SOUNDHOUND AI, INC. annual report, FY2021

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Filing summary

Important entity clarification: This is Archimedes Tech SPAC Partners Co.’s 2021 Form 10-K, not SoundHound AI, Inc.’s operating-company 10-K. It reports the SPAC’s fiscal year ended December 31, 2021; it does not provide SoundHound’s revenue, operating results, or cash flows.

Business context and reporting period

Archimedes was a blank-check company formed to identify and combine with a business, with an initial focus on technology. It completed its IPO in March 2021 and, on November 15, 2021, entered into a merger agreement with SoundHound Inc., a voice AI company. The filing describes the proposed transaction, not a completed combination.

Financial condition and results

  • Revenue and operations: No revenue-generating operations had begun. Revenue, gross profit, and operating margins are not applicable.
  • 2021 net loss: $981,884, comprising $1,015,260 of formation and operating costs, $10,583 of trust interest income, and a $22,793 unrealized gain on warrant fair value.
  • Cash flow: $864,358 used in operating activities. Year-end cash outside the trust was $235,295.
  • Trust and liquidity: Trust assets were $133,010,583, including $10,583 of interest. Trust funds were generally restricted for a business combination or redemptions and were not available for ordinary operating needs.
  • Debt and liabilities: No working-capital loans were outstanding. Year-end total liabilities were $497,198, including a $247,514 warrant liability and $249,684 of current liabilities.
  • Equity classification: $133,010,583 for 13.3 million redeemable public shares was presented as temporary equity. Stockholders’ deficit was $163,837.
  • Comparison: The 2020 inception-period net loss was $716. The periods are not directly comparable because 2020 covered only September 15 through December 31 and preceded the IPO.

Proposed transaction, outlook, and notable items

  • The merger agreement provided for $2 billion of equity consideration for SoundHound, with SoundHound options and warrants included on a net-exercise basis. Certain investors committed to a concurrent PIPE of 11.1 million combined-company Class A shares at $10 per share, or $111 million gross.
  • The filing gave no operating guidance for SoundHound and no assurance the merger would close. Archimedes had to complete a business combination within 18 months of its March 2021 IPO closing—by September 15, 2022—or face winding up and liquidation.
  • Management and the auditor reported substantial doubt about Archimedes’ ability to continue as a going concern, citing limited outside-trust cash and expected transaction costs. The auditor’s opinion was not modified for this matter.
  • Archimedes restated prior-period financial statements after identifying material errors in classifying redeemable public shares; it also corrected warrant classification and representative-share valuation. The filing says the errors affected prior balance-sheet and interim filings.
  • Management concluded disclosure controls were not effective due to a material weakness in accounting for complex financial instruments. Remediation efforts included enhanced accounting education and third-party valuation support, but effectiveness still required further monitoring.
  • Potential transaction-related payments include a $2.66 million finder’s fee to director Luc Julia if the combination closes, and a business-combination marketing fee for EarlyBirdCapital equal to 3.5% of IPO gross proceeds, subject to the agreement’s terms. The filing also reports a $10,000 monthly administrative-services fee paid to an affiliate of the CEO.
  • Other risks include the possibility of redemptions reducing transaction cash, need for additional financing, sponsor conflicts and uncertain ability to meet its trust-account indemnity, and potential creditor claims. The filing also notes possible adverse effects from COVID-19, whose impact was not determinable.

Important facts for investors to verify

  • Whether the SoundHound business combination closed, and the final consideration, redemptions, PIPE funding, and post-combination capitalization.
  • SoundHound’s own audited financial statements and subsequent operating performance; this SPAC filing does not provide them.
  • Actual cash available at transaction closing after redemptions, fees, and other costs, and whether additional financing was required.
  • Resolution and remediation of the disclosed accounting material weakness and the effects of the prior-period restatements.
  • Final transaction-related fees and related-party payments, including the finder’s fee and EarlyBirdCapital’s fee.