dining chains in the United States. In 2023, we launched a next generation hardware solution that enhances the capabilities of Presto Touch. This new solution has multiple batteries and removes the pin pad which will assist in the device’s longevity.

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Our Technology

Voice AI Technology

We began developing our own AI technology platform, Presto Voice, in 2020. To date, we have implemented this technology at Del Taco, Carl’s Jr. and Hardee’s, as well as other restaurant brands that are currently in pilot. Like most AI systems, Presto Voice relies on a combination of machine learning and human collaboration to achieve optimal outcomes for the customer including order accuracy, improved operating efficiencies and consistent upselling.

The key elements of our AI solution consist of:

There are also limited circumstances when human intervention by the on-site restaurant staff is required to process a guest’s order, such as if the guest has a question about the menu, if the menu is very complex or if ambient noise is exceptional. Presto Voice currently achieves an 85% non-intervention rate on average, meaning that restaurant staff does not need to intervene in 85% of the orders placed (not including interactions that do not result in an order such as pick-ups from third party delivery services). We have achieved an approximately 95% non-intervention rate at certain locations.

Presto Voice is currently deployed in Del Taco, Carl’s Jr and Hardee’s, as well as various other restaurant brands under pilot. Prior to commercializing our own AI technology, we entered the voice activated drive-thru market by subcontracting with Hi Auto Ltd. (“Hi Auto”) in July 2021.  Hi Auto’s AI solution powers Presto Voice at Checkers restaurants and is referred to externally as “Presto Voice powered by Hi Auto”. Checkers is currently our largest installed voice AI base.  This arrangement allowed us to enter the market before our own AI technology was commercialized, to assess the strength of the voice market and to develop the sales and account management processes needed to capture market share.

Competitive Strengths

We believe that we have a number of competitive strengths that will enable us to grow our market position. Our competitive strengths include the following:

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Strategy

We have adopted the following strategies to increase our revenues and achieve profitability:

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Revenue opportunity as set forth above is based on the number of locations of each restaurant brand or franchisee group, as applicable, at which Presto Voice is not installed and is based on the pricing contained in the relevant master service or pilot agreement for such customer.  Revenue opportunity does not represent contractually committed revenue or backlog.

Customers

Presto’s customers include some of the most familiar restaurant names in the United States, including Carl’s Jr., Hardee’s, Del Taco and Checkers for Presto Voice and Applebee’s, Chili’s and Red Lobster for Presto Touch. Our potential customer base consists of the approximately 330,000 QSR and casual dining restaurants in the United States and Canada we have identified as our accessible market. These restaurants are owned by corporate parents or, in some circumstances, by their franchisees, each of which makes the decision to employ our solutions independently. For example, CKE Restaurants Holdings, Inc., or CKE, owns approximately 243 Carl’s Jr and Hardee’s locations while its franchisees own approximately 2,532 locations. Our ability to sell into and manage these diverse and complex relationships is one of Presto’s competitive advantages.

We enter into services agreements with our customers ranging in length from 12 to 36 months, which provide visibility into our forward performance.

For the years ended June 30, 2023 and 2022, our three largest customers (including, as applicable, the franchisees of such restaurants which are aggregated as a single customer for reporting purposes) generated an aggregate of approximately 94% and 93% of our revenue, respectively.

The purchase and services agreement with our largest customer was executed in June 2019 and provided for the onboarding and initial sale of our Presto Touch solution. The agreement also provides the terms under which the customer may elect to purchase additional devices, as well as a revenue sharing arrangement for the provision of premium content to the customer’s guests. The purchase and services agreement had an initial term of three years and has been extended to June 2024.

The agreement with our second largest customer was executed in 2017. The agreement provided for the onboarding and initial sale of Presto Touch, along with a revenue sharing arrangement for the provision of premium content to the customer’s guests. The agreement had an initial term of 36 months and has been renewed through March 1, 2024. The agreement can be terminated by the customer with 30 days prior written notice at any time if there is not a statement of work (SOW) outstanding. If there is no SOW outstanding for 12 months, the services agreement automatically terminates.

The service provider agreement with our third largest customer was executed in 2017 by the customer renewing a previous agreement with Presto made in 2013 for Presto Touch. The service provider agreement governs the ongoing relationship between us and the customer, as well as the franchisee agreements executed between us and each of the customer’s franchisees. In addition to governing the terms of further purchases of Presto Touch and a revenue sharing arrangement for the provision of premium content to the franchisees’ guests, the franchisee agreements require that the franchisees replace certain existing Presto Touch products with upgraded versions by way of purchasing the new equipment or leasing it. The term of the service provider agreement extends until each of the franchisee agreements has been terminated. The franchisee agreements are scheduled to terminate in December 2023 unless they are extended.

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Sales and Marketing

We have developed a robust sales and marketing process designed to navigate our complex and diverse customer base. Our sales and marketing effort is multi-faceted and consists of several phases. To generate demand, we have developed a library of focused marketing materials which, among other things, describe the benefits of Presto’s solutions, as well as a robust referral network, including many of our current customers. Once we identify prospective customers, we work with them to tailor appropriate pricing and packaging options intended to simplify product adoption and provide ease of use.

In general, our sales process starts with the corporate owner of the restaurant brand followed by our marketing efforts to its franchisees, as applicable. In addition, restaurant operators typically seek to test technologies before implementing them chain-wide. As a result, our sales cycle, from initial implementation of pilot programs, as described below, to signing a system-wide master services agreement (MSAs), can range from three to 15 months.

Once we have established that a prospective customer is interested in employing one of our solutions, we encourage them to engage in a pilot program with us in a limited number of their restaurants. These pilots enable the customer to test our solutions and allow us to customize our platforms and familiarize restaurant management with their use and capabilities.  Our pilot programs typically range from three to 12 months. During the pilot test, we align with our customers on key KPIs and work to deliver consistent service and a compelling return on investment profile.

Following the pilot period, we enter into MSAs with our customers of typically 12 to-36 months in duration. We execute these MSAs first with the corporate owner of the restaurant brand. This provides us with the opportunity to sell our solutions directly to their franchisees. We engage with key customer stakeholders and leverage our sales team to drive franchisee adoption, while at the same time rolling out the solution to the brand’s corporate-owned stores. Each of the corporate owner and their franchisees make independent adoption decisions. The signing of a corporate MSA does not ensure that the brand’s franchisees will adopt our solution.

Customer Success

We have developed and nurtured long-term relationships with our largest customers and maintain an ongoing relationship with them that includes technical support and conducting quarterly business reviews in order to build a pathway to successful usage of our solutions, future renewals and product upgrades. Presto deploys a team that trains our customers on our technology so that they can maximize its benefits.

Our technical team supports our customers through the onboarding process, including by providing employee training, device installation, procedures for troubleshooting and maintenance and advising on industry best practices, among other things. We are committed to providing a differentiated experience for restaurant operators. We offer customers the option of choosing between on-site, remote and self-guided implementation. Following onboarding, we offer our customers support through multiple channels, including chat, phone, web and in-person visits as needed.

Manufacturing and Supply

Presto Voice

The hardware and components used in Presto Voice are off-the-shelf or widely available and are augmented by our proprietary technology.

In July 2021, we entered into an agreement with Hi Auto, pursuant to which we use Hi Auto’s technology in our Voice AI solution. We refer externally to this solution as “Presto Voice powered by Hi Auto”. As of June 30, 2023, Checkers was the only customer deployed under this agreement. All subsequent deployments of Presto Voice have been powered by Presto’s proprietary Voice technology.  Our agreement with Hi Auto terminates on July 28, 2024.  Any customer or franchisee agreements that extend beyond the termination of our agreement with Hi Auto will remain in force through the term of the agreement with such customer or franchisee.

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Presto Touch

We are in the process of seeking renewals from our largest customers that would include a shift to our next generation version of Presto Touch.  The tablets for this version of Presto Touch are sourced pursuant to a Master Services Agreement pursuant to which the supplier develops and manufactures the tablets used in our Presto Touch product and provides technical and repair services for us. The

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Master Services Agreement had an initial term of three years with automatic one-year renewal periods and, since the expiration of the original term in September 2022, has been automatically renewed for successive one-year periods. Any party may terminate the agreement upon 180 days’ notice or upon a material breach of the agreement if such breach is not cured within 60 days.

In the event of a shortage or supply interruption from our suppliers, or if our inventory estimates are incorrect, we may not be able to develop alternative sources for these tablets quickly, cost-effectively, or at all.

Research and Development

Our new product development and research activities rely on our assessment and knowledge of the challenges faced by restaurant operators today and ones they may face in the future as determined through market and user research, feedback from our existing and potential customers and our deep understanding of the restaurant industry. Our R&D efforts are multi-disciplinary, integrating our product management, engineering, analytics, data science, design and customer success teams.

Our R&D team currently focuses on the development of Presto Voice.  Our Presto Voice R&D team operates in the following core disciplines: speech recognition, NLU, acoustic signal enhancement and restaurant systems integrations, including audio, POS and menu management. The Presto Voice R&D team is focused on enhancing the metrics of the Presto Voice solution to lower unit costs, decrease human intervention and deliver better outcomes for customers, including increasing order accuracy.  Our Touch R&D team focuses on enhancements to the user interface, payment integrations, loyalty integrations, hardware improvements to the next generation device and ordering enhancements.

We develop our products in three primary research and development locations: San Carlos, California, Flower Mound, Texas and Toronto, Ontario, Canada.

Competition

The markets in which we compete are competitive and rapidly evolving. Our platform solutions combine functionality from various product categories, and, as such, we compete with different providers. With respect to our Presto Touch solution, we primarily compete with OneDine LLC and TableTop Media, LLC d/b/a Ziosk. With respect to Presto Voice, we primarily compete with ConverseNow Technologies Inc., Alphabet Inc. (Google), Hi Auto, International Business Machines Corporation (IBM), OpenCity, Inc., Synq3 Restaurant Solutions, LLC, SoundHound AI, Inc. and Valyant AI, Inc.

We believe the principal competitive factors in our market are the ability to provide an end-to-end software solution specifically designed to meet the existing and future technology needs of our customers, including:

We expect new competition to emerge as the market continues to grow and evolve, especially from smaller emerging companies that could introduce new products.

For information on risks relating to increased competition in our industry, see the section titled “Risk Factors — Risks Related to Presto’s Competition, Sales and Marketing.”

Human Capital Resources

As of June 30, 2023, we had 137 full-time employees who are located in the United States, India and Canada and 149 contractors, consisting primarily of human agents supporting our HITL approach, who are primarily located in the Asia-Pacific region. Approximately two-third of our employees are in our research and development team.    

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None of our employees are represented by a labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good.

Intellectual Property

As of June 30, 2023, we had 11 registered domain names for websites that we use in our business, such as presto.com and other variations, three trademarks, and no registered patents or copyrights.

We rely on trade secret laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual protections, to protect our intellectual property rights, including our proprietary technology, software, know-how, and brand.

We require our employees, consultants, independent contractors and other third parties to enter into confidentiality and proprietary information and invention assignment agreements that assign to us any inventions, trade secrets, works of authorship, developments, processes, and other intellectual property generated by them on our behalf. In addition, we control and monitor access to our software, documentation, proprietary technology, and other confidential information. Further, we generally enter into confidentiality agreements with our customers and third-party partners.

We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. See the section entitled “Risk Factors,” including “Risk Factors — Risks Related to Presto’s Intellectual Property” for a description of the risks related to our intellectual property.

Insurance

We maintain the following types of insurance: excess coverage, or reinsurance for property and general liability professional liability, directors’ and officers’ liability, workers’ compensation, cybersecurity, technology errors and omissions, ocean/marine cargo, commercial crime and other coverage in amounts and on terms deemed adequate by management, based on our actual claims experience and expectations for future claims. However, future claims could exceed our applicable insurance coverage.

Government Regulation

Certain aspects of our business and service areas are subject to U.S. federal, state, and local regulation. As more fully described below, some of our services also are, or may be in the future, subject to the laws, rules, and regulations that are related to acceptance of credit cards and debit cards. We also are, or may be in the future, subject to rules promulgated and enforced by multiple authorities and governing bodies in the United States, including federal, state and local agencies, payment card networks and other authorities. These descriptions are not exhaustive, and these laws, regulations, and rules frequently change and are increasing in number.

Card Network and NACHA Rules

We rely on our relationships with financial institutions and third-party payment processors to access the payment card networks, such as Visa and Mastercard, which enable our acceptance of credit cards and debit cards. We pay fees to such financial institutions and third-party payment processors for such services. We are required by these third-party payment processors to register with Visa, Mastercard, and other card networks and to comply with the rules and the requirements of these card networks’ self-regulatory organizations. The payment networks and their member financial institutions routinely update, generally expand, and modify requirements applicable to our customers, including rules regulating data integrity, third-party relationships, merchant chargeback standards and compliance with PCI-DSS. PCI-DSS is a set of requirements designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect cardholder data.

We are also subject to the operating rules of the National Automated Clearing House Association (“NACHA”). NACHA is a self-regulatory organization which administers and facilitates private-sector operating rules for ACH payments and defines the roles and responsibilities of financial institutions and other ACH network participants. The NACHA Rules and Operating Guidelines impose obligations on us and our partner financial institutions, such as audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations.

Privacy and Consumer Information Security

In the ordinary course of our business, we access, collect, store, use, transmit and otherwise process certain types of data, including personally identifiable information (“PII”), which subjects us to certain federal and state privacy and information security laws, rules, industry standards and regulations designed to regulate consumer information and data privacy, security and protection, and mitigate

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identity theft. These laws, some of which are discussed below, impose obligations with respect to the collection, processing, storage, disposal, use, transfer, retention and disclosure of PII, and, with limited exceptions, give consumers the right to prevent use of their PII and disclosure of it to third parties. Such laws and regulations are subject to ongoing changes, and a number of new proposed or recently passed laws or regulations in this area are expected to be applicable to our business.

In addition, under these laws and regulations, including the federal Gramm-Leach-Bliley Act (“GLBA”) and Regulation P promulgated thereunder, we must disclose our privacy policy and practices, including those policies relating to the sharing of nonpublic personal information with third parties. The GLBA may restrict the purposes for which we may use PII obtained from consumers and third parties. We may also be required to provide an opt-out from certain sharing.

On January 1, 2020, the California Consumer Privacy Act of 2018 (“CCPA”) took effect, directly impacting our California business operations and indirectly impacting our operations nationwide. While personal information that we process that is subject to the GLBA is exempt from the CCPA, the CCPA regulates other personal information that we collect and process. A new California ballot initiative, the CPRA was passed in November 2020. Effective starting on January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.

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Item 1A. Risk Factors

The following risk factors are not exhaustive, and investors are encouraged to perform their own investigation with respect to the business, prospects, financial condition and operating results of Presto. You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K, including matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements and Risk Factors.” We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business, prospects, financial condition or operating results. The following discussion should be read in conjunction with our financial statements and notes to the financial statements included herein.

Risks Related to Presto’s Business and Business Development

Our limited operating history in a new and developing market makes it difficult to accurately forecast our future results and may make it difficult to evaluate our current business and future financial results.

You should not place undue reliance on our revenue or key business metrics for any previous quarterly or annual period as indicative of our revenue, revenue growth, key business metrics, or key business metrics growth in future periods. Our revenue has fluctuated and recently declined compared to previous periods.  Our revenue fluctuates and may continue to fluctuate as a result of a number of factors, including seasonality, the length of our sales and deployment cycles, our efforts to grow Presto Voice as a greater component of our revenues, the upcoming contractual renewal dates for Presto Touch, limited growth to date in the number of customers and their guests that utilize our platform, increasing competition, changing customer and guest behaviors, our failure to continue to capitalize on growth opportunities and the impact of regulatory requirements.

We have a limited operating history with our solutions, particularly Presto Voice. As a result, we have less experience with the related pricing models of the solution, including operator acceptance thereof, which makes it difficult to accurately assess our future prospects and forecast our future financial results.

You should consider our future prospects in light of the challenges and uncertainties that we face, including:

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Our platforms are comprised of our Presto Touch and Presto Voice solutions. The market for our Presto Voice solution is relatively new and rapidly evolving. We anticipate that, in the future, Presto Voice will account for a larger portion of our revenues. It is possible customers may be reluctant to embrace technology and/or AI-based voice solutions. In addition, the technology and AI-based markets are rapidly evolving, and we may have limited insights into trends that may emerge. If the market for our Presto Voice solution does not develop, or if we do not keep up with market trends, our ability to grow our business could be limited and we may not be able to operate profitably.

Our success depends on increasing the number of franchisees of our existing restaurant customers that use our solutions and, in particular, Presto Voice, and the timing of the deployments of contracted locations.

We enter into services agreements with restaurant customers that provide for the initial deployment of our solutions in owned locations and provide us with the opportunity to sell our solutions to franchisee customers within those groups.  Most of our customers initially deploy our platforms in a subset of locations, and our restaurant customers’ franchisees, as applicable, have the option, but not the requirement, to deploy our solutions at their restaurant locations. Our ability to increase adoption of our solutions by our customers and to increase penetration of our existing customers’ locations, including those of their franchisees, will depend on a number of factors, including our customers’ satisfaction with our solutions, competition, pricing and our ability to demonstrate the value proposition of our solutions. In addition, our ability to increase the adoption of our solutions may be constrained by the nature of the technology that is currently deployed in the restaurant locations. Furthermore, our ability to rapidly install our solution on-site may be beyond our control as a result of our customer’s internal timing and strategic initiatives that may take precedence over the Presto solution deployment. In addition, the time required to implement on-site deployment may be further complicated by the composition of the drive -thru equipment on site, the version of the POS employed on-site and the receptivity of the restaurant’s staff to our solution.  The adoption may also be constrained by the time frame necessary to demonstrate a provable return on investment for our solution.

We currently generate the substantial majority of our revenue from three Presto touch customers, and the loss or decline in revenue from any of these customers, or the failure of such customers to renew their existing agreements, would harm our business, results of operations, and financial condition.

For the years ended June 30, 2023 and 2022, our three largest restaurant customers (including, as applicable, the franchisees of such restaurants aggregated as a single customer for reporting purposes) generated an aggregate of approximately 94% and 93% of our revenue, respectively.  We have in the past, and we may in the future, lose one or more of our largest customers. Our largest customers have entered into contracts for our Touch products with initial terms that typically range from 12 to 36 months and have previously renewed their agreements.  The current terms of these contracts expire and are up for renewal between December 31, 2023 and June 30, 2024.  As a result, these customers may reduce or terminate their usage of our solutions, decide not to renew their agreements with us at our required pricing or use fewer of our solutions, which would adversely affect our business and reputation, and materially decrease our revenues.

Our sales cycles are long and unpredictable, and attracting new customers requires considerable investment of time and expense.

Our success depends, in part, on our ability to attract additional restaurant operators to use our solutions, in particular, Presto Voice. The sales cycle for the adoption of our solutions typically lasts more than one year.  The decision to adopt any of our solutions may require the approval of multiple technical and business decision makers, including senior executives and other personnel responsible for security, compliance, operations, finance and treasury, marketing and IT. Our initial engagement typically consists of a pilot program that ranges from three to 12 months and allows us and the operator to test and customize our solutions and familiarize restaurant management with their use and capabilities. We expend significant resources in generating leads and engaging with potential customers before they may agree to enter into a pilot program.  Such customers often deploy our solutions on a limited pilot basis and require extensive education about our solutions including establishing return on investment profiles and significant customer support time, engage in protracted pricing negotiations and seek to secure development resources before they will commit to deploying our solutions at scale. Our ability to attract new customers depends on a number of factors, including the effectiveness of our sales team, our marketing efforts, referrals by existing customers, our pricing structure, the success of the pilot program, if implemented and the availability of competitive restaurant technology platforms. We may not experience the same levels of success with respect to our customer acquisition strategies as seen in prior periods, and, if the costs associated with acquiring new customers materially rises in the future, our expenses may rise significantly.

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Our business may be adversely affected if we are unable to optimize the number of human agents required to operate our Presto Voice solution with our unit cost structure.

Our industry is characterized by rapid technological change, frequent new product and service introductions, and evolving industry standards. Our success has been based on our ability to identify and anticipate the needs of our customers and design and maintain solutions that provide them the tools they need to enhance their business operations.

Our work to develop our proprietary Presto Voice solution began in 2020 with that technology first deployed to customers in 2022.  Given the machine learning associated with all AI technology, including our solution, we use an approach which is commonly employed in the AI industry referred to as human-in-the loop (HITL) to ensure the desired level of accuracy in order taking is achieved.  HITL enables an AI platform to keep adjusting its understanding for outputs that do not achieve a defined level of confidence or accuracy. As a result, our systems use a human agent (located offsite of the restaurant) to enter, review, validate and correct orders received by Presto Voice and make sure that restaurant guests receive accurate orders. We are continuing to develop Presto Voice so that we can reduce the role of these human agents in the use of our technology while still maintaining order accuracy and improved delivery times. Our latest innovations in AI technology, aimed at decreasing the degree of HITL, are currently being tested in select Del Taco, Carl’s Jr. and Hardee’s locations. Until a reduction in HITL is achieved and/or greater efficiencies are achieved with our human agents, expanding Presto Voice to a larger number of drive-thru locations would require expanding our human agent population and, as a result, the costs associated with Presto Voice would increase. The recruitment, training, monitoring and performance management of these human agents may become increasingly costly over time and, if not managed or costed appropriately, may result in a quality-of-service degradation or adversely affect profitability. We are currently close to profitable at the restaurant location level based on our current level of HITL and expect to achieve profitability at the restaurant location level in the near future with the advances described above. If we are unable to reduce the degree or cost of HITL or and/or achieve greater efficiencies with our human agents, our ability to achieve profitability of our Presto Voice solution would be adversely affected.

We may experience difficulties with software development that could delay or prevent the development, deployment, introduction, or implementation of new solutions and enhancements. Software development involves a significant amount of time, as it can take our developers months to update, code, and test new and upgraded products and solutions and integrate those products and solutions into our platforms. We must also continually update, test, certify, maintain, and enhance our software platforms. We may make significant investments in new solutions or enhancements that may not achieve expected returns. The continual improvement and enhancement of our platforms require significant investment, and we may not have the resources to make such investments. Our improvements and enhancements may not result in our ability to recoup our investments in a timely manner, or at all. The improvement and enhancement of the functionality, performance, reliability, design, security, and scalability of our platform is expensive and complex, and to the extent we are not able to perform it in a manner that responds to our customers’ evolving needs, our business, operating results, and financial condition will be adversely affected.

Changes in our senior management team have impacted our organization’s focus and we are dependent on the continued services and performance of our current senior management team.’

Our future performance depends, in part, on the continued services and contributions of our senior management team and other key employees to execute our business plan, to continue to deploy our solutions to existing customers, and to identify and pursue new opportunities and innovations. In 2023, we experienced changes in our senior management team, including changes of our Chief Executive Officer and Chief Financial Officer. These changes, and the related transition of our new senior leadership team have, at times, impacted our organization’s focus on executing our business plans. We do not maintain key person life insurance policies on any of our employees. The loss of the services of one or more members of our senior management team or other key employees for any reason could adversely affect our business, financial condition, and operating results, and require significant amounts of time, training, and resources to find suitable replacements and integrate them within our business.

Our ability to recruit, retain, and develop qualified personnel is critical to our success and growth.

Our business functions at the intersection of rapidly changing technological, social, economic, and regulatory environments that require a wide range of expertise and intellectual capital. For us to successfully compete and grow, we must recruit, retain, and develop personnel who can provide the necessary expertise across a broad spectrum of disciplines, including, in particular, expertise with respect to AI technologies and in identifying low-cost HITL solutions. In addition, we must develop, maintain and, as necessary, implement appropriate succession plans to ensure we have the necessary human resources capable of maintaining continuity in our business.

The market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel at reasonable compensation or may fail to effectively replace current personnel who depart with qualified or effective successors. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. In addition, job

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candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. The trading price of our common stock has been volatile, which may make it difficult to attract and retain highly qualified employees.  

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

Third-party software that we incorporate into our solutions and our backend systems, hardware, or other technology systems, may be subject to defects, errors, or vulnerabilities. In particular, prior to developing our proprietary Voice AI platform, we entered the voice activated drive-thru market through an agreement with Hi Auto whose AI solution powers Presto Voice at Checkers. An outage or malfunction of this solution may adversely impact our customer relationship with Checkers. While Hi Auto is responsible for providing certain on-going services for its AI solution, any defects, errors, vulnerabilities or periods of non-operation could result in negative publicity, a loss of franchisee customers or loss of revenue, the incurrence of additional expense or other performance issues. Such vulnerabilities could also be exploited by bad actors and result in exposure of customer or guest data, or otherwise result in a security breach or other security incident. We may need to expend significant financial and development resources to analyze, correct, eliminate, or work around errors or defects or to address and eliminate vulnerabilities. Any failure to timely and effectively resolve any such errors, defects, or vulnerabilities could adversely affect our business, reputation, brand, financial condition, and results of operations.

Our pricing decisions and pricing models may adversely affect our ability to attract new customers and retain existing customers.

We have limited experience determining the optimal prices for our newest solutions, including Presto Voice. We have changed our pricing model from time to time and expect to do so in the future. It is possible that our new pricing models, or the pricing for any other solutions we may develop, are not optimal, which may result in our solutions not being profitable or not gaining market share. As competitors introduce new products or solutions that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models that we have used historically. Pricing decisions and pricing models may also impact the adoption or continued use of our solutions and negatively impact our overall revenue. Moreover, restaurant operators may be sensitive to price increases or to lower prices if offered by competitors. In the future, we may be required to change our pricing models by, among other things, increasing the cost of our solutions to our existing customers, which, if not accepted by our customers, could adversely affect our revenue, profitability, financial position and cash flows.

If we fail to maintain a consistently high level of customer service or if we fail to manage our reputation, our brand, business and financial results may be harmed.

We believe customer service and support is critical to maintaining our customer relationships and to attracting and onboarding new customers and growing our business. As a result, we have invested heavily in the quality and training of our customer success and technical support teams, along with the tools they use to provide these services. The number of our customers, including those participating in pilots, has grown significantly, which puts additional pressure on these teams. If we or our third-party service providers are unable to maintain a consistently high level of customer service, and to help our customers quickly resolve issues and provide effective ongoing support, we could harm our ability to retain existing customers and attract new customers and our reputation with existing or potential customers could suffer. Our ability to attract new customers and to renew agreements with existing customers is highly dependent on our reputation and on positive recommendations from our existing customers.

Changes to elements of our AI solutions could cause us to incur additional expenses and impact our product development program.

The field of AI is evolving rapidly. Some of the components of Presto Voice incorporate off-the-shelf AI technologies and services which may cease to exist or become prohibitively expensive. While there are many alternatives to virtually every component of Presto Voice, commercial or open source, we may have to re-invest and rebuild entire feature sets should a provider outprice their service or go out of business. For example, we currently use OpenAI GPT 3.5 and GPT 4 in some components of Presto Voice. OpenAI is known for discontinuing compatibility with older services to promote new versions. In the future, we may need to rewrite our OpenAI-dependent components to keep our cost of operation under control. If circumstances require that we do this, it may negatively affect the performance of the service, negatively impact the accuracy of our solution, and reduce our gross margins.

We are subject to legal proceedings and government investigations which are costly and time-consuming to defend and may adversely affect our business, financial position, and results of operations.

We are subject to legal proceedings and claims and may become subject to additional claims, whether in the ordinary course of business or otherwise, such as claims brought by our customers, our partners, or third parties in connection with commercial disputes

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or our technology or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition, and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position, and results of operations. We are currently subject to investigations by the Securities and Exchange Commission and the Department of Justice which have resulted in significant costs and are not subject to insurance.  See Note 8 to our financial statements for a discussion of the legal proceedings and investigation to which we are currently subject.

Risks Related to Presto’s Technology and Privacy

We and certain of our third-party partners, service providers, and sub-processors transmit and store personal information of our customers and consumers. If the security of this information is compromised or is otherwise accessed without authorization, our reputation may be harmed, and we may be exposed to liability and loss of business.

We transmit and store personal information and other confidential information of our partners, our customers, and consumers, including payment information. Third-party applications integrated within our solutions may also handle or store personal information, credit card information, including cardholder data and sensitive authentication data, or other confidential information. We do not proactively monitor the content that our customers upload and store, or the information provided to us through the applications integrated with our solutions, and, therefore, we do not control the substance of the content on our servers, which may include personal information. Additionally, we use third-party service providers and sub-processors to help us deliver services to customers and restaurant guests. These service providers and sub-processors may handle or store personal information, credit card information, or other confidential information. There may in the future be successful attempts by third parties to obtain unauthorized access to the personal information of our partners, our customers and restaurant guests. This information could also be otherwise exposed through human error, malfeasance, or otherwise. The unauthorized release, unauthorized access, or compromise of this information could have an adverse effect on our business, financial condition, and results of operations. Even if such a data breach did not arise out of our actions or inactions, or if it were to affect one or more of our competitors or our customers’ competitors, the resulting consumer concern could negatively affect our customers and our business.

We integrate with certain third-party service providers in order to meet our customers’ needs, and although we contractually require our customers to ensure the security of such service providers, a security breach of one of these providers could become negatively associated with our brand, or our assistance in responding to such a breach could tie up our internal resources. By the nature of the integrations, we could also get directly drawn into any resulting lawsuits. We are also subject to federal and state laws regarding cybersecurity and the protection of data. Our agreements with customers and partners require us to notify them in the event of certain security incidents. Additionally, some jurisdictions, as well as our contracts with certain customers, require us to use industry-standard or reasonable measures to safeguard personal information or confidential information. As cardholder data and sensitive authentication data is transmitted through our platform, we may be required by card networks and our contracts with payment processors to adhere to PCI-DSS and EMVco standards for the payment solutions. We are also subject to the operating rules of the National Automated Clearing House Association (“NACHA”). The NACHA Rules and Operating Guidelines impose obligations on us and our partner financial institutions, such as audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations.

Our failure to comply with legal, regulatory or contractual requirements, and the rules of payment card networks and self-regulatory organizations, including PCI-DSS and NACHA, around the security of personal information, cardholder data, or sensitive authentication data, could lead to significant fines and penalties imposed by regulators and card networks, as well as claims by our customers, consumers, or other relevant stakeholders. These proceedings or violations could force us to spend money in defense or settlement of these proceedings, result in the imposition of monetary liability or injunctive relief, divert management’s time and attention, increase our costs of doing business, and materially adversely affect our reputation and the demand for our solutions. In addition, if our security measures fail to protect credit card information adequately, we could be liable to our partners, our customers and restaurant guests for their losses. As a result, we could be subject to fines, we could face regulatory or other legal action, and our customers could end their relationships with us. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that our insurers will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or changes in our insurance policies, including premium increases, or the imposition of large deductible or co-insurance requirements, could have an adverse effect on our business and results of operations.

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We are subject to stringent and changing privacy laws, regulations and standards, and contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or adversely affect our business.

The regulatory framework for privacy and security issues in the United States is rapidly evolving. Laws in all 50 states require us to provide notice to our restaurant customers when certain sensitive personal information has been disclosed as a result of a data breach. These laws are frequently inconsistent, and compliance in the event of a widespread data breach is costly. Moreover, states regularly enact new laws and regulations, which require us to provide consumers with certain disclosures related to our privacy practices, as well as maintain systems necessary to allow customers to invoke their rights. For example, on January 1, 2020, California adopted the CCPA, which provides new data privacy rights for consumers and new operational requirements for covered businesses. The CCPA gives California residents more control over their personal information and includes a statutory damages framework and private right of action imposing civil penalties against businesses that fail to comply with certain security practices. Although the CCPA’s implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, the CCPA may increase our compliance costs and exposure to liability. Moreover, additional states that adopt privacy laws that differ from the CCPA may require us to do unanticipated and unbudgeted work in order to comply with additional privacy and data security requirements. The costs associated with compliance may impede our development and could limit the adoption of our services. Finally, any failure by our vendors to comply with applicable law or regulations could result in proceedings against us by governmental entities or others.

We publish privacy policies, self-certifications and documentation. Although we endeavor to comply with our published policies, certifications, and documentation, we may at times fail to do so or may be perceived to have failed to do so. Such failures can subject us to potential local, state, and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices, resulting in reputational or financial harm to the company. Furthermore, if customer concerns regarding data security increase, customers may be hesitant to provide us with the data necessary to provide our service effectively. This could generally limit the adoption of our  solutions and growth of our company.

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

We operate in an industry which is prone to cyber-attacks. We have an established in-house security team which is responsible for reviewing and overseeing our cybersecurity program and bringing any cybersecurity risks to the attention of our management and the board of directors. Failure to prevent or mitigate security breaches and improper access to or disclosure of our data, our customers’ data, or their guests’ data, could result in the loss or misuse of such data, which could harm our business and reputation. The security measures we have integrated into our systems and processes, which are designed to prevent or minimize security breaches, may not function as expected or may not be sufficient to protect our internal networks and platform against attacks. Further, our solutions also integrate with third-party applications and POS and management systems over which we exercise no control and security breaches of such third-party platforms could directly or indirectly result in a breach of our platform.

A security vulnerability in our platform or POS integration software could compromise our customers’ in-store networks, which could expose customer or guest information beyond what we collect through our platform. As a multitenant software-as-a-service (“SaaS”) provider, despite our logical separation of data between customers, we may face an increased risk of accidentally commingling data between customers due to employee error, a software bug, or otherwise, which may result in unauthorized disclosure of data between customers. We may in the future be subject to distributed denial of service (“DDoS”) attacks, a technique used by hackers to take an internet service offline by overloading its servers. A DDoS attack could delay or interrupt service to our customers and their consumers and may deter consumers from ordering or engaging with our customers’ restaurants. Our solutions and third-party applications may also be subject to DDoS attacks in the future, and we cannot guarantee that applicable recovery systems, security protocols, network protection mechanisms and other procedures are or will be adequate to prevent network and service interruption, system failure, or data loss. In addition, computer malware, viruses, hacking, credential stuffing, social engineering, phishing, physical theft, and other attacks by third parties are prevalent in our industry. We may experience such attacks in the future and, as a result of our increased visibility, we believe that we are increasingly a target for such breaches and attacks.

Any actual or perceived DDoS attack or security breach of our solutions, systems, and networks could damage our reputation and brand, expose us to a risk of litigation and possible liability and require us to expend significant capital and other resources to respond to and alleviate problems caused by the DDoS attack or security breach. Our ability to retain adequate cyber-crime and liability insurance may be reduced. Some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data and our agreements with certain customers and partners require us to notify them in the event of a security incident. Such mandatory disclosures are costly, could lead to negative publicity, and may cause our customers to lose confidence in the effectiveness of our data security measures. Moreover, if a high-profile security breach occurs with respect to another SaaS provider or one of the service providers we partner with, customers may lose trust in the security of the SaaS business model

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generally, which could adversely impact our ability to retain revenue from existing customers or attract new ones. Any of these events could harm our reputation or subject us to significant liability, and materially and adversely affect our business and financial results.

We are dependent upon customers continued and unimpeded access to the internet, and upon their willingness to use the internet for commerce.

Our success depends upon the general public’s ability to access the internet, including through mobile devices, and its continued willingness to use the internet to pay for purchases, communicate, access social media, research and conduct commercial transactions. The adoption of any laws or regulations that adversely affect the growth, popularity or use of the internet, including changes to laws or regulations impacting internet neutrality, could decrease the demand for our platforms, increase our operating costs, or otherwise adversely affect our business. Given uncertainty around these rules, we could experience discriminatory or anti-competitive practices that could impede both our and our customers’ growth, increase our costs or adversely affect our business. In the future, providers of internet browsers could introduce new features that would make it difficult for customers to use our solutions. In addition, internet browsers for desktop, tablets or mobile devices could introduce new features, or change existing browser specifications, such that they would be incompatible with our platform. If customers become unable, unwilling or less willing to use the internet for commerce for any reason, including lack of access to high-speed communications equipment, congestion of traffic on the internet, internet outages or delays, disruptions or other damage to customers’ computers, increases in the cost of accessing the internet and security and privacy risks or the perception of such risks, our business could be adversely affected.

Financial Condition and Capital Requirements

Our current liquidity resources raise substantial doubt about our ability to continue as a going concern and to comply with our debt covenants unless we raise additional capital to meet its obligations in the near term.

Since inception, we have incurred recurring net losses and negative cash flows from operating activities, and we have financed operations primarily through financing transactions, such as the issuance of convertible promissory notes and loans and sales of common stock and convertible preferred stock. As of June 30, 2023, we had an accumulated deficit of $235.3 million.  We expect our losses to continue for the foreseeable future as we invest in enhancing our AI capabilities and continue to market and deploy our solutions with customers.  Our cash and cash equivalents are not sufficient to fund operating expenses, currently anticipated expenditures and other obligations as they come due, and we require additional capital infusions to fund our ongoing operations. As a result, substantial doubt exists about our ability to continue as a going concern within one year after the issuance date of our financial statements for the year ended June 30, 2023.  In addition, based on our current business plan and forecasts, without the injection of further capital, we anticipate being unable to comply with the minimum cash covenant contained in our credit facility in approximately mid-December 2023.  Unless that default is waived or cured, our lenders could accelerate repayment of our indebtedness which would give them the right to declare any and all debt outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the lenders under our credit facility would have the right to proceed against the collateral in which we granted a security interest to them, which consists of all owned goods and equipment, inventory, contract rights and general intangibles (including intellectual property), forms of obligations owing to us, cash and deposit accounts, and personal property. If our debt were to be accelerated, we are unlikely to have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which would materially and adversely affect our cash flows, business, results of operations, and financial condition.

Our efforts to generate revenues and/or reduce our expenditures may not be sufficient and may make it difficult for us to implement our business strategy.

We have taken and will continue to implement initiatives to operate our business more efficiently including streamlining operations and reducing costs on a go-forward basis. We are also seeking to drive revenue growth by continuing the successful deployment of our solutions and scaling of our business. These measures may not be sufficient to address our liquidity challenges and may adversely impact aspects of our business strategy.  In particular, we have undertaken to pursue renewals of Presto Touch with all our existing customers with a transition to our next generation technology and, if this is not achieved by December 31, 2023, to provide and implement a strategic wind-down plan that is reasonably acceptable to Metropolitan with respect to Presto Touch. The implementation of such a plan would significantly impact our business, reputation and revenues, and those impacts could have adverse consequences.

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We have faced challenges complying with the covenants contained in our credit facility and, unless we can raise additional capital, may need additional waivers which may not be forthcoming.

We are party to a credit agreement (as amended by the First Amendment, Second Amendment and Third Amendment thereto (each as defined below), and as it may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit

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Agreement”) with Metropolitan Partners Group Administration, LLC (“Metropolitan”), the administrative, payment and collateral agent for Metropolitan Levered Partners Fund VII, LP, Metropolitan Partners Fund VII, LP, Metropolitan Offshore Partners Fund VII, LP and CEOF Holdings LP (collectively, the “Lenders”), pursuant to which such lenders extended us initial term loans, which we borrowed in full at the consummation of the Business Combination, having an aggregate original principal amount of $55 million (the “Initial Term Loans”), and which the Lenders agreed to extend by $3.0 million (the “Third Amendment Term Loans” and together with the Initial Term Loans, the “Term Loans”) pursuant to the terms, and subject to the conditions of the Third Amendment.

We have entered into a series of three amendments to the Credit Agreement to modify the covenants and to waive defaults.  The effectiveness of the third and most recent amendment, entered into on October 10, 2023, is conditioned upon (1) evidence of a gross amount of additional equity investments of $3.0 million for which we have received a commitment from an affiliate of our existing shareholder, Cleveland Avenue, and which is expected to close on or around October 16, 2023, and (2) by no later than October 16, 2023, evidence that we has engaged the services of an investment bank reasonably acceptable to Metropolitan on terms reasonably acceptable to Metropolitan in connection with upcoming capital raises.  Our existing defaults under the Credit Agreement will only be waived if those conditions, and other customary conditions, are met.  However, as described above, we will still need to raise additional capital in the near term to continue to be in compliance with the covenants and such capital may not be available on reasonable terms or at all. The terms of any new or additional financing may be on terms that are more restrictive or less desirable to us. The terms of our outstanding debt restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy, invest in our growth strategy, and compete against companies who are not subject to such restrictions.

A failure by us to comply with these covenants or the payment requirements specified in our financial instruments could result in an event of default under the Credit Agreement, which would give the lenders the right to declare any and all debt outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the lenders under the Credit Agreement would have the right to proceed against the collateral in which we granted a security interest to them, which consists of all owned goods and equipment, inventory, contract rights and general intangibles (including intellectual property), forms of obligations owing to us, cash and deposit accounts, and personal property. If our debt were to be accelerated, we are unlikely to have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which would materially and adversely affect our cash flows, business, results of operations, and financial condition.

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

We have funded our operations since inception primarily through customer working capital and financing transactions such as the issuance of convertible promissory notes and loans, and sales of convertible preferred stock. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which will require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us or at all. Rising inflation and interest rates caused disruption in the global financial markets, making it more challenging for younger companies in general and us in particular to raise capital. If adequate funds are not available on acceptable terms, we may be unable to continue to operate. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets. If we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our existing common stock. Our decision to issue securities in the future will depend on many considerations, including factors beyond our control such as market conditions, and we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.

Unfavorable conditions in the restaurant industry or the global economy could limit our ability to grow our business and materially impact our financial performance.

Our operating results may vary based on the impact of changes in the restaurant industry or the global economy on us or our customers. Our revenue growth and potential profitability depend on demand for business management software and solutions serving the restaurant industry. Historically, during economic downturns, there have been reductions in technology investments as well as pressure for extended billing terms and other financial concessions. If economic conditions deteriorate, our current and prospective customers may elect to decrease their technology budgets, which would limit our ability to grow our business and adversely affect our operating results.

A deterioration in general economic conditions (including distress in financial markets and turmoil in specific economies around the world) may adversely affect our financial performance by causing a reduction in locations through restaurant closures and reduced operating hours. A reduction in the amount of consumer spending or credit card transactions could result in a decrease of our revenue and profits. Adverse economic factors may accelerate the timing, or increase the impact of, risks to our financial performance.

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These factors could include declining economies and the pace of economic recovery which can change consumer spending behaviors, low levels of consumer and business confidence typically associated with recessionary environments, high unemployment levels, which may result in decreased spending by consumers, budgetary concerns in the United States and other countries around the world, which could impact consumer confidence and spending, uncertainty and volatility in the performance of our customers’ businesses, customers or consumers decreasing spending for value-added services we market and sell, government actions, including the effect of laws and regulations and any related government stimulus and disruptions impacting global supply.

Our results of operations may fluctuate from quarter to quarter and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline.

Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, we may fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline.

In addition to the other risks described herein, factors that may affect our results of operations include:

Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Common Stock could decline substantially, and we could face costly lawsuits, including securities class action suits.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of June 30, 2023, we had federal and state net operating losses (“NOLs”) for approximately $38.2 million and $58.2 million, respectively which begin to expire in 2029 if not utilized. We had federal NOLs for approximately $148.5 million which do not expire. It is possible that we will not generate taxable income in time to use our NOLs before their expiration. Pursuant to Internal Revenue Code Sections 382 and 383, if a corporation undergoes an “change in control,” the corporation’s ability to use its pre-change NOLs and other tax attributes, including R&D tax credits, to offset its post-change taxable income may be limited. In general, a “change in control” will occur if there is a cumulative change in our ownership by “5 percent stockholders” that exceeds 50

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percentage points over a rolling three-year period. Similar rules may also apply under state tax laws. As such, our ability to use NOLs and other tax attributes to reduce future taxable income may be subject to annual limitations due to ownership changes that may have occurred previously or that could occur in the future, including as a result of the Business Combination.

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The Tax Cuts and Jobs Act (the “Tax Act”), as amended by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), allows for NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to each of the five taxable years preceding the tax year of such loss. NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. Additionally, under the Tax Act, as modified by the CARES Act, NOLs may offset no more than 80% of current taxable income annually for taxable years beginning after December 31, 2020. These NOLs can be carried forward indefinitely. NOLs arising in taxable years ending before January 1, 2018 will continue to have a two-year carryback and twenty-year carryforward period.

The balance of our valuation allowance offset our federal NOLs at June 30, 2023 such that these changes did not materially impact our balance sheet as of such date. However, in future years, if and when a net deferred tax asset is recognized related to our NOLs, the changes in the carryforward and carryback periods as well as the limitation on use of NOLs may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2020.

There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs and tax credits by certain jurisdictions, possibly with retroactive effect, or other unforeseen reasons, our existing NOLs and tax credits could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs and tax credits.

Recent turmoil in the banking industry may negatively impact our 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.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, the March 2023 failures of Silicon Valley Bank and Signature Bank, liquidity issues at Credit Suisse, government responses and resulting investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, making it more difficult for us to acquire financing on acceptable terms or at all. Any material decline in available funding or our ability to access our cash and cash equivalents could adversely impact our ability to meet our operating expenses, have a material adverse effect on our financial condition, as well as our ability to continue to grow our operations. In addition, the Federal Deposit Insurance Corporation, or FDIC, generally only insures limited amounts per depositor per insured bank. The FDIC insures up to $250,000 per depositor per insured bank account. June 30, 2023, we had cash and cash equivalents exceeding these federally insured levels. If any of the banking institutions in which we have deposited funds ultimately fail, we may lose our deposits over the federally insured levels. The loss of our deposits would reduce the amount of cash we have available to fund our capital and operating needs.

Risks Related to Competition

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

We face competition in many aspects of our business, and we expect such competition to intensify in the future, as existing and new competitors introduce new, or enhance existing, solutions that are directly competitive with ours. Our Presto Touch and Presto Voice solutions combine functionality from numerous product categories, and we compete against providers in each of these categories. Our potential new or existing competitors may be able to develop solutions that are better received by customers or may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, regulations, or customer requirements. Competition may intensify as current or future competitors enter into business combinations or alliances or raise additional capital, or as established companies in other market segments expand into our market segments. For instance, current or future competitors could use strong or dominant positions in one or more markets to gain a competitive advantage against us in areas where we operate including by integrating additional or competing platforms or features into products and/or solutions they control. Current and future competitors may also choose to offer a different pricing model or to undercut prices in an effort to increase their market share. If we cannot compete successfully against current and future competitors, our business, results of operations, and financial condition could be negatively impacted.

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Mergers of or other strategic transactions by our competitors, our customers, or our partners could weaken our competitive position or reduce our revenue.

If one or more of our competitors were to consolidate or partner with another one of our competitors, the change in landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our third-party partners, thereby limiting our ability to promote our solution. In addition, we may lose customers that merge with or are acquired by companies using a competitor’s or an internally developed solution. Disruptions in our business caused by these events could adversely affect our revenue growth and results of operations.

Risks Related to Presto’s Partners and Other Third Parties

Our growth depends in part on reliance on third parties and our ability to integrate with third-party applications and software.

The success of our solutions depends, in part, on our ability to integrate third-party applications, software, and other offerings into our platform. We anticipate that the growth of our business will continue to depend on third-party relationships including relationships with POS system providers, payment processors, loyalty providers, digital menu boards and other partners. Identifying, negotiating, and documenting relationships with third parties and integrating third-party content and technology requires significant time and resources, and third-party providers may choose to terminate their relationships with us, compete directly against us, enter into exclusive arrangements with our competitors, or make material changes to their businesses, solutions, or services that could be detrimental to our business.

Third-party developers may change the features of their offering of applications and software or alter the terms governing the use of their offerings in a manner that is adverse to us. We may also be unable to maintain our relationships with certain third-parties if we are unable to integrate our platform with their offerings. In addition, third-parties may limit or restrict our access to their offerings. We may not be able to adapt to the data transfer requirements of third-party offerings. If third-party applications or software change such that we do not, or cannot, maintain the compatibility of our platform with these applications and software, or if we fail to ensure there are third-party applications and software that our customers desire to add to their ordering or delivery portals, demand for our platform could decline. If we are unable to maintain technical interoperability, our customers may not be able to effectively integrate our platform with other systems and services they use. If we fail to integrate our platform with new third-party offerings that our customers need to operate their businesses, or to provide the proper support or ease of integration our customers require, we may not be able to offer the functionality that our customers and their consumers expect, which would harm our business.

The third-party service providers we integrate with may not perform as expected under their agreements with our customers, our customers may in the future have disagreements or disputes with such providers, or such providers may experience reduced growth or change their business models in ways that are disadvantageous to us or our customers. If we lose access to solutions or services from a particular partner or experience a significant reduction or disruption in the supply of services from a current partner, it could have an adverse effect on our business and operating results.

Our transaction revenue is partly dependent on our 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 our transaction revenue.

We rely on third-party developers to develop the entertainment applications that we host through Presto Touch. Accordingly, our business depends on our ability to promote, enter into and maintain successful commercial relationships that give us access to such entertainment applications. In general, we rely on standard terms of service with third party developers which govern the distribution, operations and fee sharing arrangements for hosting entertainment applications. In some cases, we rely on negotiated agreements with third party developers that modify our standard terms of service. There can be no assurance that the developers that have developed applications will continue to maintain these entertainment applications or be willing to provide new entertainment applications in the future. If we are unable to maintain relationships with partners that give us continued access to third-party entertainment applications, if the terms and conditions of such commercial relationships become less favorable to us or if a developer decides to remove their entertainment applications, our transaction revenue would suffer.

In addition, we rely on our game developer partners to manage and maintain their entertainment applications, including updating their entertainment applications to include the latest version. The failure of our developer partners to provide timely and reliable updates could adversely impact our financial condition and results of operations and prospects.

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Finally, a small number of entertainment applications and related developers have accounted for a substantial portion of our transaction revenue. If these entertainment applications were to become less popular or be removed and we are unable to identify suitable replacements, our transaction revenue would suffer.

Payment transactions processed on our solutions may subject us 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 our business.

The payment card networks require us to comply with payment card network operating rules, including special operating rules that apply to us as a “payment service provider” that provides payment processing-related services to merchants and payment processors. The payment card networks set these network rules and have discretion to interpret them and change them. We are also required by our payment processors to comply with payment card network operating rules and we have agreed to reimburse our payment processors for any fines they are assessed by payment card networks as a result of any rule violations by us or our customers. Any changes to or interpretations of the network rules that are inconsistent with the way we and the payment processors and merchants currently operate may require us to make changes to our business that could be costly or difficult to implement. If we fail to make such changes or otherwise resolve the issue with the payment card networks, the networks could fine us, cancel or suspend our registration as a payment service provider, or prohibit us from processing payment cards, which would have an adverse effect on our business, financial condition, and operating results. In addition, violations of the network rules or any failure to maintain good standing with the payment card networks as a payment service provider could impact our ability to facilitate payment card transactions on our platform, increase our costs, or could otherwise harm our business. If we were unable to facilitate payment card transactions on our platform, or were limited in our ability to do so, our business would be materially and adversely affected.

If we fail to comply with the rules and regulations adopted by the payment card networks, we would be in breach of our contractual obligations to our payment processors, financial institutions, or partners. Such failure to comply may subject us to fines, penalties, damages, higher transaction fees and civil liability, and could eventually prevent us from processing or accepting payment cards or could lead to a loss of payment processor partners, even if there is no compromise of customer or consumer information. In the event that we are found to be in violation of any of these legal or regulatory requirements, our business, financial condition, and results of operations could be harmed.

We believe the licensing requirements of the Financial Crimes Enforcement Network and state agencies that regulate banks, money service businesses, money transmitters, and other providers of electronic commerce services do not apply to us. One or more governmental agencies may conclude that, under its statutes or regulations, we are engaged in activity requiring licensing or registration. In that event, we may be subject to monetary penalties, adverse publicity, and may be required to cease doing business with residents of those states until we obtain the requisite license or registration.

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

We outsource substantial portions of our cloud infrastructure to Amazon Web Services, Microsoft Azure and other infrastructure providers. Our customers need to be able to access our platform at any time, without interruption or degradation of performance. Their failure to access our platform could make us liable for service credits or, in more severe cases, contractual breaches. We are, therefore, vulnerable to service interruptions at infrastructure providers, which could negatively impact our revenue. We have experienced and expect that in the future we may continue to experience, interruptions, delays and outages in service and availability due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions, and capacity constraints including those related to the complexity and number of order permutations. Capacity constraints could be due to a number of potential causes, including technical failures, natural disasters, fraud, or security attacks. In addition, if an infrastructure provider’s security is compromised, or our modules or platform are unavailable or our customers or their consumers are unable to use our platform within a reasonable amount of time or at all, then our business, results of operations, and financial condition could be adversely affected. In some instances, we may not be able to identify the cause or causes of these performance problems within a period of time acceptable to our customers. It may become increasingly difficult to maintain and improve our platform performance, especially during peak usage times, as our platform becomes more complex and the usage of our platform increases. Any of the above circumstances or events may harm our reputation, cause customers to stop using our platform, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations, and financial condition.

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

Certain estimates and information contained in this report, including general expectations concerning our industry and the market in which we operate, our market opportunity, and our market size, are based on information provided by or sourced from third parties. This information involves  assumptions and limitations, and, although we believe the information from such third-party sources is reliable, we have not independently verified the accuracy or completeness of such information or the methodologies for collecting such information or developing such estimates. If there are any limitations or errors with respect to such information, or if such estimates are inaccurate, your ability to evaluate our business and prospects could be impaired and our reputation with investors could suffer.

For example, market opportunity estimates included in this report are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not every customer included in our market opportunity estimates will necessarily purchase any, or all, of our solutions, and some or many of those potential customers may choose to use solutions offered by our competitors. We cannot be certain that any particular number or percentage of the potential customers included in our calculation of our market opportunity will generate any particular level of revenue for us. Even if the market in which we compete meets the size estimates and growth forecasts in this report, our business could fail to grow for a variety of reasons, including competition, customer preferences and the other risks described in this report. Accordingly, the estimates of market opportunity and forecasts of market growth included in this report should not be taken as necessarily indicative of our future growth.

Risks Related to Government Regulation and Other Compliance Requirements

Our business is subject to a variety of U.S. laws and regulations, many of which are unsettled and still developing, and our or our customers’ failure to comply with such laws and regulations could subject us to claims or otherwise adversely affect our business, financial condition, or results of operations.

The restaurant technology industry and the offering of solutions therein is relatively nascent and rapidly evolving. We are subject to a variety of U.S. laws and regulations. Laws, regulations and standards governing issues such as worker classification, labor and employment, anti-discrimination, online credit card payments, payment and payroll processing, financial services, gratuities, pricing and commissions, text messaging, subscription services, intellectual property, data retention, privacy, data security, consumer protection, background checks, website and mobile application accessibility, wages, and tax are often complex and subject to varying interpretations, in many cases due to their lack of specificity. The scope and interpretation of existing and new laws, and whether they are applicable to us, is often uncertain and may be conflicting, including varying standards and interpretations between state and federal law, between individual states, and even at the city and municipality level. As a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state, and local administrative agencies.

We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer existing or planned solutions and/or increase our cost of doing business. While we have and need to continue to invest in the development of policies and procedures in order to comply with the requirements of the evolving, highly regulated regulatory regimes applicable to our business and those of our customers, our compliance programs are relatively nascent and we cannot assure that our compliance programs will prevent the violation of one or more laws or regulations. If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, including any future laws or obligations that we may not be able to anticipate at this time, we could be adversely affected, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources, discontinue certain services or platform features, limit our customer base, or find ways to limit our offerings in particular jurisdictions, which would adversely affect our business. Any failure to comply with applicable laws and regulations could also subject us to claims and other legal and regulatory proceedings, fines, or other penalties, criminal and civil proceedings, forfeiture of significant assets, and other enforcement actions. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could adversely affect our reputation or otherwise impact the growth of our business.

Illegal or improper activities of customers or customer noncompliance with laws and regulations governing, among other things, online credit card payments, gratuities, pricing and commissions, data retention, privacy, data security, consumer protection, wages, and tax could expose us to liability and adversely affect our business, brand, financial condition, and results of operations. While we have implemented various measures intended to anticipate, identify, and address the risk of these types of activities, these measures may not adequately address or prevent all illegal or improper activities by these parties from occurring and such conduct could expose us to liability, including through litigation, or adversely affect our brand or reputation.

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

We depend on third party manufacturers and suppliers located outside of the United States, including in China, in connection with the manufacture of certain of our solutions and related components. Accordingly, our business is subject to risks associated with international manufacturing. For example, the former Trump Administration imposed significant increases in tariffs on goods imported into the United States from China and other countries. Increased tariffs, including on goods imported from China, or the institution of additional protectionist trade measures could adversely affect our manufacturing costs, and in turn, our business, financial condition, operating results, and cash flows.

Risks Related to Presto’s Intellectual Property

If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and become subject to costly litigation to protect our rights.

As of June 30, 2023 we had 11 registered domain names for websites that we use in our business, such as presto.com and other variations, three registered trademarks and no registered patents or copyrights. We rely on trade secret laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual protections, to protect our intellectual property rights, including our proprietary technology, software, know-how, and brand. We require our employees, consultants, and other third parties to enter into confidentiality and proprietary information and invention assignment agreements, and we control and monitor access to our software, documentation, proprietary technology, and other confidential information. Our policy is to require all employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments, processes, and other intellectual property generated by them on our behalf and under which they agree to protect our confidential information. In addition, we generally enter into confidentiality agreements with our customers and partners.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our existing solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or harm our reputation or brand. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we may not be able to license that technology on commercially reasonable terms or at all. Our inability to license this technology could harm our ability to compete.

We are, 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.

The software industry is characterized by the existence of a large number of patents, trademarks, copyrights, trade secrets, and other intellectual property rights, and frequent claims and related litigation regarding such intellectual property rights. Third parties have in the past asserted, and may in the future assert, that our solutions, technology, methods or practices infringe, misappropriate, or otherwise violate their intellectual property or other proprietary rights. Such claims may be made by our competitors seeking to obtain a competitive advantage or by other parties. Additionally, non-practicing entities purchasing intellectual property assets for the purpose of making claims of infringement may attempt to extract settlements from us. The risk of claims may increase as the number of modules that we offer and competitors in our market increases and overlaps occur. In addition, to the extent that we gain greater visibility and market exposure, we face a higher risk of being the subject of intellectual property infringement claims.

For example, in February 2022, we were added as a co-defendant in a patent infringement lawsuit that was brought against Hi Auto by Valyant AI, Inc. in December 2021, alleging infringement of Valyant’s patent relating to a speech-based/natural language order process system. The claims against us relate to our subcontractor Hi Auto’s technology, which we use in the Presto Voice system for one of our customers. The lawsuit seeks to enjoin the co-defendants from continued alleged infringement and seeks unspecified statutory and other damages. See Note 8 to our financial statements for a discussion of the legal proceedings to which we are currently subject.

Any such claims, regardless of merit, which results in litigation could result in substantial expenses, divert the attention of management, cause significant delays in introducing new or enhanced services or technology, materially disrupt the conduct of our business and have a material and adverse effect on our brand, business, financial condition, and results of operations. Although we do

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not believe that our proprietary technology, processes, and methods have been patented by any third party, it is possible that patents have been issued to third parties that cover all or a portion of our business. As a consequence of any patent or other intellectual property claims, we could be required to pay substantial damages, develop non-infringing technology, enter into royalty-bearing licensing agreements, stop selling or marketing some or all of our solutions, or re-brand our product. We may also be obligated to indemnify our customers against intellectual property claims, and we may have to pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, or modify applications, which could be costly. If it appears necessary, we may seek to secure license rights to intellectual property that we are alleged to infringe at a significant cost, potentially even if we believe such claims to be without merit. If required licenses cannot be obtained, or if existing licenses are not renewed, litigation could result. Litigation is inherently uncertain and can cause us to expend significant money, time and attention to it, even if we are ultimately successful. Any adverse decision could result in a loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses for alternative technologies from third parties, prevent us from offering all or a portion of our modules and otherwise negatively affect our business and operating results.

We use open-source software in our platform, which could negatively affect our ability to sell our services or subject us to litigation or other actions.

We rely on open-source software in our proprietary platform and we expect to continue to rely on open-source software in our platform in the future. The terms of certain open-source licenses to which we are subject have not been interpreted by U.S., and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our platforms. Moreover, we cannot ensure that we have not incorporated and are currently relying on additional open-source software in our platform in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. Although we employ open-source software license screening measures, if we were to combine our proprietary software platform with open-source software in a certain manner we could, under certain open-source licenses, be required to release the source code of our proprietary platform, which could allow our customers and competitors to freely use such software solutions without compensation to us. Additionally, we may from time-to-time face claims from third parties: claiming ownership of, or demanding release of, the open-source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigation and we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, required to comply with onerous conditions or restrictions, required to make our proprietary source code for our platform and any modifications and derivative works developed using such open source software generally available at no cost, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid use of the open source software in dispute, which could disrupt the business dependent on the affected platforms. In addition to risks related to license requirements, use of certain open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or controls on the origin of software. As a result, we and our customers could be subject to lawsuits by parties claiming ownership of what we believe to be open-source software. Some open-source projects have known vulnerabilities and architectural instabilities and are provided on an “as-is” basis which, if not properly addressed, could negatively affect the performance of our platform. Any of these risks could be difficult to eliminate or manage, and if not addressed, could have a negative effect on our business, results of operations, and financial condition.

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

We have registered domain names that we use in, or are related to, our business, most importantly www.presto.com. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our offerings under a new domain name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar to ours. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting, maintaining, and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of resources, which could in turn adversely affect our business, financial condition, and results of operations.

Risks Related to our Operating as Public Company

Our 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 our business.

The individuals who constitute our senior management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our senior management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory

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oversight and reporting obligations under federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and results of operations.

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

In the past, we have not been able to, and may continue to be unable to produce timely financial statements, and file these financial statements as part of a periodic report in a timely manner with the SEC. For example, we failed to timely file with the SEC the requisite Form 10-Q periodic reports for the quarters ended March 31, 2023, December 31, 2022, and September 30, 2022. Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act at such time. We cannot guarantee that in the future our reporting will always be timely. Our failure to timely file future periodic reports with the SEC could subject us to enforcement action by the SEC and shareholder lawsuits and could eventually result in the delisting of our Common Stock from Nasdaq, regulatory sanctions from the SEC, and/or the breach of covenants in our credit facilities or of any preferred equity or debt securities we may issue in the future, any of which could have a material adverse impact on our operations and your investment in our Common Stock, and our ability to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders. Additionally, our failure to file our past periodic reports and future periodic reports has resulted in and could result in investors not receiving adequate information regarding us with which to make investment decisions. As a result, investors may not have access to current or timely financial information about our business.

As a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or report them in a timely manner.

As a public reporting company, we are subject to the rules and regulations established from time to time by the SEC. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes, and controls, as well as on our personnel.

In addition, as a public company we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting. While we remain an emerging growth company, our management is not required to make such certification for the annual report for the year ending June 30, 2023 but will be required for the annual report for the year ending June 30, 2024 and thereafter, which will require us to document and make significant changes to our internal control over financial reporting. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the JOBS Act, and we become an accelerated or large accelerated filer. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.

We expect to continue to incur costs related to implementing an internal audit and compliance function in the upcoming years to further improve our internal control environment. If we identify future deficiencies in our internal control over financial reporting or if we are unable to comply with the demands that will be placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. We also could become subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.

Our current controls and any new controls that we develop may also become inadequate because of changes in our business, and weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could cause us to fail to meet our reporting obligations, result in a restatement of our financial statements for prior periods, undermine investor confidence in us, and adversely affect the trading price of our Common Stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

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We have identified material weaknesses in our internal control over financial reporting and, if we fail to remediate these material weaknesses, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence and the price of our Common Stock.

We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We previously identified four material weaknesses. The material weaknesses that we have identified are listed below.

These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

We have engaged a third-party firm to assist us with our execution of internal control plan as we are required to comply with Section 404 of the Sarbanes and Oxley Act of 2002. We have completed the design phase and are in the implementation stage of the plan to remediate the material weaknesses identified. Our plan includes the following actions that are currently in progress:

We cannot assure you that these measures will significantly improve or remediate the material weaknesses described above. The implementation of these remediation measures is in the testing stage and will require validation of operating effectiveness of our internal controls over a sustained period of financial reporting cycles and, as a result, the timing of when we will be able to fully remediate the material weaknesses is uncertain and we may not fully remediate these material weaknesses during the year ended June 30, 2024. If the steps we take do not remediate the material weaknesses in a timely manner, there could be a reasonable possibility that these control deficiencies or others may result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis. This, in turn, could jeopardize our ability to comply with our reporting obligations, limit our ability to access the capital markets and adversely impact our stock price.

We and our independent registered public accounting firm are not required to perform an evaluation of our internal control over financial reporting for the year ending June 30, 2023 and are not required to perform such evaluation for the year ending June 30, 2022 in accordance with the provisions of the Sarbanes-Oxley Act of 2002. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404.

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Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our services to new and existing customers.

We are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the adoption dates of recently issued accounting standards not yet adopted for public companies and exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (A) following the fifth anniversary of the completion of the VTAQ IPO, December 2025, (B) in which we have total annual revenue of at least $1.235 billion, or (C) in which we are deemed to be a large accelerated filer, with at least $700 million of equity securities held by non-affiliates as of the end of our second fiscal quarter that year, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. While we have not made such an irrevocable election, we have not delayed the adoption of any applicable accounting standards.

As a result of the reduced disclosure requirements applicable to us, investor confidence in our company and the market price of our Common Stock may be adversely affected. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive, there may be a less active trading market for our Common Stock, and our stock price may be more volatile.

We have, and will continue to, incur significant costs as a result of operating as a public company.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of Nasdaq and other applicable securities laws and regulations. For example, the Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business, financial condition, and results of operations. Compliance with these rules and regulations has increased our legal and financial compliance costs, and increased demand on our systems, particularly after we are no longer an emerging growth company. In addition, as a public company, we may be subject to stockholder activism, which can lead to additional substantial costs, distract management, and impact the manner in which we operate our business in ways we cannot currently anticipate. As a result of disclosure of information in filings required of a public company, our business and financial condition is more visible, which may result in threatened or actual litigation, including by competitors. These rules and regulations have increased our legal and financial compliance costs and have made some activities more difficult, time-consuming, and costly, although we are currently unable to estimate these costs with any degree of certainty.

We also expect the laws, rules and regulations we are subject to as a public company to make it more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required in the future to accept reduced coverage or incur substantially higher costs to maintain coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Common Stock, fines, sanctions, and other regulatory action and potentially civil litigation. These factors may therefore strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members and executive officers.

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Risks Relating to Our Common Stock and Warrants

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

These provisions could also limit the price that investors might be willing to pay in the future for shares of our Common Stock, thereby depressing the market price of our Common Stock. Such provisions include the following:

These and other provisions in our Charter and Bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our Board of directors or initiate actions that are opposed by the then-current Board, including delay or impede a merger, tender offer or proxy contest involving us. The existence of these provisions could negatively affect the price of our Common Stock and limit opportunities for you to realize value in a corporate transaction.

Our 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 us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our Charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

This exclusive-forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, the Charter provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. We note that there is uncertainty as to whether a court would enforce these provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Alternatively, if a court were to find these provisions of our Charter inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other

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jurisdictions, which could materially adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and our Board.

The provisions in our Charter and Bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our Common Stock.

Because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our Common Stock would be your sole source of gain on an investment in such shares for the foreseeable future.

A market for our securities may not continue, which would adversely affect the liquidity and price of its securities.

The price of our securities may continue to fluctuate significantly due to general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities become delisted from Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market is established and sustained.

Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in its securities and subject us to additional trading restrictions.

Currently, our Common Stock and public warrants are listed on Nasdaq under the symbols “PRST” and “PRSTW.” In order to continue the listing of these securities on Nasdaq, we are required to maintain certain financial, distribution and stock price levels. Generally, we are required to maintain a minimum market capitalization (generally $45.0 million) and a minimum number of holders of our securities (generally 450 public holders). If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since our Common Stock and public warrants are listed on Nasdaq, they are covered securities. However, if our securities were no longer listed on Nasdaq, they would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

Future offerings of debt or offerings or issuances of equity securities by us may adversely affect the market price of our Common Stock or otherwise dilute all other stockholders.

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of  our Common Stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. We also expect to grant equity awards to employees, directors, and consultants under our stock incentive plans. Future acquisitions could require substantial additional capital in excess of cash from

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operations. We would expect to obtain the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness and/or cash from operations.

Issuing additional shares of our Common Stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our Common Stock or both. Upon liquidation, holders of such debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our Common Stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our Common Stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing and nature of our future offerings.

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

The trading market for our securities is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. Most securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause its stock price or trading volume to decline.

We may be subject to securities litigation, which is expensive and could divert management’s attention.

The share price of our Common Stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on its business, financial condition, results of operations and prospects. Any adverse determination in litigation could also subject us to significant liabilities.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located at 985 Industrial Road, San Carlos, California 94070 and consist of approximately 4,300 square feet of office space under a lease that expires in January 2025. We also maintain additional offices in Flower Mound, Texas. As of April 2023, the lease for our additional office in Addison, Texas expired.

As a result of COVID-19, our workforce has been working remotely since March 2020. We recognized early on in the COVID-19 pandemic that there was likely to be a shift in the workplace and introduced measures to facilitate a flexible work environment for our employees. We have been continually assessing our physical office footprint, including our corporate headquarters and those locations noted above, and our future flexible work environment may allow us to reduce our current physical office footprint. We believe that our facilities are adequate to meet our needs for the immediate future and that we will be able to secure additional space, as needed, to accommodate expansion of our operations.

Item 3. Legal Proceedings

Discussion of legal matters is incorporated by reference from Part II, Item 8, Note 8, “Commitments and Contingencies,” of this document, and should be considered an integral part of Part I, Item 3, “Legal Proceedings.”

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Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.

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Market Information

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Trading of our common stock and warrants began on Nasdaq on September 22, 2022, under the ticker symbol “PRST” for common stock and “PRSTW” for the warrants. Prior to the Business Combination, the Ventoux Common Stock, Ventoux Warrants, Ventoux Rights and Ventoux Units traded under the ticker symbols “VTAQ”, “VTAQW”, “VTAQR” and “VTAQU”, respectively, on Nasdaq.

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Holders

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As of June 30, 2023, there were 170 holders of record of our common stock. The number of record holders may not be representative of the number of beneficial owners of our common stock, whose shares are held in street name by banks, brokers and other nominees.

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Dividend Policy

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We have not paid any cash dividends on our common stock to date and prior to the Business Combination, Ventoux had not paid any dividends on its ordinary shares. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our board of directors. Our ability to declare dividends are limited by the terms of financing and other agreements.

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Recent Sales of Unregistered Securities

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All sales of unregistered equity securities during the covered period were disclosed on a Current Report on Form 8-K or a Quarterly Report on Form 10-Q.

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Item 6. [Reserved]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Presto’s consolidated financial statements as of and for the years ended June 30, 2023 and 2022 and the related notes included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements, within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Presto’s actual results could differ materially from such forward-looking statements. Presto does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with Presto’s disclosures under the heading “Cautionary Statement Regarding Forward-Looking Statements and Risk Factors Summary” included in this report. Additionally, Presto’s historical results are not necessarily indicative of the results that may be expected in any future period. Amounts are presented in U.S. dollars.

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, those identified below and those discussed in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K:

Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refers to the business and operations of E La Carte Inc. (“Legacy Presto”) and its consolidated subsidiary prior to the Merger (defined below) and to Presto Automation Inc. (“Presto”) and its subsidiaries following the Business Combination (defined below).

Business Overview

We provide enterprise grade AI and automation solutions to the restaurant technology industry. Our solutions are designed to decrease labor costs, improve staff productivity, increase revenue and enhance the guest experience. We offer our industry-leading AI solution², Presto Voice, to quick service restaurants (QSR) and our pay-at-table tablet solution, Presto Touch, to casual dining chains.

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Some of the most recognized restaurant names in the United States are among our customers, including Carl’s Jr. and Hardee’s, Del Taco and Checkers for Presto Voice and Applebee’s, Chili’s and Red Lobster for Presto Touch.

Following our founding in 2008, we initially focused exclusively on Presto Touch. As of June 30, 2023, we had shipped over 277,000 Presto Touch tablets to three of the largest casual dining chains in the United States.  Presto Voice, addresses the pressing needs of restaurant operators by improving order accuracy, reducing labor costs and increasing revenue through menu upselling, while also providing guests with an improved drive-thru experience. While Presto Touch has accounted for substantially all of our historical revenues, we believe that Presto Voice will contribute an increasing portion of our revenues in the future.

Strategy

Our business is guided by the principles that our solutions should seamlessly and effortlessly increase revenue for restaurant operators, improve productivity of the restaurant staff and enhance the guest experience . These principles ensure that our focus remains aligned with the priorities of our customers and with our objective of being a leader in the restaurant technology market.

The restaurant technology market, while still nascent, continues to rapidly develop and evolve in response to the challenges faced by restaurant operators and the productivity enhancements available to them through the use of technological advances. While growing and robust, the restaurant industry today faces by increasing labor and other costs. At the same time, a higher percentage of restaurant guests are ordering food and drinks via the drive-thru.  In an era of high inflation, restaurant operators need to simultaneously lower their costs and generate higher revenues to leverage their cost structures. We believe our solutions help restaurant operators address these concerns with compelling end-to-end solutions that seamlessly integrate with a restaurant’s existing technology stacks.

We are currently focused on enhancing, marketing and deploying our proprietary AI technology platform, Presto Voice, to meet the needs of our customers and their guests. We expect the market for Presto Voice to further develop and evolve as the restaurant technology market continues to grow, thereby increasing the demand for our solution.

Merger with Ventoux CCM Acquisition Corp.

On November 10, 2021 and as subsequently amended on April 1, 2022 and July 25, 2022, Ventoux CCM Acquisition Corp. (“Ventoux” or “VTAQ”), Ventoux Merger Sub I, Ventoux Merger Sub II and Presto entered into the Merger Agreement, pursuant to which (a) Ventoux Merger Sub I merged with and into Presto, with Presto being the Surviving Corporation in the First Merger and continuing (immediately following the First Merger) as a wholly-owned subsidiary of VTAQ and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the Surviving Corporation merged with and into Ventoux Merger Sub II, with Ventoux Merger Sub II being the surviving entity in the Second Merger and continuing (immediately following the Second Merger) as a wholly-owned subsidiary of VTAQ. On September 14, 2022, VTAQ held a special meeting of its stockholders and voted to approve the Proposed Business Combination (“the Business Combination” or “the Merger”). Upon the Closing, VTAQ was renamed “Presto Automation Inc.” and the VTAQ Common Stock and the Public Warrants continue to be listed on Nasdaq and trade under the ticker symbols “PRST” and “PRSTW,” respectively.

The Merger was accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Under the guidance in ASC 805, Business Combinations, VTAQ, who is the legal acquirer, has been treated as the “acquired” company for financial reporting purposes and Presto has been treated as the accounting acquirer. This determination was primarily based on Presto having a majority of the voting power of the post-combination company, Presto’s senior management comprising substantially all of the senior management of the post-combination company, the relative size of Presto compared to VTAQ, and Presto’s operations comprising the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Merger has been treated as the equivalent of a capital transaction in which Presto is issuing stock for the net assets of VTAQ. The net assets of VTAQ have been stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are those of Presto, as Presto is considered the predecessor for financial reporting purposes.

Key Performance Indicators

We evaluate our results using the key performance indicators set forth below. We use these metrics and related computations to evaluate our operational effectiveness and results of operations from period to period and to plan for near and long-term operating and strategic decisions. These key performance indicators should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. These measures may not be comparable to similarly-titled performance indicators used by other companies.

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Net Revenue Retention

We use net revenue retention to evaluate the operational and financial performance of our Presto Touch solution. Net revenue retention compares our revenue associated with a set of active restaurant brands in a one-year period to the same set of restaurant brands in the prior year period. We calculate net revenue retention by dividing a particular period’s recurring revenue, including both Platform revenue and Transaction revenue (each as defined below), by the prior period’s recurring revenue from the same set of restaurant brands. Net revenue retention is an indicator of the propensity of our customers to continue working with to expand their relationship with us. We assess our net revenue retention on a rolling 12-month basis comparing year-over-year. For the year ended June 30, 2023, our net revenue retention was 85%, while for the year ended June 30, 2022, it was 102%. The decrease in the year ended June 30, 2023 was primarily due to contract terminations and renewals at lower rates.

We believe net revenue retention is useful for investors because it provides a consistent comparison of customer results and growth across comparable periods within our core, established customer base, unaffected by the impact of new customers on our business.

Number of Presto Voice Locations

The number of Presto Voice locations represents the total number of locations in which Presto Voice is operational as of the last day of the relevant reporting period.  It is a critical metric for us in evaluating the success in the adoption of Presto Voice. As of June 30, 2023 and September 30, 2023, we had 338 and 373 voice locations live, respectively, the substantial majority of which are Checkers locations. In addition, as of September 30, 2023, we had entered into contracts to install our Presto Voice solution in 95 additional locations.

Key Factors Affecting Our Performance

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Continued Expansion in the Number of Locations in which Our Solutions are Used

We intend to expand the locations in which our solutions are used by rolling out our Presto Voice solution to franchisee customers in the restaurant groups with which we have entered into master services agreements.  We view the expansion of Presto Voice to these franchisee customers as a key driver of our revenue in the near term and we track the number of locations in which Presto Voice is installed.

Maintaining Relationships with Existing Customers

For the years ended June 30, 2023 and 2022, our three largest restaurant customers (including, as applicable, the franchisees of such restaurants aggregated as a single customer for reporting purposes) generated an aggregate of approximately 94% and 93% of our revenue, respectively.  These customers have entered into contracts for our Presto Touch that expire and are up for renewal between December 31, 2023 and June 30, 2024.  Renewal of these contracts is a key driver of our revenues in the near term. In addition, we have undertaken to pursue renewals of Presto Touch with all our existing customers with a transition to our next generation technology and, if this is not achieved by December 31, 2023, to provide and implement a strategic wind-down plan that is reasonably acceptable to Metropolitan with respect to Presto Touch.

Attraction of New Customers

We believe there is a substantial opportunity to continue to grow our restaurant solutions across the casual dining and QSR sectors in the United States. Since the third quarter of 2022, we have signed several pilot agreements with new customers for Presto Voice. We hope to convert each of our pilot customers into broader customer relationships in the fiscal years 2024 and 2025.  We believe that this will serve as a driver of revenue in the future.

Continued Innovation of Our AI Technology  

Given the machine learning associated with all AI technology, including our solution, we use an approach which is commonly employed in the AI industry referred to as human-in-the loop (HITL) to ensure the desired level of accuracy in order taking is achieved.  We are currently close to profitable at the restaurant location level based on our current level of HITL and expect to achieve profitability at the restaurant location level in the near future with continued advances in our technology and its implementation. If we are unable to reduce the degree or cost of HITL or and/or achieve greater efficiencies with our human agents, our results of operations and business may be adversely affected.

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Seasonality

We experience seasonality in our Transaction revenue, which is largely driven by the level of gross payment volume processed through Presto Touch. For example, restaurant operators typically obtain greater sales during the warmer months, though this effect varies regionally. As a result, our Transaction revenue per location has historically been stronger in the first and fourth quarters of our fiscal year. We believe that Transaction revenue from both existing and potential future solutions will continue to represent a material proportion of our overall revenue mix at least in the near term and seasonality will continue to impact our results of operations.

Continued Implementation of On-Going Cost Improvement Program

We became a public company through deSPAC process on September 21, 2022 upon the consummation of the Business Combination and, as a result, are incurring costs related to, among other things, directors’ and officers’ liability insurance and audit, legal and other functions.  We have taken several steps during 2023 to operate our business more efficiently including reducing costs and streamlining operations. These initiatives have included realigning personnel and other resources consistent with our current business needs and strategic plans.  We intend to continue to evaluate opportunities to enhance our efficiencies, including further cost reductions as necessary.

Components of Results of Operations

Revenue

During the years ended June 30, 2023 and 2022, we derived our revenues from two revenue streams: (1) sales and leases of the Presto Touch and Presto Voice solutions (“Platform revenue”), which includes hardware, hardware accessories, software and customer support and maintenance, and (2) premium gaming content and other revenue, which includes professional services (“Transaction revenue”).

Platform Revenue

Platform revenue is generated from fees charged to customers for access to our Presto Touch and Presto Voice solutions and is recognized ratably over the life of the contract, with a portion of the total contract value due upon execution of the contract and the remainder due monthly over the term of the contract. Our master service agreements with customers typically range from 12 to 36 months in duration. Amounts invoiced in excess of revenue recognized are recorded as deferred revenue. Revenue generated from Presto Voice was not material for the years ended June 30, 2023 and 2022.

Pursuant to an agreement with Hi Auto, we remit a revenue share associated with our Presto Voice at Checkers locations. As we have determined that we serve as an agent in the relationship because we do not control the related Voice hardware, software and other services and are not primarily responsible for fulfilling the obligations to the customer, we recognize this revenue net of the revenue share amount paid to Hi Auto. The revenue share amount ranged from 64% to 68% of the gross billings to the restaurant operators for the years ended June 30, 2023 and 2022.  Our revenue for the year ended June 30, 2023, from Checkers also reflects, as a reduction to transaction price, the fair value of the warrant issued to them.  The impact of the fair value of the warrant in the year ended June 30, 2022 was immaterial. (See Note 2 of Part II, Item 8 of this Annual Report on Form 10-K for further details).  We also pay Hi Auto a fee that is accounted for as cost of revenue which was $1.2 million for the year ended June 30, 2023.

We also maintain an agreement with a legacy customer whereby we lease Presto Touch to that customer. Revenue associated with the lease is recognized on a straight-line basis as Platform revenue over the lease term in the consolidated statements of operations and comprehensive loss.

Transaction Revenue

Transaction revenue is primarily generated from the delivery to, and use of premium gaming content by, restaurant guests. We act as the principal in this transaction as we are responsible for fulfillment, retain control of the gaming license and its accessibility and have influence in establishing the price charged to the guest. The restaurant operator acts as a sales agent between us and the guest to upsell premium gaming content purchases during the dining experience. Transaction revenue is recognized on a gross basis. A portion of Transaction revenue collections is owed to the restaurant operator and is recorded in Transaction cost of revenue.

We also generate revenue from professional services to a lesser extent, which primarily consists of fees from developing premium content to be used on the devices and installation. We recognize revenue from professional service engagements that occur over a period of time on a proportional performance basis as labor hours are incurred.

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Cost of Revenue

Platform cost of revenue consists of four categories: product costs, shipping/freight costs, installation costs and other costs. Product costs consist primarily of the cost to purchase the hardware and hardware accessories for our Presto Touch and Presto Voice solutions. Shipping/freight costs consist of all costs to transport equipment to restaurants. Installation costs consist primarily of the labor cost to install the hardware in each restaurant. Other costs include the amortization of capitalized software and product support costs, as well as certain costs paid to vendors supporting the development of software and hardware offerings used in Presto Touch and Presto Voice. Other costs also include the costs of human agents (located offsite of the restaurant) to enter, review, validate and correct orders received by Presto Voice.

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Transaction cost of revenue consists primarily of the portion of the fees collected from guests that are paid to the restaurant as part of the revenue share agreement with each restaurant. As we bear primary responsibility for the solution, we are the principal in the premium content transaction and restaurants act as the agent, whereby we collect all of the fees paid as revenue and remit the revenue share to the restaurants as cost of revenue. The portion of the fees collected from guests that are withheld by and payable to the restaurant as part of the revenue share agreement with each restaurant is recorded to Transaction cost of revenue. The commissions paid to restaurants under our gaming revenue share agreements range on average between 83% to 90% and 81% to 90% of premium gaming content revenue by customer brand for the years ended June 30, 2023 and 2022, respectively.

Depreciation and impairment cost of revenue consists primarily of the costs of leased assets that are included in property and equipment, net in the balance sheet that are amortized to cost of revenue and related impairment charges.

Our cost of revenue includes costs to refurbish and repair our Presto Touch tablets. These costs are expensed in the period in which they are incurred, and as the costs are generally linear, they are generally expected to match the timing of revenue recognized over time. In connection with these costs, we also accrue a liability at each reporting period for expected repair costs for customer tablets currently in our repair and return merchandise authorization (“RMA”) process as of the reporting period, which are charged to Platform cost of revenue.

Operating Expenses

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. The largest single component of operating expenses is employee-related expenses, which include salaries, commissions and bonuses, stock-based compensation, and employee benefit and other related payroll costs.

We have and will continue to implement measures to streamline operations and reduce costs on a go forward basis, including a realignment of personnel and other resources consistent with our strategic plans.  We may nonetheless face increased legal expenses as we address litigation and government investigations.

Research and development. Research and development expenses consist primarily of employee-related costs associated with maintenance and the development of our solutions, and expenses associated with the use of third-party software directly related to the preliminary development and maintenance of our solutions and services, as well as allocated overhead. These costs are expensed as incurred unless they meet the requirements for capitalization.

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Sales and Marketing. Sales and marketing expenses consist primarily of employee-related costs incurred to acquire new customers and increase product adoption across our existing customer base. Marketing expenses also include fees incurred to generate demand through various advertising channels and allocated overhead costs.

General and administrative. General and administrative expenses consist primarily of expenses related to facilities, finance, human resources and administrative personnel and systems. General and administrative expenses also include costs related to fees paid for certain professional services, including legal, tax and accounting services and bad debt expenses.

Loss on infrequent product repairs. Loss on infrequent product repairs expenses consist primarily of charges incurred in connection with Presto Touch hardware returned for repair or replacement using an RMA. While we have incurred RMA charges in the past, in the year ended June 30, 2022, the volume of repair charges was extremely unusual and very high due to a liquid ingress issue resulting from COVID-19 related actions by restaurant operators. Our devices failed primarily due to the use of extremely strong commercial disinfectant solutions by restaurant operators to clean the hardware devices as a mandatory precaution protocol due to COVID-19. These commercial cleaning products leaked into the hardware causing significant damage to the devices and requiring replacement of such devices. We provided repair and replacement of our hardware devices to all of our customers as a one-time only

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accommodation due to COVID-19. See “—Impact of COVID-19 on Our Results of Operations for the Year Ended June 30, 2022” below for additional information.

Change in Fair Value of Warrants and Convertible Promissory Notes

We account for our warrants in accordance with ASC 815-40 as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Warrants are classified as liabilities when there is variability in the number of shares, and when the variability is not related to an input in the Black-Scholes valuation model. Liability-classified warrants are remeasured at each reporting date until settlement, with changes in the fair value recognized in the change in fair value of warrants and convertible promissory notes in the consolidated statement of operations and comprehensive loss. Warrants that meet the fixed-for-fixed criteria or contain variability related to an input in the Black-Scholes valuation model are classified as equity instruments. Warrants classified as equity instruments are initially recognized at fair value and are not subsequently remeasured.

We elected the fair value option to account for the convertible promissory notes and embedded warrants because we believe it more accurately reflects the value of the debt in our financial statements. The principal amount of the convertible promissory notes is measured at fair value using the Monte Carlo valuation model. The valuation model utilized various key assumptions, such as enterprise value and the probability of expected future events.

Other Income, Net

Other income, net includes income of $2.0 million and $2.6 million due to the forgiveness of our PPP loans (as defined below) in the years ended June 30, 2023 and 2022, respectively. During the year ended June 30, 2023, we made an investment in a non-affiliated entity in the amount of $2.0 million. We have determined that the investment does not have a readily determinable fair value and therefore account for the investment at cost, as adjusted for any impairments and observable price changes. There were no adjustments recorded for impairments and observable price changes during the year ended June 30, 2023.

Interest Expense

Interest expense primarily consists of interest incurred on our financing obligations and outstanding loans.

Loss on Extinguishment of Debt and Financial Obligations

Loss on extinguishment of debt and financial obligations consists of losses incurred related to the extinguishment of our term loans outstanding prior to the Merger during the year ended June 30, 2023 and the extinguishment of our financial obligation with third parties during the year ended June 30, 2023.

Other financing and financial instrument expenses, net

Other financing and financial instrument expenses, net primarily consists of expense recognized related to the issuance of shares and the transfer of warrants upon termination of a convertible note agreement and associated legal fees, offset by the remeasurement of the liability related to the Unvested Sponsor Shares.

We account for the arrangement related to the Unvested Sponsor Shares in accordance with ASC 815-40 as equity-linked instruments which are not indexed to the entity’s own stock and accordingly such instruments are liability classified.

Provision (Benefit) for Income Taxes

We account for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when management estimates that it is “more-likely-than-not” that deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future pretax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in future periods.

We are required to evaluate whether tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax

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position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount that is initially recognized.

We record interest and penalties related to income tax matters in income tax expense.

In accordance with the 2017 Tax Act, research and experimental (R&E) expenses under Internal Revenue Code Section 174 are required to be capitalized beginning in 2022. R&E expenses are required to be amortized over a period of 5 years for domestic expenses and 15 years for foreign expenses.

Impact of COVID-19 on Our Results of Operations for the Year Ended June 30, 2022

We experienced two impacts from the initial onset of COVID-19 that resulted in significant charges to the statement of operations for the periods presented:

The expenses incurred were not honored by the manufacturer’s warranty under the RMA process. We have made claims to recover the costs incurred related to the repairs (as specified below) from the third-party subcontractor who manufactures the hardware. In June 2022, we received an arbitration decision in a dispute with our third-party subcontractor and were awarded approximately $11.3 million in damages related to our loss on infrequent product repairs and to cover our legal expenses This arbitration ruling was affirmed by the appellate court in the country of the arbitration ruling on March 6, 2023. The vendor appealed the ruling to the highest court in that country in May 2023 and the appeal is currently pending. As a result, the award has not met the criteria to be considered realizable as of June 30, 2023 and, accordingly, we have not recognized any gain related to this settlement in our consolidated statement of operations and comprehensive loss.

We took several actions to mitigate the effects of the COVID-19 pandemic on our operations. In April 2020, we received a loan of approximately $2.6 million under the U.S. Small Business Administration Paycheck Protection Program (“PPP”), to assist with the economic hardships caused by the pandemic. In March 2021, we received a second loan of $2.0 million under the PPP. In August 2021, we were granted forgiveness of the first loan in an amount of approximately $2.6 million. In July 2022, we were granted forgiveness of the second loan in an amount of approximately $2.0 million.

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Results of Operations

Comparison of years ended June 30, 2023 and 2022

The following table summarizes our results of operations:

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Revenue

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Total revenue decreased 14% to $26.1 million for the year ended June 30, 2023, as compared to $30.4 million for the year ended June 30, 2022.

Platform revenue decreased 34% to $13.2 million for the year ended June 30, 2023, as compared to $20.1 million for the year ended June 30, 2022. The decrease is primarily attributable to contract terminations by certain franchisee customers of existing enterprise and small business customers.  In addition, certain large customers renewed at lower pricing.

Transaction revenue increased 25% to $12.9 million for the year ended June 30, 2023, as compared to $10.3 million for the year ended June 30, 2022. This is due primarily to increases in pricing for our gaming fees.

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Cost of Revenue

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Cost of revenue decreased 14% to $25.6 million for the year ended June 30, 2023, as compared to $29.7 million for the year ended June 30, 2022.

Our Platform cost of revenue decreased 30% to $13.1 million for the year ended June 30, 2023, as compared to $18.7 million for the year ended June 30, 2022. The decrease was in line with the decrease in Platform revenue which impacted product deferred costs, installation and shipping costs during the year ended June 30, 2023, relative to the year ended June 30, 2022.

Our Transaction cost of revenue increased 26% to $11.4 million for the year ended June 30, 2023, as compared to $9.0 million for the year ended June 30, 2022. The increase was primarily attributable to increases in the revenue share owed to restaurants as a result of the increase in pricing for our gaming fees.

Depreciation and impairment cost of revenue decreased 43% for the year ended June 30, 2023 to $1.2 million from $2.0 million during the year ended June 30, 2022. The decrease was primarily attributable to the return of leased tablets in the year ended June 30, 2022, which resulted in fewer tablets in use and being depreciated.

Operating Expenses

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Operating expenses increased by 68% to $56.9 million for the year ended June 30, 2023, as compared to $33.8 million for the year ended June 30, 2022.

Research and Development

Research and development expenses increased 27% to $21.3 million for the year ended June 30, 2023, as compared to $16.8 million for the year ended June 30, 2022. The increase resulted primarily from an increase of $1.3 million in salaries and employee benefits expense due to an increase in headcount and bonuses to employees from the acquisition of CyborgOps, Inc. in the year ended June 30, 2022, an increase of $3.1 million in stock-based compensation as a result of a modification of performance based vesting conditions of restricted stock units that was waived and a $0.2 million increase in professional fees.

Sales and Marketing

Sales and marketing expenses increased 33% to $8.8 million for the year ended June 30, 2023, as compared to $6.6 million for the year ended June 30, 2022. The increase resulted primarily from an increase in salaries and employee benefits expense of $1.4 million, as a result of an increase in headcount, a public relations fee paid upon the completion of the Merger of $0.3 million in the year ended June 30, 2023, and $0.5 million in other costs.

General and Administrative

General and administrative expenses increased 172% to $26.8 million for the year ended June 30, 2023, as compared to $9.8 million for the year ended June 30, 2022. The increase resulted primarily from an increase in stock-based compensation expense of $8.1 million, primarily due to award modifications for performance conditions on RSUs and related to key executive terminations and new employee grants, an increase in legal expense, accounting services expenses and temporary services expenses of $5.5 million which included $2.2 million for audit and tax services, $1.3 million in legal expenses, $1.5 million of ancillary professional services

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fees in preparation for the Merger and $0.5 million in recruiting fees; an increase in other costs of $3.3 million which included an increase in salaries and employee benefits expense of $0.9 million, bad debt expense of $0.8 million and directors and officers and cyber insurance of $1.0 million and $0.6 million in other costs.

Loss on Infrequent Product Repairs

We had no loss on infrequent product repairs for the year ended June 30, 2023, as compared to $0.6 million for the year ended June 30, 2022. The one-time repair and replacement expenses incurred in the year ended June 30, 2022 related to damage caused to hardware caused by our customers’ use of extremely strong commercial disinfectant solutions to clean the hardware devices as a mandatory precaution protocol due to COVID-19 which did not recur in fiscal 2023.

Change in Fair Value of Warrants and Convertible Promissory Notes

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In the year ended June 30, 2023, the change in the fair value of warrants and convertible promissory notes was due to a gain of $42.8 million, as compared to a loss of $20.5 million in the year ended June 30, 2022.

The remeasurement gain recorded during the year ended June 30, 2023 was primarily driven by two factors. First, immediately prior to the closing of the Merger, the convertible notes and embedded warrants were remeasured to their then-fair value of $41.4 million, resulting in a gain on remeasurement of $48.3 million. Second, with the close of the Merger, we assumed $9.4 million of warrant liabilities associated with the legacy private warrants of VTAQ and issued additional warrants with a fair value of $0.8 million. As of June 30, 2023, all of our outstanding liability classified warrants were remeasured to fair value based on the June 30, 2023 stock price. As a result of the above, a $42.8 million gain on remeasurement was recorded for the year ended June 30, 2023. The primary factor affecting the change in fair value of the warrants was the assumption of the private warrants, the issuance of additional warrant shares, and the decrease in our stock price during the year ended June 30, 2023.

During the year ended June 30, 2022, the convertible notes and embedded warrants had a change in fair value resulting in a loss of $20.5 million, reflecting the increased stock price of the then-privately held entity. Such increases to the stock price were in contemplation of the anticipated Merger.

Interest Expense

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Interest expense increased 135% to $12.8 million for the year ended June 30, 2023, as compared to $5.4 million for the year ended June 30, 2022. The increase was due to us having higher interest-bearing term loan debt outstanding during the year ended June 30, 2023 as compared to the year ended June 30, 2022.

Loss on Extinguishment of Debt and Financial Obligations

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Loss on extinguishment of debt and financial obligations was $8.2 million for the year ended June 30, 2023 as compared to no loss for the year ended June 30, 2022. The increase is due to our loss on the extinguishment of our term loans outstanding prior to the Merger and extinguishment of certain financing obligations during year ended June 30, 2023.

Other Financing and Financial Instrument Expenses, Net

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Other financing and financial instrument expenses, net was $2.8 million for the year ended June 30, 2023 due primarily to the $2.4 million of expense related to the issuance of shares and transfer of warrants upon termination of a convertible note agreement and $0.4 million of associated legal fees.

Other Income, Net

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Other income, net increased to $2.8 million for the year ended June 30, 2023, as compared to other income, net of $2.6 million for the year ended June 30, 2022. The amounts in both periods were primarily due to the forgiveness of our PPP loans during the years ended June 30, 2023 and 2022, respectively.

Provision (Benefit) for Income Taxes

Provision (benefit) for income taxes was not material in the years ended June 30, 2023 and 2022.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States of America (“U. S. GAAP”), we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered as substitutes for, or superior to, the financial information prepared and presented in accordance with GAAP contained in this Form 10-K.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP metrics to assist investors in seeing our financial performance using management’s view. We believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted Gross Profit

Adjusted Gross Profit is calculated as gross profit adjusted to add back depreciation, and hardware repair expenses related to COVID.

We use Adjusted Gross Profit to capture and evaluate our core operating performance and trends. We believe this metric is useful to us and our investors because it removes the impact of events that do not reflect our core operating performance, thereby providing consistency and direct comparability with our past financial performance and between fiscal periods.

The following table provides a reconciliation of gross profit to Adjusted Gross Profit for each of the periods indicated:

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Adjusted EBITDA

Adjusted EBITDA is defined as net loss, adjusted to exclude interest expense, other income, net, income taxes, depreciation and amortization expense, stock-based compensation expense, earnout stock-based compensation expense, change in fair value of warrant liabilities and convertible promissory notes, loss extinguishment of debt and financing obligations, other financing and financial instrument expenses, net, deferred compensation and bonuses earned upon closing of the Merger, public relations fee due upon closing of the Merger, loss on infrequent product repairs, reduction in force, and hardware repair expenses related to COVID.

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We believe Adjusted EBITDA is useful for investors when comparing our financial performance to other companies and from period to period. Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, and interest income, which can vary substantially from company to company depending on their financing and capital structures and the method by which their assets were acquired. In addition, Adjusted EBITDA eliminates the impact of certain items that do not reflect our core operating performance, thereby providing consistency and direct comparability with our past financial performance and between fiscal periods. We have also excluded COVID-related expenses relating to loss on infrequent product repairs and excessive hardware repair expenses as the expenses are non-recurring as they occurred directly as a result of issues arising from COVID-19 protocols. They were not present in the years prior to the onset of COVID-19 and are not expected to recur. Excluding these COVID-related expenses serves to better reflect our operating performance and provides consistency and comparability with our past financial performance. We have also excluded nonrecurring costs related to the closing of the Merger, including a deferred compensation and bonuses earned upon the closing of the Merger, and a public relations fee due upon closing of the Merger. Excluding these costs attributable to the Merger better reflects our operating performance and provides consistency and comparability with our past financial performance. Adjusted EBITDA also has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. For example, although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new asset acquisitions. In addition, Adjusted EBITDA excludes stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs; interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces the cash available to us; or tax payments that may represent a reduction in cash available to us. The expenses and other items we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items that other companies may exclude from Adjusted EBITDA when they report their financial results.

The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the periods presented:

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Liquidity and Capital Resources

As of June 30, 2023 and June 30, 2022, our principal sources of liquidity were cash and cash equivalents of $15.1 million and $3.0 million, respectively, which were held for working capital purposes. This excludes $10.0 million of restricted cash as of June 30, 2023.

Since inception, we have financed our operations primarily through financing transactions such as the issuance of convertible promissory notes and loans, and sales of common stock and convertible preferred stock. We have incurred recurring operating losses

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since our inception, including operating losses of $56.4 million and $33.2 million for the years ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and June 30, 2022, we had an accumulated deficit of $235.3 million and $200.8 million, respectively, and we expect to continue to generate operating losses for the near term. Cash from operations could also be affected by various risks and uncertainties including, but not limited to, the timing of cash collections from customers and other risks.

While we received cash of $49.8 million from the completion of the Merger, net cash of $13.7 million from the Credit Agreement and concurrent repayment of other debt obligations, and $9.5 million from the sale of common stock in a private placement in May 2023, additional capital infusions will be necessary in order to fund currently anticipated expenditures, and to meet our obligations as they come due.

Our plans for additional financings are intended to mitigate the conditions or events that raise substantial doubt about our ability to continue as a going concern, however, as some aspects of the plans are outside of our control, we cannot ensure they will be effectively implemented. We cannot be sure that any additional financing will be available to us on acceptable terms if at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be materially and adversely affected. As a result, substantial doubt exists about our ability to continue as a going concern within one year after the date that the financial statements are available to be issued. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Summary of Cash Flows

The following table summarizes our cash flows for the periods indicated:

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Operating Activities

For the year ended June 30, 2023, net cash used in operating activities decreased by 6%, to $44.5 million, as compared to $47.3 million for the year ended June 30, 2022.

For the year ended June 30, 2023, net cash used in operating activities was $44.5 million. This consisted of our net loss of $34.5 million and a net use of cash from changes in operating assets and liabilities of $1.5 million and adjustments for non-cash gains, net of $8.5 million. The net use of cash from changes in operating assets and liabilities primarily relate to an increase in accounts receivable of $0.3 million, an increase in prepaids and other current assets of $0.5 million, a decrease in accrued liabilities of $2.0 million and a decrease in deferred revenue of $9.2 million. Such uses of cash were partially offset by a decrease in deferred costs of $9.1 million and a decrease in accounts payable of $1.5 million. The non-cash adjustments primarily relate to gains associated with changes in fair value of warrants and convertible promissory notes of $48.3 million and change in fair value of our liability-classified warrants of $5.5 million,  forgiveness of our outstanding PPP loan of $2.0 million, and change in fair value of Unvested Sponsor Shares liability of $0.2 million, partially offset by loss on debt extinguishment of debt and financing obligations of $8.2 million, stock-based compensation expense of $8.7 million, paid in-kind interest expense of $5.5 million, share and warrant cost on termination of convertible note agreement of $2.4 million, earnout share stock-based compensation expense of $4.9 million, amortization of debt discount and debt issuance costs of $3.4 million, depreciation, amortization and impairment of $1.7 million, contra-revenue of $1.2 million, and non-cash lease expense of $0.3 million.

For the year ended June 30, 2022, net cash used in operating activities was $47.3 million. This consisted of our net loss of $56.3 million and a net use of cash from changes in operating assets and liabilities of $14.3 million partially offset by adjustments for non-cash charges of $23.3 million. The net use of cash from changes in operating assets and liabilities primarily relate to decreases in deferred revenue of $14.9 million, vendor financing facility of $6.8 million, accounts payable of $3.3 million and accrued liabilities of $3.6 million, partially offset by decreases in deferred costs of $11.4 million and decreases in inventories of $2.5 million. The non-cash adjustments primarily relate to change in fair value of convertible promissory notes of $18.9 million, change in fair value of our liability-classified warrants of $1.6 million, depreciation, amortization and impairment of $2.4 million, stock-based compensation expense of $1.9 million and amortization of debt discounts of $1.2 million partially offset by forgiveness of one of our PPP loans of $2.6 million.

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Investing Activities

For the year ended June 30, 2023, net cash used in investing activities increased to $7.9 million, as compared to $2.2 million for the year ended June 30, 2022.

For the year ended June 30, 2023, cash used in investing activities primarily consisted of cash outflows for capitalized software of $5.6 million and a cash outflow for an investment in non-affiliate of $2.0 million.

For the fiscal year ended June 30, 2022, cash used in investing activities was $2.2 million which primarily consisted of cash outflows for capitalized software of $1.8 million and cash paid for the purchase of property and equipment of $0.3 million.

Financing Activities

For the year ended June 30, 2023, net cash provided by financing activities increased to $74.6 million, as compared to $15.6 million cash provided by financing activities for the year ended June 30, 2022.

For the year ended June 30, 2023, cash provided by financing activities was $74.6 million, which consisted primarily of proceeds from the issuance of term loans of $60.3 million, contributions from the Merger and PIPE financing, net of transaction costs, of $49.8 million, and proceeds from the issuance of common stock of $9.8 million, partially offset by repayment of term loans of $33.0 million, penalties and other costs on extinguishment of debt of $6.2 million, payment of deferred transactions costs of $1.9 million, and principal payments of financing obligations of $4.6 million.

For the year ended June 30, 2022, cash provided by financing activities was $15.6 million, which consisted primarily of proceeds from term loans of $12.6 million, from the issuance of convertible promissory notes of $8.2 million, proceeds from the exercise of common stock options of $0.1 million, partially offset by principal payments of financing obligations of $2.4 million, payment of debt issuance costs of $1.3 million, and payment of deferred transactions costs of $1.6 million.

Financing Obligations

As of June 30, 2023 and June 30, 2022, the Company’s financing obligations consisted of the following:

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Receivable Financing Facility

On April 27, 2021, we entered into an investment arrangement to enable an outside investor to invest in our future receivables in exchange for an upfront payment. Through this arrangement, we obtained financing in the form of a large upfront payment, which we have accounted for as a borrowing by recording the proceeds received as a financing obligation, which will be repaid through payments collected from accounts receivable debtors relating to future receivables. The financing obligation is non-recourse; however, we are responsible for collections as we must first collect payments from the debtors and remit them to the investor. We recognize interest on the financed amount using the effective interest method. The effective interest rate is the interest rate that equates the present value of the cash amounts to be received by the investor with the present value of the cash amounts paid by the investor to us. The receivable financing facility has a term of 5 years, and the arrangement allows us and the investor to mutually agree to roll forward our borrowings as they come due.

On August 15, 2021, November 16, 2021, February 22, 2022, May 31, 2022, and August 18, 2022, in accordance with the terms of the receivable financing facility, we rolled forward the receivable financing facility, enabling us to continue our quarterly borrowings for a minimum of twelve-months. Subject to the approval of the investor, we may continue rolling forward the receivable financing facility.

On April 14, 2023, we entered into an amended and restated investment arrangement to amend the periodic payment amounts under the investment agreement for which we evaluated under ASC 470-60, “Troubled Debt Restructurings by Debtors.” Due to indicators of financial difficulty for us at this date, and the lenders granting concession resulting in the effective borrowing rate under

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the amended agreement being less than the effective borrowing rate under the previous agreement. the amendments were accounted for as a troubled debt restructuring. We did not pay or provide any consideration in exchange for this amendment. The undiscounted future cash payments under the new terms are greater than the carrying amount of the debt at the time of the restructuring so no gain or loss was required to be recognized on the troubled debt restructuring. The change is accounted for prospectively using the new effective interest rate of the receivable financing facility.

On June 20, 2023, we entered into a second consolidated and amended and restated investment arrangement with the aforementioned investor to amend the periodic payment amounts to be made under the investment arrangement.  The amended arrangement calls for monthly payments of principal and interest totaling an aggregate of $1.5 million and $3.0 million in fiscal years 2024 and 2025, respectively. This arrangement amended the amended and restated investment arrangement we entered into on April 15, 2023, which amended the payment due dates and periodic payment amounts to be made under the investment agreement.

Equipment Financing Facility

Beginning in 2019, we entered into equipment financing facilities with third-party financing partners to finance certain tablet purchases. The arrangements generally have terms ranging from 3 to 5 years and interest rates ranging from 8% to 14%. We then lease the tablets to our customer through operating leases with 4-year terms.

In fiscal year 2023, due to our liquidity position and other commitments, we postponed certain payments on certain equipment financing facilities, which resulted in us defaulting on the arrangements. We have remedied the matter via the following repayment agreements. On November 4, 2022, we executed an amendment on one of our equipment financing facilities to defer non-payments, which increased the monthly payments due for the remaining term of the arrangement. On November 21, 2022, we executed an amendment with one of our third-party financing partners, under which we repaid one of the arrangements by making a cash disbursement of $0.4 million, of which extinguished all obligations and resulted in $0.3 million being recorded as a loss on extinguishment of debt and financial obligations on the consolidated statement of operations and comprehensive loss. As a result of the amendment executed on November 4, 2022 and early termination executed on November 21, 2022, the default on payments due as described above has been waived and we are in compliance as of June 30, 2023. The balance is included in financing obligations, current as of June 30, 2023.

In fiscal year 2022, we postponed the required monthly payments from April 2022 through September 2022 on certain equipment financing facilities. Non-payment under the arrangements permits the financing partner to declare the amounts owed under the arrangement due and payable and exercise their right to secure the tablets under lease. As such, we reclassified all of our obligations under these arrangements that are in default as short-term within financing obligations, current as of June 30, 2022.

Debt Arrangements

As of June 30, 2023 and June 30, 2022, our outstanding debt, net of debt discounts, consisted of the following:

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Term Loan - Credit Agreement

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On September 21, 2022, in connection with the consummation of the Merger, we entered into a Credit Agreement (the “Credit Agreement”), with the subsidiary guarantors party thereto, Metropolitan Partners Group Administration, LLC (“Metropolitan”), as administrative, payment and collateral agent (the “Agent”), the lenders party thereto (“Lenders”) and other parties party thereto, pursuant to which the Lenders extended term loans having an aggregate original principal amount of $55.0 million (the “Initial Term Loans” and which the Lenders have agreed to extend by $3.0 million (the “Third Amendment Term Loans” and together with the Initial Term Loans, the “Term Loans”) . In conjunction with the initial Credit Agreement, we issued 1,500,000 warrants to purchase common stock to the Lenders as debt discount. Such warrants were determined to be equity classified and we recorded the value associated with such warrants of $2.1 million within additional paid in capital, with an offsetting debt discount being recorded. Refer to Note 10 for further details on

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the aforementioned warrants. We also pay a debt monitoring fee under the Credit Agreement of $0.1 million per quarter which is recorded as interest expense in the consolidated statement of operations and comprehensive loss.

First Amendment

In March 2023, we entered into a First Amendment to the Credit Agreement (the “First Amendment”) pursuant to which certain covenants of the Credit Agreement were amended. In connection with the First Amendment, we entered into the Amended and Restated Fee Letter (the “Fee Letter”) with Metropolitan, pursuant to which we paid an amendment fee equal to $0.2 million and granted warrants to purchase 400,000 shares of common stock, par value $0.0001 per share (“Common Stock”) of Presto, with an exercise price of $0.01 per share (the “Warrants”), to Metropolitan Levered Partners Fund VII, LP, Metropolitan Partners Fund VII, LP, Metropolitan Offshore Partners Fund VII, LP and CEOF Holdings LP (the “Metropolitan Entities”). We recorded an additional debt discount of $0.8 million which represents the amendment fee plus the fair value of the warrants and recorded the warrants.

Second Amendment and Related Private Placement

On May 22, 2023, we entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) pursuant to which (1) certain covenants of the Credit Agreement were amended and (2) the Lenders agreed to the exchange of an aggregate of $1.0 million of accrued and previously capitalized interest for warrants to purchase 500,000 shares of Common Stock at an exercise price of $0.01 per share (the “Second Amendment Conversion Warrants”). The effectiveness of the Second Amendment was conditioned, in part, upon evidence of a gross amount of additional equity investments of $9.0 million, to be used for working capital purposes, of which we received $9.5 million upon closing of the Private Placement (see Note 9 to the consolidated financial statements).  The warrants are classified as liabilities.  See Note 10 for further details.

In connection with the effectiveness of the Second Amendment and in consideration for Metropolitan’s entering into the Second Amendment, we entered into the Second Amended and Restated Fee Letter (the “Second Fee Letter”) with Metropolitan, pursuant to which we issued warrants to purchase 2,000,000 shares of Common Stock, with an exercise price of $0.01 per share (the “Second Amendment Fee Warrants” and, together with the Second Amendment Conversion Warrants, the “Second Amendment Warrants”), to the Lenders as an amendment fee (See Note 10).

The Second Amendment Warrants may be exercised for cash or a net exercise at any time on or before the date that is the five-year anniversary of the date of the issuance of the Second Amendment Warrants; provided, that we shall not permit the exercise of any portion of the warrant where the effect is the holder, together with its affiliates would beneficially own in excess of 4.99% of the Common Stock outstanding immediately after giving effect to such exercise.

In connection with the issuance of the Second Amendment Warrants, we entered into a customary registration right for the shares of Common Stock issuable upon exercise of the Second Amendment Warrants noted above which was declared effective by the SEC on July 6, 2023.

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Third Amendment and Related Private Placement

On October 10, 2023, we entered into a Third Amendment to the Credit Agreement (the “Third Amendment”) pursuant to which (1) lenders agreed to extend the Third Amendment Term Loans, (2) certain covenants of the Credit Agreement were amended or removed (including the removal of a covenant in respect of a maximum net leverage ratio of 1.20 to 1.00), (3) the Lenders agreed to waive existing defaults under the Credit Facility, and (4) the Lenders agreed to the exchange of an aggregate of $6.0 million of accrued and previously capitalized interest for warrants to purchase 3,000,000 shares of Common Stock at an exercise price of $0.01 per share (the “Third Amendment Conversion Warrants”).  The effectiveness of the Third Amendment is conditioned, in part, upon (1) evidence of a gross amount of additional equity investments of $3.0 million, to be used for working capital purposes (which the Company expects to receive upon the closing of the private placement with an affiliate of our existing shareholder, Cleveland Avenue, described below), (2) the Company hiring a chief financial officer reasonably satisfactory to the Agent, which the Company and the Agent have agreed will be satisfied with the appointment of Mr. Nathan Cook, consultant, as Interim Chief Financial Officer following the filing of this Form 10-K, (3) by no later than October 16, 2023, evidence that we have engaged the services of an investment bank reasonably acceptable to Metropolitan on terms reasonably acceptable to Metropolitan in connection with upcoming capital raises.

Concurrent with the Third Amendment, we entered into a Securities Purchase Agreement (“Purchase Agreement”) with Presto CA LLC, an affiliate of Cleveland Avenue, pursuant to which we agreed to sell an aggregate of 1,500,000 newly issued shares of common stock at a purchase price of $2.00 per share for an aggregate purchase price of $3.0 million.  The Purchase Agreement contains customary representations, warranties and covenants of the parties, and the closing is subject to customary closing conditions. In addition, the Purchase Agreement includes anti-dilution provisions relating to future issuances or deemed issuances of common stock from the closing date to April 1, 2024 at a price per share below $2.00 per share, which would require us to issue additional shares of

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common stock to the purchaser, upon the terms and subject to the conditions contained in the Purchase Agreement. The transaction is expected to close on or around October 16, 2023.

In connection with the effectiveness of the Third Amendment and in consideration for Metropolitan’s entering into the Third Amendment, we entered into the Third Amended and Restated Fee Letter (the “Third Fee Letter”) with Metropolitan, pursuant to which we issued warrants to purchase 25,000 shares of Common Stock, with an exercise price of $0.01 per share (the “Third Amendment Fee Warrants” and, together with the Third Amendment Conversion Warrants, the “Third Amendment Warrants”), to the Lenders as an amendment fee.  

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The Third Amendment Warrants may be exercised for cash or a net exercise at any time on or before the date that is the five year anniversary of the date of the issuance of the Second Amendment Warrants; provided, that we shall not permit the exercise of any portion of the warrant where the effect is the holder, together with its affiliates would beneficially own in excess of 4.99% of the Common Stock outstanding immediately after giving effect to such exercise.

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Borrowings and Interest

The Term Loans were borrowed in full at closing. Amounts outstanding under the Credit Agreement will incur interest at the rate of 15% per annum. The amendments to the Credit Agreement provide that, with respect to interest accruing for the interest periods ending September 30, 2023 through to January 31, 2024, we may elect that 100% of the accrued but unpaid interest under the Term Loans may be capitalized as principal, or “PIK Interest” on a monthly basis. After January 31, 2024, we may request that 100% of the accrued but unpaid interest under the Term Loans may be capitalized as principal, or “PIK Interest” on a monthly basis, subject to the prior approval by Agent. Absent such a request or in the absence of approval by the Agent, such interest is required to be paid in cash on a monthly basis.

During the year ended June 30, 2023, we recorded PIK interest expense amounts of $5.4 million, which have been reflected as an increase to the outstanding debt balance. Further, during the year ended June 30, 2023, we recorded interest expense associated with the amortization of debt discounts in the amount $2.2 million. Accordingly at June 30, 2023, the term loans, noncurrent balance of $50.6 million reflects $55.0 million of principal and $5.4 million PIK interest accrual, as reduced by unamortized debt issuance costs of $9.8 million.

Prepayment

The Term Loans may be prepaid by us; however, any voluntary or mandatory prepayment made prior to March 21, 2024, the 18-month anniversary of the initial closing date, must be accompanied by payment of a make whole premium equal to the interest and fees that would have accrued on the aggregate principal amount of the Term Loans (including any interest that could have been capitalized as PIK Interest during such period) from the date of payment through the 18-month anniversary of the closing date. The Term Loans may not be reborrowed once repaid. We are required to pay the Agent certain upfront fees and administrative fees in connection with the Term Loans. Our obligations under the Credit Agreement are secured by substantially all of our assets.

Covenants and Waivers

We must comply with certain financial covenants as set forth in the Credit Agreement,

Without an injection of further capital, we anticipate being unable to comply with the minimum unrestricted cash covenant in approximately mid-December 2023.

We have also undertaken to pursue renewals of Presto Touch with all our existing customers with a transition to our next generation technology and, if this is not achieved by December 31, 2023, to provide and implement a strategic wind-down plan that is reasonably acceptable to Metropolitan with respect to Presto Touch.

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The Credit Agreement also contains customary affirmative and restrictive covenants, including covenants regarding the incurrence of additional indebtedness or liens, investments, transactions with affiliates, delivery of financial statements, payment of taxes, maintenance of insurance, dispositions of property, mergers or acquisitions, among other customary covenants. We are also restricted from paying dividends or making other distributions or payments on our capital stock, subject to limited exceptions. The Credit Agreement also includes customary representations and warranties, events of default and termination provisions, upon which the Term Loans may be accelerated and the interest rate applicable to any outstanding payment obligations will increase by 5%.

As of March 31, 2023, we obtained a waiver in the First Amendment noted above, of the minimum cash covenant for February 28, 2023 and March 31, 2023, the historic net leverage ratio for the period from February 28, 2023 through May 31, 2023 and any default occurring from the Chief Executive Officer separation from the Board of Directors. Upon the effectiveness of the Third Amendment, we will obtain waivers of the historic net leverage ratio for the period from May 31, 2023 through June 30, 2023, our failure to make timely payments on July 1, 2023 and various reporting obligations that were not satisfied.

Convertible Promissory Notes

As of June 30, 2022, we had convertible notes outstanding to various investors, all of which were accounted for under the fair value option. As of June 30, 2022, the fair value of such convertible promissory notes was $89.7 million. In conjunction with the Merger, all convertible promissory notes converted into shares of common stock. Further certain convertible notes which were together with warrants also had the related warrants converted into shares of common stock. As a consequence of the note and warrant conversion, 8,147,938 shares of common stock were issued. Immediately prior to conversion, the convertible promissory notes were remeasured to the then fair value of $41.4 million, resulting in a gain on remeasurement of $48.3 million which was recorded within change in fair value of warrants and convertible promissory notes on the consolidated statement of operations and comprehensive loss for the year ended June 30, 2023.

During the year ended June 30, 2022 we issued the July 2021 notes for $0.5 million of convertible promissory notes and issued the February 2022 notes for $25.7 million and repaid the June 2021 notes for $20.0 million with the February 2022 notes. During the year ended June 30, 2022, we recorded a gain on remeasurement of $18.9 million, on all outstanding convertible promissory notes, which were recorded within change in fair value of warrants and convertible promissory notes on the consolidated statement of operations and comprehensive loss.

Other Term Loans

Horizon Term Loan

On March 4, 2021, we entered into a loan agreement (the “Horizon Loan”) with Horizon Technology Finance Corporation (“Horizon”), which provided us with $15.0 million, bears interest at prime rate plus 6.5% per annum, and has a term of 54 months from each loan funding date. The Horizon Loan payment terms require repayment of accrued interest only on the outstanding principal amount over the first 24 payment dates and an equal payment of principal plus accrued interest on the next 30 payment dates identified in the notes applicable to the loan. We pledged certain assets against the Horizon Loan. The Horizon Loan contains financial covenants that require the maintenance of an unrestricted cash plus accounts receivable balance and achievement of quarterly bookings targets. On March 11, 2022, we amended the Horizon Loan to shorten the total term to 24 months with a maturity date of March 20, 2023.

On September 21, 2022, in connection with the entry into the Credit Agreement, we repaid the Horizon Loan making a cash disbursement of $17.0 million, of which $15.0 million was repayment of principal and $0.6 million was payment of interest expense and accrued interest. Further, $1.7 million was recorded as a loss on extinguishment of debt and financial obligations on our consolidated statement of operations and comprehensive loss.

Lago Term Loans

On March 11, 2022, we entered into a loan agreement (the “Lago Loan”) with Lago Innovation Fund I & II, LLC, which provided us with $12.6 million, bears interest at the greater of 12% plus the greater of 1% or 30-day LIBOR, bears 2% payable in kind interest, and matures on April 1, 2023. We pledged certain assets against the Lago Loan. The Lago Loan payment terms require repayment of accrued interest only on the outstanding principal over the first 12 payment dates and payment of principal plus remaining accrued interest on the last payment date identified in the notes applicable to the loan. We may prepay at any time for a fee, depending on the time of prepayment. The Lago Loan contains financial covenants that require the maintenance of unrestricted cash plus accounts receivable balance and achievement of quarterly bookings targets. We issued 205,602 warrants to purchase common stock with the Lago Loan. Refer to Note 10 of Part II, Item 8 of this Annual Report on Form 10-K for further details.

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On August 4, 2022, we received an additional tranche of term loan in the amount of $5.3 million via an amendment to the Lago Loan. Further, we issued an additional 169,310 warrants to purchase common stock with the additional tranche. We determined that the amendment with the lender should be accounted for as an extinguishment and recorded a loss on extinguishment of debt and financial obligations of $6.0 million on our consolidated statement of operations and comprehensive loss.

In connection with the entry into the Credit Agreement (defined above) on September 21, 2022, we repaid all outstanding loans by making a cash disbursement of $22.4 million, of which $17.8 million was repayment of principal and $0.1 million was payment of payable in-kind interest. Further, $4.4 million of cash was paid related to prepayment and other penalties.

Paycheck Protection Program Loan

In April 2020, we obtained a Paycheck Protection Program (“PPP”) loan for $2.6 million through the U.S. Small Business Administration. In March 2021, a second PPP loan was obtained in the amount of $2.0 million, for a total of $4.6 million. The loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities, with at least 60% being used for payroll. We used the funds for these expenses and applied for loan forgiveness of the PPP funds. No collateral or personal guarantees were required for the loan. The PPP loans would bear an interest rate of 1% and a maturity of two years for the first loan and five years for the second loan. We account for the loans as debt subject to the accounting guidance in ASC 470, Debt.

During the year ended June 30, 2022 we received forgiveness for the first PPP loan of $2.6 million and recognized as other income, net. In July 2022, we were granted forgiveness of the second loan in an amount of approximately $2.0 million, which was recognized as other income, net on the consolidated statement of operations and comprehensive loss for the year ended June 30, 2023.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2023 and June 30, 2022.

Related Party Transactions

During the year ended June 30, 2023, as part of our private placement that closed in May 2023, we received $3.0 million of proceeds in exchange for newly issued common stock of Presto from Cleveland Avenue, LLC, an entity which holds a greater than 10% interest in Presto, and for which an officer of Cleveland Avenue, LLC, Keith Kravcik, is a member of the Company’s board of directors, and therefore is a related party.

We had certain convertible promissory notes and embedded warrants held by entities in which Krishna Gupta and Ilya Golubovich, each of which are members of our board of directors, are officers and in which they have a financial interest in the entity (“Affiliated Entities”). As of June 30, 2022, $9.6 million of our convertible promissory notes and embedded warrants balance was due to the Affiliated Entities, all of which was due within 12 months. The convertible notes and embedded warrants converted into shares of common stock during the year ended June 30, 2023. Refer to Note 7 for further details of Part II, Item 8 of this Annual Report on Form 10-K for further details.

During the year ended June 30, 2023, we received an equity investment of $1.0 million from Schechter Private Capital Fund I, LLC – Series V ("Schechter") which held a significant portion of our convertible debt on the date of the investment in exchange for 133,333 shares of our common stock. Refer to Note 9 of Part II, Item 8 of this Annual Report on Form 10-K for further details.

In addition, during the year ended June 30, 2023 we granted 1,200,000 of RSUs to Krishna Gupta director and former interim CEO of Presto with a grant date fair value of $4.56 per restricted stock unit. See Note 11 of Part II, Item 8 of this Annual Report on Form 10-K for further details.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and disclosures. Our most significant estimates and judgments are related to the fair value of certain financial instruments which includes warrant liabilities. Other estimates and judgments are related to revenue recognition, collectability of accounts receivable, the useful lives of property and equipment and intangible assets, inventory valuation, valuation of deferred tax assets and liabilities, valuation assumptions utilized in calculating the estimated value of stock-based compensation, valuation of warrants, earnout and Unvested Sponsor Shares arrangements, valuation of investments in non-affiliates, and impairment of long-lived assets. Actual results may

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differ from these estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. For further information, see Note 1 to the audited consolidated financial statements as of and for the years ended June 30, 2023 and 2022 and the related notes contained in Part II, Item 8 of this Annual Report on Form 10-K.

Revenue Recognition

Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services, net of any taxes collected from customers (e.g., sales and other indirect taxes), which are subsequently remitted to government authorities.

During the years ended June 30, 2023 and 2022, we derived our revenues from two revenue streams: (1) Platform revenue consisting of sales of the Presto Touch and Presto Voice solutions and leases of the Presto Touch solution, including hardware, hardware accessories, software, customer support and maintenance, and (2) Transaction revenue consisting of premium gaming content and other revenue, which includes professional services.

We determine revenue recognition through the following steps:

We identified the following performance obligations: for the MSAs and license agreements, 1) sales or leases of hardware, SaaS and maintenance are one combined performance obligation for the Presto Touch product, and 2) providing premium content, or gaming, is a single performance obligation for the gaming agreements. Professional services were insignificant during the years ended June 30, 2023 and 2022.

Our Presto Touch solution is considered to have a single performance obligation because each element of the Presto Touch product is interdependent and cannot function independently. The software and hardware for the Presto Touch product represents one combined output and the customer cannot benefit from the use of one element without the other.

When we enter into gaming agreements, our Presto Touch product includes the capability of providing entertainment services, provided by us via internet, that can be purchased by diners. The games are only accessible over the internet, and upon the diner making the decision to pay for the content, the diner receives the right to access the game on the Presto Touch product. Gaming fees are usage based through the diner’s use of the device and stipulated in a separate contract with the guest. Any fees that are incurred are collected by the restaurant as part of the normal payment for the dining check from the diner and remitted back to us, net of commissions paid to the restaurant as the sales. Premium content revenue, or gaming revenue, is therefore one performance obligation.

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Stock-Based Compensation

We have a stock incentive plan under which incentive stock options and restricted stock units (“RSUs”) are granted to employees and directors and non-qualified stock options are granted to employees, investors, directors and consultants. The options and RSU’s granted vest over time with a specified service period, except for performance-based grants. Stock-based compensation expense related to equity awards is recognized based on the fair value of the awards granted. The RSUs grant date fair value is determined based on our stock price on the date of grant. There were no stock options granted in the year ended June 30, 2023. The fair value of our common stock underlying the awards granted in fiscal year 2022 and up to the close of the Merger had been determined by the Board of Directors (the “Board”) of the Company with input from management and third-party valuation specialists, as there was no public market for our common stock. The Board determined the fair value of the common stock by considering a number of objective and subjective factors including: the valuation of comparable companies, our operating and financial performance, the lack of liquidity of common stock, transactions in our preferred or common stock, and general and industry specific economic outlook, among other factors.

The earnout shares are equity classified since they do not meet the liability classification criteria outlined in ASC 480, Distinguishing Liabilities from Equity and are under ASC 815-40 are both (i) indexed to the Company’s own shares and (ii) meet the criteria for equity classification. The initial fair value of the earnout shares is determined based on “Level 3” inputs, due to a lack of market data over inputs such as the volatility and the time incurred to meet the minimum volume weighted average price (“VWAP”). At initial recognition, the earnout shares were measured at fair value using the Monte Carlo valuation model. The valuation model utilized various key assumptions, such as volatility, discount rate and time incurred to meet the minimum VWAP.

Fair Value Measurements

Fair value is defined as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Financial instruments consist of cash equivalents, accounts receivable, accounts payable, convertible promissory notes and embedded warrants, warrant liabilities, and Unvested Sponsor Share liability. Accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

We elected the fair value option to account for the convertible promissory notes and embedded warrants because we believe it more accurately reflects the value of the debt in the financial statements. The principal amount of the convertible promissory notes, embedded warrants and accrued interest is measured at fair value using the Monte Carlo valuation model. The valuation model utilized various key assumptions, such as enterprise value and management assessments of the probability of expected future events, including conversion upon next private financing of preferred stock, conversion upon next financing in a public liquidity event,

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conversion upon a change in control, conversion upon maturity and default. Other inputs included a discount rate of 16.5% for the principal amount of the convertible promissory notes as of June 30, 2022. Changes in the fair value of the convertible promissory notes and embedded warrants were included in the change in fair value of warrants and convertible promissory notes in the consolidated statement of operations and comprehensive loss.

The fair value of the Unvested Sponsor Share liability was determined using a Monte Carlo valuation model, which requires estimates including the expected volatility of our common stock. The expected annual volatility of our common stock was estimated to be 76.2% and 70.4% as of the Merger date and June 30, 2023, respectively, based on the historical volatility of comparable publicly traded companies.

Impairment of Long-Lived Assets

We evaluate the carrying value of long-lived assets on an annual basis, or more frequently whenever circumstances indicate a long-lived asset may be impaired. When indicators of impairment exist, we estimate future undiscounted cash flows attributable to such assets. In the event cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair value.

Recent Accounting Pronouncements

See the sections entitled “Recently Adopted Accounting Standards” and “Recently Issued Accounting Standards Not Yet Adopted” in Note 1 of Part II, Item 8 of this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the filing date of this Annual Report on Form 10-K.

Emerging Growth Company

We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations in the United States and in Canada, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, credit and inflation risks. We are not exposed to significant foreign exchange risk.

Interest Rate Sensitivity

Our cash and cash equivalents are held primarily in cash deposits and money market funds. The fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments. A hypothetical 10% change in interest rates would not have a material impact on our current results of operations due to the short-term nature of our cash, cash equivalents and restricted cash. Additionally, changes to interest rates will not impact the cost of our currently outstanding borrowings. Interest rates on the Credit Agreement are fixed. Potential changes in interest rates would also not materially impact the interest expense associated with our financing obligations.

Credit Risk

We are exposed to credit risk on accounts receivable balances. A small number of customers represent significant portions of our consolidated accounts receivable and revenue. We evaluate the solvency of our customers on an ongoing basis to determine if allowances for doubtful accounts need to be recorded.

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The following customers accounted for more than 10% of revenues during the following periods:

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The following customers accounted for more than 10% of accounts receivable as of June 30, 2023 and 2022:

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*Customer C represents less than 10% of accounts receivable and therefore was omitted from the above schedule.

We are exposed to vendor concentration risk as we purchase our next generation version of Presto Touch tablets and other equipment from one supplier. Our operating results could be adversely affected in the event that the vendor increases their prices or incurs disruptions in its supply of goods or services.

Inflation Risk

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation.

Financial Institutions

Financial instruments that potentially expose us to concentrations of credit risk consist principally of cash and cash equivalents on deposit with financial institutions, the balances of which frequently exceed federally insured limits. If any of the financial institutions with whom we do business were to be placed into receivership, we may be unable to access the cash we have on deposit with such institutions. If we are unable to access our cash, cash equivalents, or restricted cash, as needed, our financial position and ability to operate our business could be adversely affected. The Company has $24.6 million in deposits in excess of the FDIC limits as of June 30, 2023.

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Item 8. Financial Statements and Supplementary Data

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Presto Automation, Inc

Index to the Financial Statements

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Report of Independent Registered Public Accounting Firm

The Shareholders and the Board of Directors

Presto Automation Inc.

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Opinion on the Financial Statements

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We have audited the accompanying consolidated balance sheets of Presto Automation Inc. (the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2023 and 2022, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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Going Concern Uncertainty

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The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2023 due to the adoption of Accounting Standards Codification Topic 842.

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Basis for Opinion

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These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

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/s/ Moss Adams LLP

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San Francisco, California

October 10, 2023

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We have served as the Company’s auditor since 2021.

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2

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PRESTO AUTOMATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

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

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3

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PRESTO AUTOMATION INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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(in thousands, except share and per share amounts)

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