SOUNDHOUND AI, INC. current report, 20 January 2023

Full document

SoundHound AI, Inc. Form 8-K Summary

Business context and reporting period

SoundHound AI, Inc. filed a Form 8-K dated January 24, 2023, reporting events occurring on or around January 20, 2023. The filing covers a private placement of Series A Convertible Preferred Stock and references preliminary unaudited fourth-quarter and fiscal-year 2022 results. The referenced January 24 press release containing those results is not included in the provided filing text.

Transaction and key financial terms

  • The Company issued 835,011 shares of newly designated Series A Convertible Preferred Stock for aggregate proceeds of approximately $25 million, or $30 per share.
  • The Company designated 1,000,000 shares of Series A Preferred Stock.
  • The preferred stock accrues dividends at 14% per annum as increases to liquidation preference, compounded semi-annually on January 1 and July 1. The Company may elect cash dividends if permitted by its debt agreements.
  • Each preferred share is initially convertible at the holder’s option beginning May 2, 2023 into common stock based on its accumulated liquidation preference divided by a $1.00 conversion price.
  • Automatic conversion may occur on or after January 20, 2024 if the common stock’s daily volume-weighted average closing price reaches at least 2.5 times the conversion price for 90 trading days during any 120-trading-day period.
  • The preferred stock ranks senior to common stock and Class B common stock in liquidation but junior to Company indebtedness. In a liquidation event, holders are generally entitled to the greater of 2.5 times accumulated liquidation preference or the amount payable on an as-converted basis.
  • The preferred stock issued at closing represented approximately 15% of common stock outstanding on an as-converted basis before the transaction. Accrued dividends could cause potential conversion issuance to exceed 20% of outstanding common stock.

Material changes versus the prior comparable period

The filing does not provide comparable-period financial statements or clear revenue, profit, cash flow, margin, debt, or liquidity amounts. The material changes disclosed are the approximately $25 million preferred-stock financing, creation of a new senior equity class, and potential future dilution from conversion and dividend accretion.

Guidance, outlook, risks, contingencies, and unusual items

  • The filing references preliminary unaudited fourth-quarter and fiscal-year 2022 results and business updates, but the underlying amounts and management outlook are not included in the provided text.
  • Preliminary results were subject to audit committee review, completion of closing procedures, and possible additional adjustments; actual results could differ.
  • Conversion of the preferred stock could materially dilute existing common stockholders, particularly because accrued 14% dividends increase the conversion amount.
  • Stockholders holding a majority of voting power approved issuances that could equal or exceed 20% of outstanding common stock or result in a change of control under Nasdaq rules.
  • The preferred holders have separate-class approval rights over specified corporate actions, including certain equity issuances, redemptions, organizational amendments, and secured debt above the greater of $75 million or 20% of enterprise value.
  • The securities were issued in an unregistered private placement under Section 4(a)(2) and Rule 506 of Regulation D and may not be resold absent registration or an applicable exemption.

Investor verification items

  • Obtain and review Exhibit 99.1 for the missing preliminary 2022 revenue, operating results, cash flow, liquidity, debt, and outlook information.
  • Confirm the final audited fiscal-year 2022 results and any adjustments to the preliminary figures.
  • Review the Certificate of Designations for the complete conversion, liquidation, dividend, protective, and redemption terms.
  • Assess potential dilution from conversion, including the effect of 14% dividend accretion and the automatic-conversion conditions.
  • Review the Company’s debt agreements for restrictions on cash dividends, secured debt, and other actions requiring preferred-holder approval.
  • Verify the timing and effectiveness of the required stockholder information statement and the 20-day waiting period before applicable conversions.