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Presto Automation (PRST)
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Risk Overview Q1, 2024
Risk Distribution
43% Finance & Corporate
19% Tech & Innovation
13% Production
11% Ability to Sell
9% Legal & Regulatory
4% Macro & Political
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Presto Automation Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q1, 2024
Main Risk Category
Finance & Corporate
With 23 Risks
Finance & Corporate
With 23 Risks
Number of Disclosed Risks
53
-1
From last reportS&P 500 Average: 31
53
-1
From last reportS&P 500 Average: 31
Recent Changes
2Risks added
0Risks removed
1Risks changed
Since Mar 2024
2Risks added
0Risks removed
1Risks changed
Since Mar 2024
Number of Risk Changed
1
No changes from last report
S&P 500 Average: 3
1
No changes from last report
S&P 500 Average: 3
See the risk highlights of Presto Automation in the last period.
Risk Word Cloud
Currently, no data available
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 53
Finance & Corporate
Total Risks: 23/53 (43%)Below Sector Average
Share Price & Shareholder Rights8 | 15.1%
Share Price & Shareholder Rights - Risk 1
We granted anti-dilution protection to certain of our investors, which have and will cause additional significant dilution to our stockholders and may have a material adverse impact on the market price of our common stock and make it more difficult for us to raise funds through future equity offerings.Added
Share Price & Shareholder Rights - Risk 2
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.
Share Price & Shareholder Rights - Risk 3
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:
- a limited availability of market quotations for our securities;- reduced liquidity for our securities;- a determination that our Common Stock is a "penny stock" which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;- a limited amount of news and analyst coverage; and - a decreased ability to issue additional securities or obtain additional financing in the future.
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.
Share Price & Shareholder Rights - Risk 4
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.
Share Price & Shareholder Rights - Risk 5
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:
- any derivative action or proceeding brought on our behalf;- any action asserting a breach of fiduciary duty;- any action asserting a claim against us arising under the Delaware General Corporation Law, as may be amended from time to time, our Charter or our Bylaws; and - any action asserting a claim against us that is governed by the internal-affairs doctrine.
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 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.
Share Price & Shareholder Rights - Risk 6
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:
- a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our Board;- the ability of our Board to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;- the requirement for the affirmative vote of holders of at least two-thirds of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our Charter or Bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt;- the exclusive right of our Board to elect a director to fill a vacancy occurring in our Board for any cause, which prevents stockholders from being able to fill vacancies on our Board; and - the requirement that a special meeting of stockholders may be called only by the Chairperson of the Board, the Chief Executive Officer, the Lead Independent Director or a majority of the Board then in office, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors.
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.
Share Price & Shareholder Rights - Risk 7
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.
Share Price & Shareholder Rights - Risk 8
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.
Accounting & Financial Operations7 | 13.2%
Accounting & Financial Operations - Risk 1
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.Accounting & Financial Operations - Risk 2
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.
Accounting & Financial Operations - Risk 3
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.
Accounting & Financial Operations - Risk 4
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.
Accounting & Financial Operations - Risk 5
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 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.
Accounting & Financial Operations - Risk 6
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:
- fluctuations in demand for or pricing of our solutions;- our ability to continue to expand the locations in which our solutions are used;- our ability to attract new customers;- the timing of customer purchases and deployments;- customer renewals of our agreements;- our ability to control costs, including our operating expenses and the amount and timing of payment for operating expenses;- the amount and timing of costs associated with recruiting, training and integrating new employees and retaining and motivating existing employees;- low levels of consumer and business confidence typically associated with inflationary or recessionary environments;- the impact of new accounting pronouncements;- changes in regulatory or legal environments that may cause us to incur, among other elements, expenses associated with compliance;- changes in the competitive dynamics of our market, including consolidation among competitors, customers, or our partners; and - significant security breaches of technical difficulties with, or interruptions to, the delivery and use of our modules and platform capabilities or third-party applications or POS or management systems with which our platform integrates.
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.
Accounting & Financial Operations - Risk 7
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:
- the fact that it may not be possible to fully discern the trends that we are subject to;- that we operate in a new and developing market with a rapidly changing competitive landscape;- that we may be unable to accurately predict our revenue and operating expenses for new solutions that we release;- that we may not be able to evolve our solutions to keep up with market demand and/or to provide efficiency and cost effectiveness; and - that elements of our business strategy are new and subject to ongoing development.
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.
Debt & Financing5 | 9.4%
Debt & Financing - Risk 1
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.Debt & Financing - Risk 2
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.
Debt & Financing - Risk 3
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
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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Debt & Financing - Risk 4
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.Changed
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. The Company has incurred operating losses of $15.3 million and $48.3 million for the three and nine months ended March 31 2024, respectively. As of March 31, 2024, the Company had an accumulated deficit of $266.0 million and the Company expects to generate operating and net losses for the near term. Cash from operations is also affected by various risks and uncertainties, including, but not limited to, the timing of cash collections from customers and other risks.
The Company faces severe liquidity challenges. While the Company raised net cash proceeds of $2.4 million from the issuance of new debt in the closing of the Third Amendment to the Credit Agreement, received $11.8 million net proceeds from the sale of common stock in private placements and registered direct offerings, raised $7.0 million from the issuance of subordinated convertible notes and a $4.0 million promissory note during the nine months ended March 31, 2024, the Company used cash from operating activities of $32.2 million and incurred a net loss of $31.0 million during the same period. In addition, on January 11, 2024, following notice of breaches of covenants contained in the Credit Agreement, the Lenders delivered an activation notice to the Company's bank in which $10.0 million of restricted cash was deposited as collateral for the Term Loans and caused the bank to wire that amount to an account designated by the Lenders (refer to Note 7. Debt of Item 1 of this Quarterly Report on Form 10-Q for further details). The funds were applied to reduce the outstanding balance of the Term Loans which as of March 31, 2024 totaled $53.1 million in principal amount plus accrued interest.
As a result, additional capital infusions will be necessary in order to fund currently anticipated expenditures and to meet the Company's obligations as they come due. In addition, the Company has entered into a forbearance agreement with the Agent and the Lenders pursuant to which the forbearance period with respect to defaults under the Credit Agreement expires on May 15, 2024. The Company's future capital requirements will depend on many factors, including the revenue growth rate, the success of future product development, and the timing and extent of spending to support further sales and marketing and research and development efforts.
If the Company cannot satisfy this or other requirements, the 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.
In addition, the Company is party to a Stockholders Agreement, dated as of November 16, 2023, by and among the Company, Presto CA, LLC ("CA") and KKG Enterprises LLC ("KKG"), each a related party, pursuant to which, CA and KKG have consent rights with respect to, among other things, any issuance of common stock or securities convertible into or exercisable for common stock, subject to limited exceptions. Each of CA and KKG may have the ability to block any such future issuances the Company pursues and the Company may therefore not be able to raise capital as needed.
Substantial doubt exists about the Company's ability to continue as a going concern within one year after the date that the financial statements are available to be issued. The Company continues efforts to mitigate the conditions or events that raise this substantial doubt, however, as some components of these plans are outside of management's control, the Company cannot offer any assurances they will be effectively implemented. The Company cannot offer any assurance that any additional financing will be available on acceptable terms or at all. If the Company is unable to raise additional capital it would likely lead to an event of default under the Credit Agreement and the potential exercise of remedies by the Agent and Lender, which would materially and adversely impact its business, results of operations and financial condition. The Company's condensed consolidated 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.
Debt & Financing - Risk 5
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 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.
Corporate Activity and Growth3 | 5.7%
Corporate Activity and Growth - Risk 1
We may be unable to realize the benefits we expect from our Touch business.Added
Corporate Activity and Growth - Risk 2
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.
Corporate Activity and Growth - Risk 3
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.
Tech & Innovation
Total Risks: 10/53 (19%)Below Sector Average
Innovation / R&D1 | 1.9%
Innovation / R&D - Risk 1
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.Trade Secrets3 | 5.7%
Trade Secrets - Risk 1
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.Trade Secrets - Risk 2
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 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.
Trade Secrets - Risk 3
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.
Cyber Security2 | 3.8%
Cyber Security - Risk 1
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.Cyber Security - Risk 2
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.
Technology4 | 7.5%
Technology - Risk 1
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.Technology - Risk 2
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.
Technology - Risk 3
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.
Technology - Risk 4
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.
Production
Total Risks: 7/53 (13%)Below Sector Average
Employment / Personnel3 | 5.7%
Employment / Personnel - Risk 1
Our ability to recruit, retain, and develop qualified personnel is critical to our success and growth.Employment / Personnel - Risk 2
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.
Employment / Personnel - Risk 3
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 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.
Supply Chain3 | 5.7%
Supply Chain - Risk 1
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.Supply Chain - Risk 2
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.
Supply Chain - Risk 3
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.
Costs1 | 1.9%
Costs - Risk 1
We have, and will continue to, incur significant costs as a result of operating as a public company.Ability to Sell
Total Risks: 6/53 (11%)Below Sector Average
Competition1 | 1.9%
Competition - Risk 1
The restaurant technology industry is highly competitive. We may not be able to compete successfully against current and future competitors.Demand1 | 1.9%
Demand - Risk 1
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.Sales & Marketing4 | 7.5%
Sales & Marketing - Risk 1
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.Sales & Marketing - Risk 2
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.
Sales & Marketing - Risk 3
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.
Sales & Marketing - Risk 4
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.
Legal & Regulatory
Total Risks: 5/53 (9%)Below Sector Average
Regulation2 | 3.8%
Regulation - Risk 1
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.Regulation - Risk 2
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.
Litigation & Legal Liabilities2 | 3.8%
Litigation & Legal Liabilities - Risk 1
We may be subject to securities litigation, which is expensive and could divert management's attention.Litigation & Legal Liabilities - Risk 2
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 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.
Environmental / Social1 | 1.9%
Environmental / Social - Risk 1
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.Macro & Political
Total Risks: 2/53 (4%)Below Sector Average
Economy & Political Environment1 | 1.9%
Economy & Political Environment - Risk 1
Unfavorable conditions in the restaurant industry or the global economy could limit our ability to grow our business and materially impact our financial performance.Capital Markets1 | 1.9%
Capital Markets - Risk 1
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.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.