What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-01 compared with 2023-03-28 · 809 added, 460 removed, 760 unchanged (63% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ( Armanino LLP , San Jose, CA , PCAOB ID:

Report of Independent Registered Public Accounting Firm ( PricewaterhouseCoopers LLP , PCAOB ID:

Report of Independent Registered Public Accounting Firm ( Armanino LLP , PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity ( Deficit )

Consolidated Statements of Cash Flows

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of SoundHound AI, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of SoundHound AI, Inc.

and its subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders' equity (deficit) and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to the Company not designing and maintaining (i) an effective control environment due to insufficient oversight of activities related to internal control over financial reporting due to lack of an appropriate level of experience and training commensurate with the Company’s financial reporting requirements, (ii) effective controls to respond to changes to the risks of material misstatement to financial reporting which resulted in the Company not designing and maintaining effective controls related to substantially all accounts and disclosures, (iii) effective controls to verify appropriate accounting for complex financing transactions, (iv) effective controls to verify appropriate segregation of duties, including assessment of incompatible duties and addressing conflicts on a timely basis, and (v) effective controls over certain information technology general controls over information systems that are relevant to the preparation of the Company’s financial statements, including not maintaining user access controls, program change management controls, and computer operations controls.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control

based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition

As described in Notes 2 and 4 to the consolidated financial statements, the Company derives its revenue primarily from the following performance obligations:

(1) hosted services, (2) professional services, (3) monetization and (4) licensing.

Contracts are accounted for by management when the parties have approved and committed to the contract, the rights of the parties and payment terms are identifiable, the contract has commercial substance and collectability of consideration is probable.

Revenues are generally recognized upon the transfer of control of promised products or services provided to customers, reflecting the amount of consideration the Company expects for those products or services.

Management applies significant judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.

The Company’s consolidated revenues for the year ended December 31, 2023 were $45.9 million.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are (i) the significant judgment by management in identifying and evaluating any terms and conditions in contracts with customers which may impact revenue recognition and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to revenue recognition.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, material weaknesses were identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) evaluating and determining the nature and extent of audit procedures performed and evidence obtained that are responsive to the material weaknesses identified;

(ii) obtaining an understanding of management’s process for identifying and evaluating terms and conditions in contracts, including evaluating management’s determination of the impact of those terms and conditions on revenue recognition;

(iii) testing, on a sample basis, (a) the completeness and accuracy of management’s identification and evaluation of terms and conditions by examining contracts and (b) revenue transactions by obtaining and inspecting source documents, such as contracts, purchase orders, invoices, proof of delivery, and subsequent cash receipts;

(iv) testing, on a sample basis, the timing of recognition of revenue transactions;

and (v) testing, on a sample basis, the determination of the standalone selling price of performance obligations and testing the completeness and accuracy of the underlying data used by management in determining standalone selling price of performance obligations.

/s/ PricewaterhouseCoopers LLP

San Francisco, California

March 1, 2024

We have served as the Company’s auditor since 2023.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

1 unchanged sentence

Santa Clara, California

Opinion on the Consolidated Financial Statements

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SoundHound AI, Inc.

(the "Company") as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, consolidated statements of redeemable convertible preferred stock and stockholders' deficit, and consolidated statements of cash flows for each of the years then ended, and the related notes (collectively, referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

(the "Company") as of December 31, 2022, and the related consolidated statements of operations and comprehensive loss, consolidated statements of redeemable convertible preferred stock and stockholders' deficit, and consolidated statements of cash flows for each of the two years in the period ended December 31, 2022 , and the related notes (collectively, referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Armanino LLP

San Jose, California

We have served as the Company's auditor since 2020.

March 28, 2023

In 2023, we became the predecessor auditor.

March 28, 2023, except for the effects of the tables reflecting the impact of the revisions as of and for the year ended December 31, 2022 discussed in Note 20 (not presented herein) to the consolidated financial statements appearing under Item 8 of the Company's 2023 annual Report (Form 10-K), as to which the date is March 1, 2024.

SOUNDHOUND AI, INC.

4 unchanged sentences

Cash and cash equivalents $ 95,260 $ 9,245

Restricted cash equivalents — 460

Accounts receivable, net of allowances of $ 109 as of December 31, 2022 and 2021

Accounts receivable, net of allowances of $ 203 and $ 109 as of December 31, 2023 and 2022, respectively

Prepaid expenses 924 2,514

Contract assets 1,671 54

Contract assets and unbilled revenue, net 11,780 1,671

Other current assets 1,528 859

4 unchanged sentences

Deferred tax asset 11 55

Contract assets, non-current 7,041 —

Contract assets and unbilled revenue, non-current, net 16,492 7,041

Other non-current assets 577 1,391

Total assets $ 151,122 $ 37,986

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK,

AND STOCKHOLDERS’ DEFICIT

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

5 unchanged sentences

Deferred revenue 4,310 5,812

Convertible note — 29,868

Derivative liability — 3,488

Notes payable — 16,668

1 unchanged sentence

Operating lease liabilities, net of current portion 3,089 5,715

Finance lease liabilities, net of current portion 128 292

Deferred revenue, net of current portion 4,910 7,543

3 unchanged sentences

Commitments and contingencies (Note 7)

Legacy SoundHound redeemable convertible preferred stock;

$ 0.0001 par value;

0 and 146,218,514 shares authorized;

0 and 106,949,326 shares issued and outstanding, liquidation preference of $ 0 and $ 284,826 as of December 31, 2022 and 2021, respectively

Stockholders’ deficit:

Legacy SoundHound Common Stock, $ 0.0001 par value;

Stockholders’ equity (deficit):

Series A Preferred Stock, $ 0.0001 par value;

1,000,000 shares authorized;

0 and 68,258,556 shares issued and outstanding as of December 31, 2022 and 2021, respectively

475,005 and 0 shares issued and outstanding, aggregate liquidation preference of $ 16,227 and $ — as of December 31, 2023 and December 31, 2022, respectively

Class A Common Stock, $ 0.0001 par value;

6 unchanged sentences

Accumulated deficit ( 592,379 ) ( 503,442 )

Total stockholders’ deficit ( 35,225 ) ( 343,237 )

Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit $ 38,251 $ 49,203

Accumulated other comprehensive income $ 199 —

Total stockholders’ equity (deficit) 28,168 ( 36,565 )

Total liabilities and stockholders’ equity (deficit) $ 151,122 $ 37,986

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

3 unchanged sentences

(In thousands, except share and per share data)

2023 2022 2021

Revenues $ 45,873 $ 31,129 $ 21,197

4 unchanged sentences

General and administrative 28,285 30,443 16,521

Restructuring 4,557 — —

Total operating expenses 114,481 136,801 86,524

2 unchanged sentences

Interest expense ( 17,570 ) ( 6,893 ) ( 8,342 )

Other expense, net ( 184 ) ( 5,415 )

Other income (expense), net 1,155 ( 1,259 ) ( 5,415 )

Total other expense, net ( 16,415 ) ( 8,152 ) ( 13,757 )

2 unchanged sentences

Net loss ( 88,937 ) ( 116,713 ) ( 79,540 )

Other comprehensive gain:

Unrealized holding gain on available-for-sale securities, net of tax — 1

Cumulative dividends attributable to Series A Preferred Stock ( 2,774 ) — —

Net loss attributable to SoundHound common shareholders ( 91,711 ) ( 116,713 ) ( 79,540 )

Other comprehensive loss:

Unrealized gains on investments 199 — 1

Comprehensive loss $ ( 91,512 ) $ ( 116,713 ) $ ( 79,539 )

6 unchanged sentences

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ DEFICIT

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

Legacy SoundHound Redeemable Convertible

Preferred Stock Legacy SoundHound Common Stock Class A Common Stock Class B Common Stock Additional

Preferred Stock Legacy SoundHound Common Stock Series A Preferred Stock Class A Common Stock Class B Common Stock Additional

Capital Accumulated

2 unchanged sentences

Deficit Total

Shares Amount Shares Amount Shares Amount Shares Amount

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balances as of December 31, 2020 19,132,387 $ 273,687 11,818,761 $ 1 0 $ — 0 $ — 0 $ — $ 30,836 $ ( 1 ) $ ( 307,189 ) $ ( 276,353 )

Retroactive application of Business Combination (Note 3) 87,171,583 — 53,849,015 — — — — — — — — —

Retroactive application of Business Combination 87,171,583 — 53,849,015 — — — — — — — — — — —

Adjusted Balances, beginning of period 106,303,970 $ 273,687 65,667,776 $ 1 — $ — — $ — — $ — $ 30,836 $ ( 1 ) $ ( 307,189 ) $ ( 276,353 )

6 unchanged sentences

Balances as of December 31, 2021 106,949,326 $ 279,503 68,258,556 $ 1 $ — 0 $ — $ — $ — $ — $ 43,491 $ — $ ( 386,729 ) $ ( 343,237 )

SOUNDHOUND AI, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

Legacy SoundHound Redeemable Convertible

Preferred Stock Legacy SoundHound Common Stock Series A Preferred Stock Class A Common Stock Class B Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Issuance of common stock upon exercise of stock options — — 2,582,535 — — 0 — — — — 2,840 — — 2,840

6 unchanged sentences

Issuance of Class A common shares upon exercise of stock options — — — — — 0 1,013,171 — — — 1,320 — — 1,320

SOUNDHOUND AI, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

Legacy SoundHound Redeemable Convertible

Preferred Stock Legacy SoundHound Common Stock Series A Preferred Stock Class A Common Stock Class B Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Issuance of Class A common shares upon vesting of restricted stock units — — — — — 0 2,516,191 — — — — — — —

2 unchanged sentences

Balances as of December 31, 2022 — — — — 0 $ — 160,297,664 16 39,735,408 4 466,857 — ( 503,442 ) $ ( 36,565 )

Issuance of common stock under the ELOC program — — — — — — 25,000,000 4 — — 73,762 — — 73,766

ELOC program fee settled in common stock — — — — — — 250,000 — — 915 — — 915

Issuance of common stock under the Sales Agreement — — — — — — 5,805,995 1 — — 12,411 — — 12,412

Issuance of Series A Preferred Stock — — — — 835,011 24,942 — — — — — — — 24,942

Issuance of Class A common shares upon conversion of Class B common shares — — — — — — 2,250,000 — ( 2,250,000 ) — — — — —

Issuance of Class A common shares upon conversion of Series A Preferred Stock ( 360,006 ) ( 10,755 ) 11,597,654 1 — — 10,754 — — —

SOUNDHOUND AI, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

Legacy SoundHound Redeemable Convertible

Preferred Stock Legacy SoundHound Common Stock Series A Preferred Stock Class A Common Stock Class B Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Issuance of Class A common shares upon exercise of stock options — — — — — — 3,585,829 — — — 8,506 — — 8,506

Issuance of Class A common shares upon vesting of restricted stock units — — — — — — 7,678,184 — — — — — — —

Issuance of common stock warrants — — — — — — — — — — 4,136 — — 4,136

Issuances of ESPP — — — — — — 478,023 — — — 863 — — 863

Stock-based compensation — — — — — — — — — — 27,931 — — 27,931

Net loss — — — — — — — — — — — — ( 88,937 ) ( 88,937 )

Other comprehensive income — — — — — — — — — — — 199 199

Balances as of December 31, 2023 — $ — — $ — 475,005 $ 14,187 216,943,349 $ 22 37,485,408 $ 4 $ 606,135 $ 199 $ ( 592,379 ) $ 28,168

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

2 unchanged sentences

(In thousands)

2023 2022 2021

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation 27,931 28,792 6,322

Loss on change in fair value of ELOC program 1,901 1,075 —

Change in fair value of derivative and warrant liability — 606 4,920

1 unchanged sentence

Non-cash lease amortization 3,346 3,189 3,586

Loss on debt extinguishment 837 — —

Foreign currency gain/loss from remeasurement 143

Deferred income taxes 30 2,127 112

Other, net 93 — —

Changes in operating assets and liabilities:

8 unchanged sentences

Deferred revenue ( 4,135 ) ( 7,646 ) ( 10,281 )

Other non-current liabilities 2,946 ( 1,034 )

Other liabilities 2,131 2,946 ( 1,034 )

Net cash used in operating activities ( 68,265 ) ( 94,019 ) ( 66,177 )

3 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of convertible notes, net of issuance costs — 14,905

Proceeds from note payable, net of issuance costs — 29,833

Proceeds from the issuance of common stock upon exercise of options 4,160 2,490

Proceeds from the issuance of Series A Preferred Stock, net of issuance costs 24,942 — —

Proceeds from sales of common stock under the ELOC program, net of issuance cost 71,615 — —

Proceeds from sales of common stock under the Sales Agreement 12,412 — —

Proceeds from issuance of debt, net of issuance costs 85,087 — 44,738

Proceeds from the issuance of common stock 9,369 4,160 2,490

Proceeds from Business Combination and PIPE, net of transaction costs — 90,689 —

2 unchanged sentences

Net cash provided by financing activities 168,237 82,001 44,653

Effects of exchange rate changes on cash ( 20 ) — —

Net change in cash, cash equivalents, and restricted cash equivalents 99,560 ( 13,347 ) ( 22,160 )

7 unchanged sentences

$ 109,035 $ 9,475 $ 22,822

SOUNDHOUND, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — Continued

For the Year Ended December 31, 2023 and 2022

(In thousands)

2023 2022 2021

Supplemental disclosures of cash flow information:

2 unchanged sentences

Noncash investing and financing activities:

Operating lease liabilities and right-of-use assets through adoption of ASC 842 $ — $ 11,428

Operating lease liabilities arising from obtaining right-of-use assets $ 650 $ 3,422

Property and equipment acquired under finance leases or debt $ — $ 584

Conversion of convertible note into common stock pursuant to Business Combination $ 20,239 $ —

Conversion of redeemable convertible preferred stock to common stock pursuant to Business Combination $ 279,503 $ —

Conversion of convertible preferred stock to common stock $ 10,755 $ — $ —

Debt discount through issuance of common stock warrants $ 4,136 $ — $ 4,367

Non-cash debt discount $ — $ 525

Issuance of common stock to settle commitment shares related to the ELOC program $ 915

Conversion of redeemable convertible preferred stock to common stock pursuant to Business Combination $ — $ 279,503 $ —

Conversion of convertible note into common stock pursuant to Business Combination $ — $ 20,239 $ —

Operating lease liabilities arising from obtaining right-of-use assets $ — $ 650 $ 3,422

Operating lease liabilities and right-of-use assets through adoption of ASC 842 $ — $ — $ 11,428

Issues of series C redeemable convertible preferred stock for exercise of warrants $ — $ — $ 5,816

Property and equipment acquired under finance leases or debt $ — $ — $ 584

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

3 unchanged sentences

SoundHound AI, Inc.

(“SoundHound” or the “Company”) turns sound into understanding and actionable meaning.

(“we,” “us,” “our,” “SoundHound” or the “Company”) turns sound into understanding and actionable meaning.

SoundHound’s technology applications enable humans to interact with the things around them in the same way they interact with each other:

by speaking naturally to mobile phones, cars, televisions, music speakers, coffee machines, and every other part of the emerging “connected” world.

The conversation voice AI platform is called “Houndify”, where product creators can develop their own voice interfaces with their customers.

Hound is primarily used as a prototyping tool to demonstrate what Houndify can deliver.

Products and services built on the Houndify platform are referred to as Houndified Products and Houndified Services.

SoundHound's voice AI platform enables product creators to develop their own voice interfaces with their customers.

The SoundHound Chat AI voice assistant allows businesses and brands to provide a next-generation voice experience for their users, seamlessly integrating Generative AI and a mix of real-time information domains.

Houndify is an open-access platform that allows developers to leverage SoundHound's Voice AI technology.

We have developed a range of proprietary technologies on our voice AI platform, including Speech-to-Meaning, Deep Meaning Understanding, Collective AI, Dynamic Interaction and SoundHound Chat AI.

The SoundHound music app allows customers to identify and play songs by singing or humming into the smartphone’s microphone, or by identifying the sound playing in the background from external sources.

We also provide edge, cloud and hybrid connectivity solutions that allow brands to optimize their voice-enabled products and devices with options ranging from fully-embedded to exclusively cloud-connected.

On April 26, 2022 (the “Closing Date”), pursuant to a merger agreement dated as of November 15, 2021 by and among Archimedes Tech SPAC Partners Co.

4 unchanged sentences

In connection with the closing (the “Closing”) of the Business Combination, Legacy SoundHound became a wholly owned subsidiary of ATSP and ATSP changed its name to SoundHound AI, Inc., and all of Legacy SoundHound common stock (“Legacy SoundHound Common Stock”) and Legacy SoundHound redeemable convertible preferred stock (“Legacy SoundHound Preferred Stock”) automatically converted into shares of the Company’s Class A common stock, par value of $ 0.0001 per share (the “Class A Common Stock”), and the Company’s Class B common stock, par value of $ 0.0001 per share (the “Class B Common Stock”, and collectively with the Class A Common Stock, the “Common Stock”).

The Company’s Class A Common Stock and warrants commenced trading on the Nasdaq Global Market (“Nasdaq”) under the symbols “SOUN” and “SOUNW,” respectively, on April 28, 2022.

Refer to Note 3 to these consolidated financial statements for more information on the Business Combination.

Legacy SoundHound determined that it was the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification 805, Business Combinations .

The determination was primarily based on the following facts:

The Company’s Class A Common Stock and certain of the Company's warrants commenced trading on the Nasdaq Global Market (“Nasdaq”) under the symbols “SOUN” and “SOUNW,” respectively, on April 28, 2022.

Refer to Note 3 for more information on the Business Combination.

Legacy SoundHound was determined to be the accounting acquirer in the Business Combination based on the following facts:

• Former Legacy SoundHound stockholders have a controlling voting interest in the Company;

6 unchanged sentences

While ATSP was the legal acquirer in the Business Combination, because Legacy SoundHound was deemed the accounting acquirer, the historical financial statements of Legacy SoundHound became the historical financial statements of the combined company upon the consummation of the Business Combination.

As a result, the financial statements included in this report reflect (i) the historical operating results of Legacy SoundHound prior to the Business Combination;

(ii) the combined results of the Company and Legacy SoundHound following the Closing of

As a result, the financial

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the Business Combination;

statements included in this report reflect (i) the historical operating results of Legacy SoundHound prior to the Business Combination;

(ii) the combined results of the Company and Legacy SoundHound following the Closing of the Business Combination;

(iii) the assets and liabilities of Legacy SoundHound at their historical cost;

and (iv) the Company’s equity structure for all periods presented.

In accordance with guidance applicable to these circumstances, the equity structure has been retroactively restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s Class A Common Stock and Class B Common Stock issued to Legacy SoundHound Common Stockholders and Legacy SoundHound Preferred Stockholders in connection with the Business Combination.

As such, the shares and corresponding capital amounts and earnings per share related to Legacy SoundHound Preferred Stock and Legacy SoundHound Common Stock prior to the Business Combination have been retroactively restated as shares reflecting the conversion ratio established in the Business Combination.

In accordance with guidance applicable to recapitalization transactions, the equity structure has been retroactively restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s Class A Common Stock and Class B Common Stock issued to Legacy SoundHound Common Stockholders and Legacy SoundHound Preferred Stockholders in connection with the Business Combination.

As such, the shares and corresponding capital amounts and loss per share related to Legacy SoundHound Preferred Stock and Legacy SoundHound Common Stock prior to the Business Combination have been retroactively restated as shares reflecting the conversion ratio established in the Business Combination.

Going Concern

1 unchanged sentence

As of December 31, 2023, the Company had an accumulated deficit of $ 592.4 million.

Management expects to continue to incur additional substantial losses in the foreseeable future primarily as a result of research and development activities.

Management expects to continue to incur additional substantial losses in the foreseeable future.

The Company has historically funded its operations primarily through equity or debt financings.

Total cash and cash equivalents on hand as of December 31, 2022 was $ 9.2 million.

Although the Company has incurred recurring losses each year since its inception, the Company expects it will be able to fund its operations for at least the next twelve months through a combination of cash on hand (including as a result of the net proceeds from the recently closed Series A Preferred Stock Transaction (See Note 19)), proceeds from sales of Class A common stock under the ELOC program (see Note 19), securing additional funding through debt or equity financings, implementing incremental expense reduction measures or a combination thereof.

Further, in the future, the Company may seek additional funding through debt or equity financing arrangements, implement incremental expense reduction measures or a combination thereof to continue financing its operations.

Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Total unrestricted cash and cash equivalents on hand as of December 31, 2023 was $ 95.3 million.

Although the Company has incurred recurring losses each year since its inception, the Company expects it will be able to fund its operations for at least the next twelve months.

The Company may seek funding through additional debt or equity financing arrangements, implement incremental expense reduction measures or a combination thereof to continue financing its operations.

Refer to Note 21 for information regarding the Company's equity financing activity subsequent to December 31, 2023.

The Company's consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

The consolidated financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of recorded assets or the amounts of liabilities that might be necessary should the Company be unable to continue as a going concern.

Other Risk and Uncertainties

The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closings of businesses and shelter in place orders.

In response, the U.S.

Government enacted the CARES Act, which includes significant provisions to provide relief and assistance to affected organizations.

There is considerable uncertainty around potential future closings, shelter in place orders, containment of the recent COVID-19 variants and the ultimate impact of the CARES Act and other government initiatives.

The COVID-19 pandemic and its resulting economic and other effects could result in significant adverse effects on our customers’ cash flow and their ability to manufacture, distribute, and sell products incorporating our voice-enabling technologies.

This in turn may restrict the ability of our customers to pay invoices for royalties, licensing fees and usage fees, or may result in a reduction in the royalties, licensing fees and usage fees that the Company earns which are often based on the number of units sold or distributed by customers.

This reduction could cause adverse effects on the business, results of operations, financial condition, cash flows and ability to raise operating capital.

In addition, economic effects resulting from the COVID-19 pandemic may adversely change consumer behavior and demand, including products sold by customers, which may result in a significant reduction in our revenue and adversely impact results of operations and financial condition.

The COVID-19 pandemic has adversely affected our business and results of operations to date, and the duration and extent to which this will impact our future results remains uncertain.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Further, inflation has risen significantly worldwide and the United States has recently experienced historically high levels of inflation.

Inflation has risen significantly worldwide and the United States has recently experienced historically high levels of inflation.

This inflation and government efforts to combat inflation, such as recent and future significant increases to benchmark interest rates and other related monetary policies, have and could continue to increase market volatility and have an adverse effect on the domestic and international financial markets and general economic conditions.

Additionally, U.S.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine.

On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported.

Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.

The recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia.

Additional potential sanctions and penalties have also been proposed and/or threatened.

Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our customers’ suppliers and manufacturers, will be impacted in the short and long-term, or the ways in which the conflict may impact our business.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine and the Israel-Hamas war.

Although our business has not been materially impacted by the Russia-Ukraine conflict or the Israel-Hamas war, it is impossible to predict the extent to which our operations, or those of our customers’ suppliers and manufacturers, will be impacted in the short and long-term, or the ways in which the conflict may impact our business.

The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict but could be substantial.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S.

3 unchanged sentences

GAAP included in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Principles of Consolidation

5 unchanged sentences

and (ii) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

Reclassification

Certain prior period balances have been reclassified to conform to the current year presentation.

Such changes include reclassifications or combinations of certain accounts on the consolidated balance sheets.

These reclassifications had no effect on previously reported results of operations or accumulated deficit.

Foreign Currency

4 unchanged sentences

dollars at current exchange rates at the balance sheet date for monetary assets and liabilities and at historical exchange rates for non-monetary assets and liabilities.

During the years ended December 31, 2022 and 2021, the Company recognized net losses related to foreign currency

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

transactions and remeasurements of $ 0.7 million and $ 0.5 million, respectively, in the consolidated statements of operations as other expense, net.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized net losses/(gains) related to foreign currency transactions and remeasurements of $ 0.5 million, $ 0.7 million and $ 0.5 million, respectively, in the consolidated statements of operations as other expense, net.

Use of Estimates

6 unchanged sentences

Actual results could differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of 90 days or less from the date of purchase to be cash equivalents.

The Company’s cash equivalents consist of mutual funds, commercial paper and certificates of deposit.

The deposits exceed federally insured limits.

Restricted Cash Equivalents

The Company’s restricted cash equivalents were established according to the requirements under the leases for the Company’s corporate headquarters, data center and sales office and are subject to certain restrictions under the leases.

All amounts in restricted cash equivalents as of December 31, 2022 and 2021 represent funds held in certificates of deposit, have original maturities of six months to one year and are recorded at cost plus accrued interest, which approximates fair value as of December 31, 2022 and 2021.

Restricted cash equivalents are classified as current or non-current on the consolidated balance sheets based on the remaining term of the restriction.

Accounts Receivable, Net

1 unchanged sentence

Accounts receivable do not bear interest and the Company generally does not require collateral or other security in support of accounts receivable.

The Company has established an allowance for doubtful accounts and evaluates the collectability of its accounts receivable based on known collection risks and historical experience.

Uncollectible receivables are written off when all efforts to collect have been exhausted and recoveries are recognized when received.

When the Company records customer receivables and contract assets arising from revenue transactions, an allowance is recorded for credit losses for the current expected credit losses ("CECL") inherent in the asset over its expected life.

The allowance for credit losses is a valuation account deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected.

Each period, the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets.

The Company estimates expected credit losses based on relevant information about past events, including historical experience, payment terms, environmental and industry factors, and reasonable and supportable forecasts that affect the collectability of the reported amount.

When measuring expected credit losses, we pool assets with similar country risk and credit risk characteristics.

Changes in the relevant information may materially affect the estimates of expected credit losses.

Property and Equipment, Net

1 unchanged sentence

Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the respective assets.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The estimated useful lives of the Company’s property and equipment are as follows:

3 unchanged sentences

Leasehold improvements Lesser of useful life or the term of the lease

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Maintenance and repairs that do not extend the life or improve the asset are expensed as incurred.

10 unchanged sentences

We amortize our ROU assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses.

The Company has lease agreements with lease and nonlease components.

The Company elected to not separate lease and nonlease components for its asset class of equipment.

Segment Information

The Company has determined that the Chief Executive Officer is its chief operating decision maker.

The Company’s Chief Executive Officer reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.

The Company’s property and equipment is primarily located in the United States.

The Company’s Chief Executive Officer reviews discrete financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Accordingly, the Company has determined that it operates as a single reportable segment.

The Company’s property and equipment is primarily located in the United States.

As of December 31, 2022, the Company’s property and equipment was located in the United States, except for 11.4 % of assets located in Canada and 7.0 % in other foreign jurisdictions.

As of December 31, 2021, the Company’s property and equipment was located in the United States, except for 11.7 % of assets located in Canada and 1.7 % in other foreign jurisdictions.

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies.

Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards.

This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company has the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

The Company has elected to use the extended transition period for complying with new or revised accounting standards unless the Company otherwise early adopts select standards.

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to potential significant concentrations of credit risk consist principally of cash and cash equivalents.

The Company regularly monitors its credit risk exposure and takes steps to mitigate the likelihood of these exposures resulting in actual loss.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less from the date of purchase to be cash equivalents.

The Company’s cash equivalents consist of treasury bills and money market funds.

The treasury bills are treated as available-for-sale securities.

Cash equivalents are measured and reported at fair value using quoted prices in active markets for similar securities.

The deposits exceed federally insured limits.

Changes in fair value for cash equivalents classified as available for sale securities are recorded to other comprehensive loss.

As of December 31, 2023, available-for-sale securities consisted of U.S.

treasury bills and government bonds with original maturities of three months or less.

As of December 31, 2022, the Company did not have any available-for-sale securities.

Restricted Cash

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2022, accounts receivable balances due from two customers collectively totaled 75 % of the Company’s consolidated accounts receivable balance.

As of December 31, 2021, accounts receivable balances due from five customers collectively totaled 86 % of the Company’s consolidated accounts receivable balance.

For the year ended December 31, 2022, the Company had three customers that accounted for 67 % of revenue.

For the year ended December 31, 2021, the Company had three customers that accounted for 61 % of revenue.

The Company’s restricted cash were established according to the requirements under the Credit Agreement (as defined in Note 9) and leases for the Company’s corporate headquarters, data center and sales office and are subject to certain restrictions.

Restricted cash is classified as current or non-current on the consolidated balance sheets based on the expected duration of the restriction.

Non-current restricted cash relates to interest that is required to be held in escrow in an amount equal to the minimum required balance defined in the Credit Agreement.

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, the balances of which frequently exceed federally insured limits.

The Company regularly monitors its credit risk exposure and takes steps to mitigate the likelihood of these exposures resulting in actual loss.

As of December 31, 2023, accounts receivable balances due from Customer A, C, and E accounted for 40 %, 32 % and 15 % of the Company’s consolidated accounts receivable balance, respectively.

As of December 31, 2022, accounts receivable balances due from Customer A and C accounted for 49 % and 26 % of the Company’s consolidated accounts receivable balance, respectively.

As of December 31, 2023, unbilled receivables from Customer A, B, and C accounted for 59 %, 16 % and 11 % of the Company’s consolidated unbilled receivables balance, respectively.

As of December 31, 2022, unbilled receivables from Customer A, B, and C accounted for 31 %, 19 % and 28 % of the Company’s consolidated unbilled receivables balance, respectively.

For the year ended December 31, 2023, Customer A and B accounted for 49 % and 13 % of the revenue, respectively.

For the year ended December 31, 2022, Customer A, C and D accounted for 42 %, 13 % and 12 % of revenue, respectively.

For the year ended December 31, 2021, Customer C, D and F accounted for 12 %, 18 % and 31 % of revenue, respectively.

Common Stock Offerings

The Company enters into certain agreements to sell common stock with counterparties through the Equity Line of Credit ("ELOC") and the Sales Agreement (as defined in Note 13) to further support its growth strategy through initiatives such as accretive acquisitions and internal investments, to bolster working capital, and/or for general corporate purposes.

The Company evaluates its common stock purchase agreements to determine whether they should be accounted for as derivatives with changes in fair value as other income (expense), net in the period in which they occur.

Equity Issuance Costs

The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings, including the Business Combination, as deferred offering costs until such financings are consummated.

The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity-classified financings as deferred offering costs until such financings are consummated.

After consummation of the financing, these costs are recorded as a reduction of the proceeds received from the equity financing.

If a planned equity financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss.

If a planned equity financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the consolidated statements of operations.

Revenue Recognition

3 unchanged sentences

(ii) Identification of the performance obligations in the contract;

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(iii) Determination of the transaction price, including the constraint on variable consideration;

2 unchanged sentences

Contracts are accounted for when both parties have approved and committed to the contract, the rights of the parties and payment terms are identifiable, the contract has commercial substance and collectability of consideration is probable.

Any payments received from customers that do not meet criteria for having a contract are recorded as deposit liabilities on the consolidated balance sheet.

Under ASC 606, assuming all other revenue recognition criteria have been met, the Company recognizes revenue for arrangements upon the transfer of control of the Company’s performance obligations to its customers.

1 unchanged sentence

Revenues are recognized when control of the promised goods or services are transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those services.

The Company currently generates its revenues through the following performance obligations:

(1) hosted services, (2) professional services, (3) monetization and (4) licensing.

The Company elected the practical expedient to recognize the incremental costs of obtaining a contract including sales commissions as an expense when incurred if the amortization period of such incremental cost would otherwise have been one year or less.

Sales commissions are included in sales and marketing expense in the consolidated statements of operations and comprehensive loss.

Research and Development

1 unchanged sentence

These costs include salaries and other personnel related expenses, contractor fees, facility costs, supplies, and depreciation of equipment associated with the design and development of new products prior to the establishment of their technological feasibility.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company determines whether to classify contracts, such as warrants, that may be settled in its own stock as equity of the entity or as a liability.

2 unchanged sentences

Warrants classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration or modification that results in equity classification.

Any change in the fair value of the warrants is recognized as other expense, net in the consolidated statements of operations and comprehensive loss.

Any change in the fair value of the warrants is recognized as other income (expense), net in the consolidated statements of operations.

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income.

6 unchanged sentences

The Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined on the date of grant.

The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, and uses the straight-line method to recognize stock-based compensation.

The Company accounts for all forfeitures as they occur.

The Company recognizes stock-based compensation expense over the

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

requisite service period of the individual grant, generally equal to the vesting period, and uses the straight-line method to recognize stock-based compensation, except for restricted stock unit awards (“RSUs”) with vesting conditions tied to certain performance criteria ("Performance-Based RSUs").

Stock-based compensation costs for Performance-Based RSUs are recognized on a graded-vesting basis over the vesting period based on the most probable outcome of the performance conditions.

If the minimum performance targets are not met, no compensation cost is recognized and any recognized compensation cost is reversed, except for awards subject to a market condition, The Company accounts for forfeitures as they occur.

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options and employee stock purchase plan ("ESPP") shares.

The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions to determine the fair value of the awards, including the expected term of the award and the price volatility of the underlying stock.

The Company calculates the fair value of the awards by using the Black-Scholes option-pricing model with the following assumptions:

Expected Volatility — The Company estimates volatility for the awards by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the award grant for a term that is approximately equal to the award’s expected term.

The Company calculates the fair value of the awards granted by using the Black-Scholes option-pricing model with the following assumptions:

Expected Term — The expected term of the Company’s awards represents the period that the stock-based awards are expected to be outstanding.

5 unchanged sentences

As such, expected dividend yield is zero.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock Units

The Company issues restricted stock unit awards (“RSUs”) to grantees as compensation for services.

The Company issues RSUs to grantees as compensation for services.

The fair value of the RSUs is determined at the grant date based on the fair value of the Company’s Class A Common Stock and for RSUs with service conditions only, is recognized straight-line over the service period.

The Company issues RSUs with vesting conditions tied to certain performance criteria (“Performance-Based RSUs”).

Stock-based compensation related to Performance-Based RSUs is recognized to the extent it is determined that performance is probable of being achieved.

7 unchanged sentences

• Level 2 — Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

• Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The Company’s derivative liabilities and warrants are measured at fair value on a recurring basis and are classified as Level 3 liabilities.

The Company records subsequent adjustments to reflect the increase or decrease in estimated fair value at each reporting date on the consolidated statements of operations and comprehensive loss.

Redeemable Convertible Preferred Stock

Legacy SoundHound Preferred Stock did not have a mandatory redemption date and are assessed at issuance for classification and redemption features requiring bifurcation.

Preferred Stock

The Company assesses its preferred stock instruments at issuance and each reporting period for classification and derivative features requiring bifurcation.

The Company presents as temporary equity any stock which (i) the Company undertakes to redeem at a fixed or determinable price on the fixed or determinable date or dates;

(ii) is redeemable at the option of the holders, or (iii) has conditions for redemption which are not solely within the control of the Company.

Legacy SoundHound Preferred Stock was redeemable upon a deemed liquidation event which the Company determined was not solely within its control and thus has classified shares of Legacy SoundHound Preferred Stock as temporary equity until such time as the conditions are removed or lapse.

Since the occurrence of a deemed liquidation event was not probable, the carrying values of the shares of Legacy SoundHound Preferred Stock were not being accreted to their redemption values.

As a result of the Business Combination, the shares of Legacy SoundHound Preferred Stock outstanding immediately prior to the effective time of the Business Combination (the “Effective Time”) were converted into 106,949,326 shares of the Company’s Class A Common Stock.

See Note 11 for additional information.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Convertible Notes and Derivative Liabilities

The Company evaluates its convertible notes, and other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives requiring bifurcation.

The Company accounts for conversion features that meet the criteria for bifurcation as liabilities at fair value and adjusts the derivative instruments to fair value at each reporting period.

The conversion features qualify as derivatives, as they continuously reset as the underlying stock price increases or decreases to provide a fixed value of equity to the holders at any conversion date.

The conversion features are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized as a component of other expense, net in the consolidated statements of operations and comprehensive loss.

The fair value of the conversion features has been estimated using a probability-weighted discount model with and without the conversion feature until extinguished on April 26, 2022 in connection with the Business Combination.

See Note 10 for additional information.

The Company held its convertible notes at amortized cost and amortized the associated debt discount created from bifurcated derivatives and issuance costs under the effective interest or straight-line method until maturity or early conversion pursuant to the contractual terms of the arrangement.

For stock presented as temporary equity that is not currently redeemable, the Company assesses the probability of the event that would lead to redemption.

If it is probable that the equity instrument will become redeemable, the Company accretes changes in the redemption value over the period from the date of issuance, or from the date that it becomes probable that the instrument will become redeemable, if later, to the earliest redemption date of the instrument using an appropriate methodology.

If an equity instrument classified as temporary equity is not probable of redemption, subsequent adjustment of the amounts presented in temporary equity is unnecessary.

Net Loss Per Share

1 unchanged sentence

Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period.

For purposes of the diluted net loss per share calculation, Preferred Stock, stock options, ESPP shares, RSUs, warrants and convertible notes are considered to be potentially dilutive securities.

For purposes of the diluted net loss per share calculation, Series A Preferred Stock, stock options, ESPP shares, RSUs and warrants are considered to be potentially dilutive securities.

See Note 14 for further information.

Accordingly, in periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since dilutive common stock is not assumed to have been issued if their effect is anti-dilutive.

The Company issued Series A Preferred Stock, which accrues cumulative dividends which are either paid in cash or compounding to the liquidation preference at the discretion of the board of directors.

The Company accrues dividends as adjustments to net loss before net loss attributable to common stockholders.

The Company applies the two-class method to calculate its basic and diluted net loss per share as the Company has issued shares that meet the definition of participating securities.

The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders.

The Company's participating securities contractually entitle the holders of such shares to participate in dividends, but do not contractually require the holders of such shares to participate in losses of the Company.

Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities.

Recent Accounting Pronouncements — Adopted

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“Topic 842”) and subsequent amendments to the initial guidance:

ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”).

Topic 842 aims to increase transparency and comparability among organizations by requiring lessees to recognize leases with a term greater than 12 months as an ROU asset and corresponding lease liabilities on the balance sheet, regardless of lease classification, and requiring disclosure of key information about leasing arrangements.

The lease liability should be initially measured at the present value of the remaining contractual lease payments.

Subsequently, the ROU assets will be amortized generally on a straight-line basis over the lease term, and the lease liability will bear interest expense and be reduced for lease payments.

Topic 842 is effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

A modified retrospective application is required with an option to not restate comparative periods in the period of adoption.

The Company adopted Topic 842 on January 1, 2021 using the modified retrospective approach, and financial information for the comparative period was not updated.

In addition, the Company elected the transition package of three practical expedients which allow companies not to reassess (i) whether agreements contain leases, (ii) the classification of leases, and (iii) the capitalization of initial direct costs.

Further, the Company elected to separate lease and non-lease components for the building asset class and elected to not separate lease and non-lease components for the equipment asset class.

The Company also made an accounting policy election to recognize lease expense for leases with a term of 12 months or less on a straight-line basis over the lease term and recognize no ROU or lease liability for those leases.

The Company continually assess any ASUs or other new accounting pronouncements issued by the FASB to determine their applicability and impact.

Where it is determined that a new accounting pronouncement will result in a change to the Company's financial reporting, the Company takes the appropriate steps to ensure that such changes are properly reflected in the consolidated financial statements or notes thereto.

In June 2016, the FASB issued ASU 2016-13 to update the methodology used to measure current expected credit losses (“CECL”).

This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s lease portfolio consists primarily of real estate assets and computer equipment.

Some of these leases also require the Company to pay maintenance, utilities, taxes, insurance, and other operating expenses associated with the leased space.

Based upon the nature of the items leased and the structure of the leases, the Company’s leases classified as operating leases continue to be classified as operating leases and capital leases will be accounted for as financing leases under the new accounting standard.

As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2021:

• Operating lease liabilities of approximately $ 11.4 million, which represent the present value of the remaining lease payments, as of the date of adoption, discounted using the Company’s incremental borrowing rate on a lease-by-lease basis, and

• Operating lease ROU assets of approximately $ 9.8 million which represent the operating lease liabilities of $ 11.4 million, adjusted for (1) deferred rent of approximately $ 0.8 million, (2) lease incentives or tenant improvement allowance of $ 1.1 million and (3) prepaid rent of $ 0.3 million.

• The Company additionally recharacterized its capital leases as finance leases.

However, there was no quantitative impact to capital leases upon transitioning to the new standard.

See Note 14 for additional information.

debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments.

This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates.

The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (“Topic 326”), Targeted Transition Relief, which amends the transition guidance for ASU 2016-13.

The ASU provides entities with the option to irrevocably elect the fair value option in Subtopic 825-10 on an instrument-by-instrument basis.

ASU 2019-10 and ASU 2016-13 are effective for years beginning after December 15, 2022, with early adoption permitted.

The Company adopted the standard on January 1, 2023.

ASU 2016-13 did not result in any material impact on the Company's consolidated financial statements and related disclosures.

Recent Accounting Pronouncements — Not Yet Adopted

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

2023-07, Segment Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The updated standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact that the updated standard will have on the financial statement disclosures.

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

2023-09, which requires more detailed income tax disclosures.

The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction.

The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively.

The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact that the updated standard will have on the financial statement disclosures.

BUSINESS COMBINATION

As discussed in Note 1, on April 26, 2022, the Business Combination was consummated.

Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue 500,000,000 shares of capital stock consisting of 455,000,000 shares of Class A Common Stock, 44,000,000 shares of Class B Common Stock, and 1,000,000 shares of preferred stock.

Pursuant to the Company’s Second Amended and Restated Certificate of Incorporation (the “certificate of incorporation”), the Company is authorized to issue 500,000,000 shares of capital stock consisting of 455,000,000 shares of Class A Common Stock, 44,000,000 shares of Class B Common Stock, and 1,000,000 shares of preferred stock.

All stock has a par value of $ 0.0001 per share.

The holders of Class A Common Stock are entitled to one vote for each share of Class A Common Stock held.

The holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to stockholders for their vote or approval.

No shares of preferred stock were issued and outstanding as of December 31, 2022.

The holders of Class A Common Stock are entitled to one vote for each share of Class A Common Stock held and the holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to stockholders for their vote or approval.

The holders of Class A Common Stock and Class B Common Stock vote together as one class, other than on certain specific matters described in the Company's certificate of incorporation.

The Business Combination was approved by ATSP’s stockholders at a special meeting thereof (the “Special Meeting”), held in lieu of the 2022 annual meeting of the Company’s stockholders.

2 unchanged sentences

An aggregate of 12,767,950 shares of Class A Common Stock sold in ATSP’s initial public offering (the “public shares”) exercised their rights to redemption.

The redemption right provided holders the right to have their shares redeemed for a pro rata portion of the trust account holding the proceeds from ATSP’s initial public offering.

The redemption right provided holders the right to have their public shares redeemed for a pro rata portion of the trust account holding the proceeds from ATSP’s initial public offering.

The value of the shares is calculated as of two (2) business days prior to the date of the Special Meeting, which was $ 10.00 per share, or $ 127.7 million in the aggregate.

As a result of the Business Combination, among other things (1) all outstanding shares of Legacy SoundHound Common Stock as of immediately prior to the Closing (including Legacy SoundHound Common Stock resulting from the Legacy SoundHound Preferred Stock Conversion), were exchanged at an conversion ratio of 5.5562 (the “Conversion Ratio”) for an aggregate of 140,114,060 shares of Class A Common Stock and 40,396,600 Class B Common Stock;

(2) each outstanding warrant to purchase shares of Legacy SoundHound Common Stock automatically converted into a warrant to purchase, subject to substantially the same terms and conditions as were applicable under these warrants prior to the Effective Time, shares of Class A Common Stock, proportionately adjusted for the Conversion Ratio, with the per share exercise price equal to the exercise price prior to the Effective Time divided by the Conversion Ratio and were net exercised upon the Closing;

(3) each outstanding option to purchase shares of Legacy SoundHound Common Stock converted into an option to purchase, subject to substantially the same terms and conditions as were applicable under these options prior to the Effective Time, shares of Class A Common Stock equal to the number of shares subject to such option prior to the Effective Time multiplied by the Conversion Ratio, with the per share exercise price equal to the exercise price prior to the Effective Time divided by

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the Conversion Ratio;

Common Stock;

(4) each Legacy SoundHound RSU converted into a restricted stock unit of SoundHound, subject to substantially the same terms and conditions as were applicable under the SoundHound RSU prior to the Closing.

5 unchanged sentences

The Business Combination is accounted for as a reverse recapitalization in accordance with U.S.

Under this method of accounting, ATSP was treated as the “acquired” company for financial reporting purposes (See Note 1).

Under this method of accounting, ATSP was treated as the “acquired” company for financial reporting purposes.

The net assets of Legacy SoundHound were stated at historical cost, with no goodwill or other intangible assets recorded.

9 unchanged sentences

The amount recorded to additional paid-in-capital was comprised of $ 86.6 million net proceeds from the PIPE investment and $ 4.1 million after net redemptions of ATSP shareholders.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The number of shares of common stock issued immediately following the consummation of the Business Combination was as follows:

5 unchanged sentences

Total shares of common stock immediately after Business Combination 196,503,710

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

REVENUE RECOGNITION

2 unchanged sentences

The Company enters into contracts that can include various products or services, which are generally capable of being distinct and accounted for as separate performance obligations.

The Company derives its revenue primarily from the following performance obligations:

(1) hosted services, (2) professional services, (3) monetization and (4) licensing.

Revenue is reported net of applicable sales and use taxes that are passed through to customers.

The Company’s arrangements with customers may contain multiple obligations.

Individual services are accounted for separately if they are distinct — that is, if a service is separately identifiable from other items in the contract and a customer can benefit from it in its own or with other resources that are readily available to the customer.

The Company derives its revenue primarily from the following performance obligations:

(1) hosted services, (2) professional services, (3) monetization, and (4) licensing.

Revenues are reported net of applicable sales and use taxes that are passed through to customers.

The Company applies significant judgement in identifying and evaluating any terms and conditions in contracts which impact revenue recognition.

The Company has the following performance obligations in contracts with customers:

4 unchanged sentences

These services are provided either on a usage basis (i.e., variable consideration) or on a fixed fee subscription basis.

The Company recognizes revenue as each distinct service period is performed (i.e., recognized as incurred).

The Company recognizes revenue as each distinct service period is performed.

Hosted services generally include up-front services to develop and/or customize the Houndify application to each customer’s specification.

1 unchanged sentence

In making this determination, factors such as the degree of integration, the customers’ ability to start using the software prior to customization, and the availability of these services from other independent vendors are considered.

In instances where the Company concluded that the up-front services are not distinct performance obligations, revenue for these activities is recognized over the period which the hosted services are provided and is included within hosted services revenue.

In instances where the Company concluded that the up-front services are not distinct performance obligations, revenues for these activities are recognized over the period which the hosted services are provided and is included within hosted services revenue.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Professional Services

Revenue from distinct professional services, such as non-integrated development services, is either recognized over time based upon the progress towards completion of the project, or at a point in time at project completion.

Revenues from distinct professional services, such as non-integrated development services, are either recognized over time based upon the progress towards completion of the project, or at a point in time at project completion.

The Company assesses distinct professional services to determine whether the transfer of control is over-time or at a point in time.

2 unchanged sentences

or (3) the Company’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

If none of the criteria are met, revenue is determined to be recognized at a point in time.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For distinct professional services determined to be recognized over-time, measuring the stage of completion of a project requires significant judgement and estimates, including actual efforts spent in relation to estimated total costs and percentage of completion based on input and output measures.

If none of the criteria are met, revenues are determined to be recognized at a point in time.

For distinct professional services determined to be recognized over-time, measuring the stage of completion of a project requires significant judgement and estimates and is based on input and output measures.

During the year ended December 31, 2023, $ 7.4 million of professional service revenue was recognized over time, with the remaining $ 0.9 million recognized at a point in time when the performance obligation was fulfilled and control of the service was transferred to the customer.

During the year ended December 31, 2022, $ 2.2 million of professional service revenue was recognized over time, with the remaining $ 2.0 million recognized at a point in time when the performance obligation was fulfilled and control of the service was transferred to the customer.

During the year ended December 31, 2021, $ 2.4 million of professional service revenue was recognized over time, with the remaining $ 4.7 million recognized at a point in time when the performance obligation was fulfilled and control of the service was transferred to the customer.

Monetization revenues are primarily derived from advertising payments associated with ad impressions placed on the SoundHound music identification application.

5 unchanged sentences

Based on these factors, the Company reports revenue on a net basis.

The Company licenses voice solutions that are embedded in customer products.

Licensing revenue is a distinct performance obligation that is recognized when control is transferred to the customer, which is at a point in time for non-customized solutions.

Revenues generated from licensing is based on royalty models with a combination of minimum guarantees and per unit pricing.

The Company licenses voice solutions that are embedded in customer's products.

Licensing revenues are a distinct performance obligation that is recognized when control is transferred to the customer, which is at a point in time for non-customized solutions.

For licenses with non-distinct customized solutions, revenues are recognized over time based on the progress towards completion of the customized solution.

Revenues generated from licensing are based on royalty models with a combination of minimum guarantees and per unit pricing.

Royalty periods are generally subsequent to when control of the license passes to the customer.

The Company records licensing revenue as a usage-based royalty from customers’ usage of intellectual property in the same period in which the underlying sale occurs.

For royalty arrangements that include fixed considerations related to a minimum guarantee from a customer, the fixed consideration allocated to the license is recognized when the control of the license passes to the customer.

The Company provides assurance-type warranty services and to date, post-contract support has been an immaterial performance obligation within the context of the contract.

2 unchanged sentences

SSP is determined by maximizing observable inputs from pricing of standalone sales, when possible.

Since prices vary from customer to customer based on customer relationship, volume discount and contract type, in instances where the SSP is not directly observable, the Company estimates SSP by considering the following factors:

Since prices vary from customer to customer based on customer relationship, volume

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

discount and contract type, in instances where the SSP is not directly observable, the Company estimates SSP by considering the following factors:

• Costs of developing and supplying each performance obligation;

4 unchanged sentences

If the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors, the Company’s best estimate of SSP may also change.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company's long-term contracts do not have significant financing components, as there is generally payment and performance in each year of the contract.

The Company has elected the practical expedient to not adjust promised amounts of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

If there is a period of one year or longer between the transfer of promised services and payment, it is generally for reasons other than financing, thus, the Company does not adjust the transaction price for financing components.

For the years ended December 31, 2023, 2022 and 2021, revenue under each performance obligation was as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Licensing $ 18,600 $ 8,322 $ —

Hosted services 18,364 17,743 12,764

1 unchanged sentence

Monetization 634 844 1,291

Licensing 8,322 —

Total $ 45,873 $ 31,129 $ 21,197

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2023, 2022 and 2021, the disaggregated revenue by geographic location* was as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Korea $ 22,962 $ 14,530 $ 2,460

Germany 4,134 7,526

United States 6,769 3,344 4,030

Japan 3,866 3,797

Germany 5,950 4,134 7,526

France 4,090 4,023 2,616

Japan 3,707 3,866 3,797

Other 2,395 1,232 768

Total $ 45,873 $ 31,129 $ 21,197

For the years ended December 31, 2022 and 2021, the disaggregated revenue by recognition pattern was as follows (in thousands):

*Revenue by geographic region is allocated to individual countries based on the billing location of the customer.

The end customer location may be different than the customer's billing location.

F or the years ended December 31, 2023, 2022 and 2021, the disaggregated revenue by recognition pattern was as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Over time $ 25,757 $ 19,955 $ 15,210

3 unchanged sentences

This disaggregation consists of Product Royalties, Service Subscriptions and Monetization.

Product Royalties revenue is derived from Houndified Products, which are voice-enabled tangible products across the automotive and consumer electronics industries.

Revenue from Product Royalties is based on volume, usage, or life of the products, which are driven by number of devices, users, or unit of time.

Service Subscription revenue is generated through Houndified Services, which include customer services, food ordering, content, appointments, and voice commerce.

Subscription revenue is derived from monthly fees based on usage-based revenue, revenue per query or revenue per user.

Product Royalties revenues are derived from Houndified Products, which are voice-enabled tangible products across the automotive and consumer electronics industries.

Revenues from Product Royalties are based on volume, usage, or life of the products, which are driven by number of devices, users, or unit of time.

Service Subscription revenues are generated through Houndified Services, which include customer services, food ordering, content, appointments, and voice commerce.

Subscription revenues are derived from monthly fees based on usage-based revenue, revenue per query or revenue per user.

Both Houndified Products and Houndified Services may include professional services that develop and customize the Houndify platform to fit customers’ specific needs.

Revenue from Monetization is generated from the SoundHound music identification app and is primarily attributable

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

to user ad impression revenue.

Revenues from Monetization are generated from the SoundHound music identification app and are primarily attributable to user ad impression revenue.

For the years ended December 31, 2023, 2022 and 2021, the disaggregated revenue by service type was as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Product royalties $ 43,299 $ 28,447 $ 18,356

2 unchanged sentences

Total $ 45,873 $ 31,129 $ 21,197

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract Balances

The Company performs its obligations under a contract with a customer by licensing access to software or providing services in exchange for consideration from the customer.

The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability.

During the year ended December 31, 2022, we recognized $ 7.6 million of licensing revenue from our Houndify Edge solution, which we delivered to a customer during the second half of 2022, related to minimum guarantee units to be utilized over the life of the contract and resulted in a corresponding increase in our contract assets balance.

The Company performs its obligations under a contract with a customer by providing access to software, licensing right to use software, or providing services in exchange for consideration from the customer.

The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or deferred revenue.

As of December 31, 2021, accounts receivable, net of allowances, were $ 2.1 million, contract assets were $ 54 thousand and deferred revenue was $ 21.0 million.

During the year ended December 31, 2022, $ 7.6 million of licensing revenue was recognized from the Company's Houndify Edge solution, which was delivered to a customer during the second half of 2022, related to minimum guarantee units to be utilized over the life of the contract and resulted in a corresponding increase in the contract assets balance.

During the year ended December 31, 2023, the Company and the same customer modified the minimum guarantee units in an existing contract in the ordinary course of business.

The Company accounted for a contract modification prospectively resulting in an increase to net revenue in the amount of $ 10.4 million during the year ended December 31, 2023, with corresponding increases in contract asset balances.

Additionally, during the year ended December 31, 2023, the Company recognized $ 3.6 million of licensing revenue related to right-to-use licenses for a new contract in 2023, where delivery occurred and total consideration was fixed.

The Company has not recorded any asset impairment charges related to contract assets during the periods presented in the consolidated financial statements.

Revenue recognized included in the deferred revenue balance at the beginning of the reporting period for the years ended December 31, 2022 and 2021 was $ 6.4 million and $ 14.9 million, respectively.

The balance of contract assets for the years ended December 31, 2023 and 2022 includes $ 5.1 million and $ 3.5 million, respectively, of unbilled receivables which represents amounts for which the Company has an unconditional right to bill the customer.

Revenues recognized included in the balances of the deferred revenue at the beginning of the reporting period for the years ended December 31, 2023, 2022 and 2021 were $ 7.9 million, $ 6.4 million and $ 14.9 million, respectively.

As of December 31, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was $ 12.7 million.

Given the applicable contract terms, $ 8.1 million is expected to be recognized as revenue within one year , $ 9.3 million is expected to be recognized between two to five years and the remainder of $ 3.3 million is expected to be recognized after five years .

Given the applicable contract terms, $ 6.4 million is expected to be recognized as revenue within one year , $ 3.3 million is expected to be recognized between 2 to 5 years and the remainder of $ 3.0 million is expected to be recognized after 5 years.

This amount does not include contracts to which the customer is not committed, contracts for which the Company recognizes revenue equal to the amount the Company has the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for access to the Company’s hosted services.

1 unchanged sentence

The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to scope, changes in timing of delivery of products and services, or contract modifications.

The Company’s long-term contracts do not have significant financing components, as there is generally payment and performance in each year of the contract.

If there is a period of one year or longer between the transfer of promised services and payment, it is generally for reasons other than financing and, thus, the Company does not adjust the transaction price for financing components.

The Company elected the practical expedient to not adjust promised amounts of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Research and Development

The Company’s research and development costs are expensed as incurred.

These costs include salaries and other personnel related expenses, contractor fees, facility costs, supplies, and depreciation of equipment associated with the design and development of new software products prior to the establishment of technological feasibility.

SOUNDHOUND AI, INC.

10 unchanged sentences

Total property and equipment, net $ 1,515 $ 3,447

Property and equipment, net includes assets under finance lease obligations (see Note 14 for additional information) with an aggregate cost of approximately $ 0.6 million and $ 16.6 million and accumulated depreciation of approximately $ 0.3 million and $ 13.9 million as of December 31, 2022 and 2021, respectively.

Depreciation and amortization expense totaled approximately $ 4.0 million and $ 5.5 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2023 and 2022, property and equipment, net includes assets under finance lease obligations (see Note 15 for additional information) with an aggregate cost of approximately $ 0.5 million and $ 0.6 million, respectively and accumulated depreciation of approximately $ 0.1 million and $ 0.3 million, respectively.

Depreciation and amortization expense in respect of capitalized property and equipment totaled approximately $ 2.3 million, $ 4.0 million and $ 5.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

ACCRUED LIABILITIES

2 unchanged sentences

Accrued compensation expenses $ 6,961 $ 6,134

Accrued interest 236 1,369

Accrued vendor payables 3,792 1,002

Accrued professional services 89 934

Accrued lender fees 2,603 —

Accrued ELOC liability — 1,075

Accrued interest — 236

Other accrued liabilities 528 90

5 unchanged sentences

Aggregate non-cancelable future minimum payments were as follows as of December 31, 2023 (in thousands):

Thereafter 24,000

Total $ 89,000

13 unchanged sentences

The Company continues to analyze potential sales tax exposure using a state-by-state assessment.

In accordance with ASC 450, Contingencies, the Company estimated and recorded a liability of $ 1.1 million as of December 31, 2022 and 2021.

As a result of the Business Combination (see Note 3), the Company has retroactively adjusted the Legacy SoundHound warrants outstanding and corresponding strike price prior to April 26, 2022 to give effect to the Conversion Ratio used to determine the number of shares of common stock into which they were converted.

Series C Warrants

In connection with the issuance of the April 2013 Note and November 2013 Note, the Company issued detachable warrants to purchase 248,408 and 496,827 shares of Legacy SoundHound Series C Preferred Stock (“Series C Warrants”), respectively, at $ 1.21 per share to the lenders, which were immediately exercisable.

In December 2021, all outstanding 745,235 shares of warrants related to April 2013 Note and November 2013 were net exercised, leading to a net issuance of 645,356 shares of Legacy SoundHound Series C Preferred Stock.

In accordance with ASC 450, Contingencies, the Company estimated and recorded a liability of $ 0.2 million and $ 1.1 million as of December 31, 2023 and 2022.

Warrants Related to Convertible Notes and Note Payable

In connection with the issuance of the Company’s 2021 note payable (“SVB March 2021 Note”) and 2021 convertible note (“SCI June 2021 Note”), the Company issued detachable warrants to purchase 708,808 and 354,404 shares of Legacy SoundHound common stock, respectively, with an exercise price of $ 3.67 per share to the lenders, which were immediately exercisable.

The Company recorded the warrants initially at fair value as paid-in-capital on the consolidated balance sheets based on the allocation of its relative fair value of the debt proceeds.

See Note 10 for additional information on the fair value calculation.

The fair value in relation to the SVB March 2021 Note was allocated to the notes as a discount.

On the Closing Date, all outstanding warrants issued in connection to the SVB March 2021 Note and the SCI June 2021 Note were fully net exercised by their respective lenders, leading to a net issuance of 673,416 shares of Class A Common Stock.

In connection with the Credit Agreement (as defined in Note 9), on the Term Loan Closing Date the Company issued a warrant to purchase up to 3,301,536 shares of the Company's Class A common stock to the Agent (the "Term Loan Warrant").

The Term Loan Warrant has a per share exercise price of $ 2.59 and may be exercised, including on a cashless basis, by the holder at any time prior to the 10-year anniversary of the issue date.

The Term Loan Warrant will be automatically cashless exercised immediately prior to a change in control of the Company.

On the Term Loan Closing Date, the Company allocated the gross proceeds and issuance costs between the Term Loan and the Term Loan Warrant based on their relative fair values, resulting in the initial recognition of the Term Loan Warrant at $ 4.1 million as additional paid-in-capital on the consolidated balance sheets.

As of December 31, 2023, there were 3,301,536 warrants issued and outstanding in connection with the Credit Agreement.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

value in relation to the SCI June 2021 Note was capitalized as an asset, as the underlying debt bears similarity to a revolving commitment.

As the warrants were classified as equity, they are not subject to remeasurement at the end of each reporting period.

The initial allocated fair value of the warrants as of March 31, 2021 and June 14, 2021 was $ 2.3 million and $ 1.5 million, respectively.

The warrants had a ten-year expiration date from the applicable closing date of March 2031 and June 2031, respectively.

Warrants Related to the Business Combination

Public Warrants

Prior to the Business Combination, ATSP issued Public Warrants.

Prior to the Business Combination, ATSP issued public warrants (“Public Warrants”).

Each Public Warrant entitles the holder to the right to purchase one share of common stock at an exercise price of $ 11.50 per share.

No fractional shares were issued upon exercise of the Public Warrants.

The Company may redeem the outstanding warrants, for $ 0.01 per warrant, upon not less than 30 days’ prior written notice of redemption given after the warrants become exercisable, if the reported last sale price of the common stock equals or exceeds $ 18.00 per share (as adjusted for stock dividends, sub-divisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period commencing after the warrants become exercisable and ending on the third trading day before the Company sends the notice of redemption to the warrant holders.

The Company may redeem the outstanding warrants, for $ 0.01 per warrant, upon not less than 30 days’ prior written notice of redemption, if the reported last sale price of the common stock equals or exceeds $ 18.00 per share (as adjusted for stock dividends, sub-divisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period commencing after the warrants become exercisable and ending on the third trading day before the Company sends the notice of redemption to the warrant holders.

Upon issuance of a redemption notice by the Company, the warrant holders may, at any time after the redemption notice, exercise the Public Warrants for cash, or on a cashless basis.

Subsequent to the closing of the Business Combination, the Company’s Public Warrants continue to be classified as equity instruments, as they are indexed to the Company’s stock.

As of December 31, 2022, there were 3,457,996 Public Warrants issued and outstanding.

Private Warrants

Prior to the Business Combination, ATSP issued Private Warrants.

Prior to the Business Combination, ATSP issued private warrants (“Private Warrants”).

The Private Warrants were initially issued in the same form as the Public Warrants with the exception that the Private Warrants:

1 unchanged sentence

If the Private Warrants are held by holders other than the initial purchasers or any of their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants.

Pursuant to ASC 815, the Private Warrants were initially considered a liability instrument as they met the definition of a derivative.

Upon the Closing of the Business Combination, the Company modified its Private Warrants to be identical to its Public Warrants.

The Private Warrants were initially classified as derivative liability instruments as they met the definition of a derivative and were not considered indexed in the Company's own stock as the settlement value could be dependent on who held the Private Warrants at the time of exercise.

Upon the Closing of the Business Combination, the Company modified its Private Warrants to be identical to its Public Warrants (collectively, "SPAC Warrants").

Therefore, the Private Warrants met requirements for classification as equity instruments, as they are indexed to the Company’s stock.

As of December 31, 2022, there were 208,000 Private Warrants issued and outstanding.

CONVERTIBLE NOTES AND NOTE PAYABLE

As of December 31, 2023, there were 3,665,996 SPAC Warrants issued and outstanding.

SNAP June 2020 Note

In June 2020, the Company issued a promissory note (the “SNAP June 2020 Note”) to a Lender in exchange for $ 15.0 million in cash proceeds.

This note has an annual interest rate of 5 % and a maturity date of June 26, 2022, if not converted earlier pursuant to conversion terms and change in control events as described below.

All unpaid interest and principal are due and payable upon request of the Lender on or after the SNAP June 2020 Note’s maturity date.

The outstanding principal balance and unpaid accrued interest of the SNAP June 2020 Note are convertible pursuant to the following terms (“SNAP June 2020 Note Conversion Feature” or “Conversion Feature”):

automatic conversion into equity shares in the next equity financing round (“SNAP June 2020 Note Qualified Financing,” or “Qualified

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financing”) at a conversion price equal to either (a) the lowest cash price per share paid by investors in such qualified financing (which will reflect at least a 20 % discount to the price per share paid by other investors purchasing securities in additional closings), or (b) if there are no additional closings, 0.80 times the price per share paid by investors purchasing equity securities in the Qualified Financing.

The SNAP June 2020 Note Qualified Financing shall be at least $ 30.0 million, which excludes the conversion of the SNAP June 2020 Note and any other indebtedness.

Furthermore, upon a change of control event, the Company shall settle the SNAP June 2020 Note in cash, pursuant to the following terms (“Redemption Feature”):

• 200 % of the then outstanding principal amount of the respective note plus any unpaid accrued interest on the original principal of such note;

• 100 % of the then outstanding principal amount of the respective note plus any unpaid accrued interest on the original principal of such note, provided that if the change of control transaction closes between the Company and the Lender or an affiliate of the Lender.

The Company evaluated whether the SNAP June 2020 Note contains embedded features that meet the definition of derivatives under ASC 815, Derivatives and Hedging.

The Conversion Feature qualifies as a derivative as it continuously resets as the underlying stock price increases or decreases so as to provide a variable number of shares for a fixed value of equity to the holders at any conversion date.

As such, the Conversion Feature is bifurcated and accounted for as a derivative liability to be remeasured at the end of each reporting period.

The Company recorded the bifurcated Conversion Feature initially at fair value with the residual value being allocated to the SNAP June 2020 Note as a debt discount.

The fair value of the Conversion Feature upon issuance in September 2020 was $ 2.5 million, which was recorded as a derivative liability on the Company’s consolidated balance sheet.

The Redemption Feature of the SNAP June 2020 Note does not meet the definition of a derivative.

Therefore, the Redemption Feature is not bifurcated.

The total amount of debt discount at issuance for the SNAP June 2020 Note was $ 2.5 million.

The Company amortized the aggregate debt discount using the effective interest method.

The Company recognized total interest expense of $ 0.7 million associated with the SNAP June 2020 Note for the year ended December 31, 2022, out of which $ 0.4 relates to amortization of the debt discount.

The note had an annual interest rate of 5 % and a maturity date of June 26, 2022, if not converted earlier pursuant to conversion terms and change in control events.

The Company recognized total interest expense of $ 0.7 million associated with the SNAP June 2020 Note for the year ended December 31, 2022, out of which $ 0.4 million relates to amortization of the debt discount.

The Company recognized total interest expense of $ 2.0 million associated with the SNAP June 2020 Note for the year ended December 31, 2021, out of which $ 1.3 million relates to amortization of the debt discount.

The debt discount related to the SNAP June 2020 Note is amortized over the life of the instrument, beginning at note issuance and ending on April 26, 2022, the date on which the note was converted.

The SNAP June 2020 Note contains a conversion feature in which outstanding principal and any unpaid accrued interest automatically converts into equity securities.

This conversion occurs when the Company issues and sells equity securities in a bona fide equity financing with total proceeds to the Company totaling more than $ 30.0 million, excluding the face value of the SNAP June 2020 Note (“SNAP June 2020 Note Qualified Financing”).

As a result of the Business Combination, on the Closing Date, the SNAP June 2020 Note conversion feature was triggered, as total proceeds from the Business Combination exceeded the minimum amount to qualify as a SNAP June 2020 Note Qualified Financing.

As a result, on the Closing Date, all outstanding principal of $ 15.0 million and accrued interest of $ 1.4 million were converted into 2,046,827 shares of Class A Common Stock.

In addition, the remaining debt discount of $ 0.2 million and related derivative liability with fair value of $ 4.1 million as of the Closing Date were extinguished.

The Company was amortizing the discounts on an effective interest basis over the period from issuance through the Early Maturity Date.

The effective interest rate was 14.3 % for the years ended December 31, 2022 and 2021.

As a result of the Business Combination, on the Closing Date, the SNAP June 2020 Note conversion feature was triggered.

As a result, on the Closing Date, all outstanding principal of $ 15.0 million and accrued interest of

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the unamortized debt discount, fair value of conversion feature, and accrued interest as of April 26, 2022 and December 31, 2021 (in thousands).

2022 December 31,

Unamortized debt discount $ 230 $ 657

Fair value of conversion feature $ 4,094 $ 3,488

Accrued interest $ 1,375 $ 1,136

Accrued interest is included in accrued liabilities on the consolidated balance sheets to reflect the classification of the SNAP June 2020 Note as short-term in nature on December 31, 2021.

$ 1.4 million were converted into 2,046,827 shares of Class A Common Stock.

In addition, the remaining debt discount of $ 0.2 million and related derivative liability with fair value of $ 4.1 million as of the Closing Date were extinguished.

SVB March 2021 Note

In March 2021, the Company entered into a loan and security agreement with a commercial bank to borrow $ 30.0 million along with the issuance of warrants to purchase 127,570 shares of Legacy SoundHound’s common stock.

The warrant’s allocated fair value was $ 2.3 million at issuance.

The SVB March 2021 Note also contains a final payment provision of $ 1.1 million.

The warrants were recognized as a debt discount at issuance and recorded as a reduction of the debt balance under a relative fair value approach.

The Company recorded the final payment as an increase to the principal balance and debt discount for the entire payment amount.

The Company was amortizing the discounts on an effective interest basis over the period from issuance through the Early Maturity Date (as defined below).

The loan bears interest at an annual rate equal to the greater of 9.00 % or 5.75 % above the Prime Rate.

As of December 31, 2022, the interest rate was 13.25 %.

In March 2021, the Company entered into a loan and security agreement with a commercial bank to borrow $ 30.0 million.

The loan bore interest at an annual rate equal to the greater of 9.00 % or 5.75 % above the Prime Rate.

During the year ended December 31, 2023, the interest rate was 13.75 %.

Payments were interest-only for the first twelve months and are now principal and interest through maturity.

The Company recorded stated interest expense in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021 of $ 2.8 million and $ 4.5 million, respectively, of which $ 0.2 million remained unpaid as accrued interest at December 31, 2022 and 2021.

The Company recorded interest expense in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2023, 2022 and 2021 of $ 0.6 million, $ 2.8 million and $ 2.1 million respectively.

The total amount of debt discount at issuance was $ 3.5 million.

During the years ended December 31, 2022 and 2021, the Company recorded $ 1.0 million and $ 2.4 million in interest expense related to the debt discounts, respectively.

The original term loan amortization date was April 1, 2022, with an opportunity for a six-month extension if certain performance milestones are met.

The original maturity date of the loan was April 26, 2022 (“Early Maturity Date”), with an opportunity for extension to September 2024 or March 2025 if certain performance milestones are met, including the conversion of the SNAP June 2020 Note.

In April 2022, the Company entered into a loan modification agreement with Silicon Valley Bank, which extended the note’s Early Maturity Date to May 26, 2022 which also extended the period of amortization of the discount.

As a result of the Business Combination, the SNAP June 2020 Note converted on the Closing Date and the performance milestone was met, satisfying the requirements to extend the maturity date to September 1, 2024

During the years ended December 31, 2023, 2022 and 2021, the Company recorded $ 16 thousand, $ 1.0 million and $ 2.4 million related to the amortization of the debt discount in interest expense, respectively.

The Company was amortizing the discounts on an effective interest basis over the period from issuance through the Early Maturity Date.

The effective interest rate was 13.4 %, 14.9 % and 20.9 % for the year ended December 31, 2023, 2022 and 2021.

Concurrently with the Company's entry into the Credit Agreement, the Company used a portion of the proceeds to prepay in full all outstanding obligations under, and terminated, the SVB March 2021 Note.

In connection with the SVB March 2021 Note prepayment, the Company paid a total of $ 18.5 million on April 14, 2023, which consisted of (i) the remaining principal amount outstanding of $ 18.1 million, (ii) a prepayment premium of $ 0.3 million, (iii) accrued and unpaid interest of $ 0.1 million and (iv) a nominal amount for transaction expenses.

The Company recorded a loss on debt extinguishment of $ 0.4 million related to the early repayment in interest expense in the consolidated statements of operations and comprehensive loss.

SCI June 2021 Note

In June 2021, the Company entered into a loan and security agreement with a lender to obtain credit extensions to the Company.

Extensions may be requested in $ 5.0 million increments up to a total commitment amount of $ 15.0 million.

Extensions were available in $ 5.0 million increments up to a total commitment amount of $ 15.0 million.

The Company drew an initial $ 5.0 million on June 14, 2021 and the remaining $ 10.0 million on December 1, 2021.

The SCI June 2021 Note also contains a final payment provision of 3.5 % on each draw or $ 0.5 million in total.

Additionally, warrants were issued alongside the convertible note to purchase 63,785 shares of Legacy SoundHound’s common stock.

The warrant’s allocated fair value was $ 1.5 million at issuance.

The Company recorded the final payment as an increase to the principal balance and debt discount for the entire payment amount upon each draw.

The loan bears interest at an annual rate equal to the greater of 9.00 % or 5.75 % above the Prime Rate.

As of December 31, 2022, the interest rate was 13.25 %.

The loan bore interest at an annual rate equal to the greater of 9.00 % or 5.75 % above the Prime Rate.

During the year ended December 31, 2023, the interest rate was 13.75 %.

Payments were interest-only for the first twelve months and are now principal and interest through maturity.

The Company incurred and paid $ 1.5 million and $ 0.3 million in stated interest in the

The Company incurred and paid $ 0.5 million, $ 1.5 million and $ 0.3 million in interest expense in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2023, 2022 and 2021 respectively.

During the years ended December 31, 2023, 2022 and 2021, the Company recorded $ 31 thousand, $ 0.8 million and $ 1.0 million related to the amortization of the debt discounts in interest expense, respectively.

The Company was amortizing the discounts on an effective interest basis over the period from issuance through the Early Maturity Date.

The effective interest rate was 18.6 %, 17.3 % and 26.1 % for the year ended December 31, 2023, 2022 and 2021.

Concurrently with the Company’s entry into the Credit Agreement, the Company used a portion of the proceeds to prepay in full all outstanding obligations under, and terminated, the SCI June 2021 Note.

In connection with the SCI June 2021 Note prepayment on April 14, 2023, the Company paid a total of approximately $ 11.7 million, which consisted of (i) the remaining principal amount outstanding of approximately $ 11.5 million, (ii) a prepayment premium of approximately $ 0.2 million and (iii) a nominal amount for transaction expenses.

The Company recorded a loss on debt extinguishment of $ 0.4 million related to the early repayment in interest expense in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

On April 14, 2023 (the “Term Loan Closing Date”), the Company entered into a Senior Secured Term Loan Credit Agreement (the “Credit Agreement”) with ACP Post Oak Credit II LLC, as administrative agent and collateral agent for the Lenders (the “Agent”), and the lenders from time to time party thereto (the “Lenders”).

The Credit Agreement provides for a term loan facility in an aggregate principal amount of up to $ 100.0 million (the “Term Loan”), the entirety of which was funded on the Term Loan Closing Date.

The Credit Agreement also permits the Company to

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021, respectively.

As the warrants and discounts of $ 2.2 million are directly attributable to the total commitment of $ 15.0 million, the Company has presented its unamortized debt issuance cost associated with this note as a current asset, recorded as debt issuance cost on the consolidated balance sheets.

The Company is amortizing the cost on a straight-line basis from the issuance date through the maturity date of May 31, 2025.

The Company recorded $ 0.8 million and $ 1.0 million in interest expense related to the debt discounts during the years ended December 31, 2022 and 2021, respectively.

The loan amortization date was June 1, 2022, with an opportunity for a six-month extension if certain performance milestones are met.

The maturity date of the loan is the earlier of May 31, 2025 or when the SNAP June 2020 Note is either paid in full or matures on June 26, 2022.

Upon mutual consent of the Company and its Agent, the outstanding principal amount of term loan advances may be converted into equity securities that are issued by SoundHound in an Initial Public Offering (“IPO”) or by a Special Purpose Acquisition Company (“SPAC”) during a private placement sale of SoundHound’s equity securities that closes substantially concurrently with the closing of a SPAC acquisition.

If conversion occurs in connection with an IPO, the conversion of the principal amount shall be into the same class and series of equity securities for the initial price per security to the public sold in the IPO.

If conversion occurs in connection with a SPAC, the conversion of principal amount shall be into the equity securities purchased by other investors in the SPAC at the same share price and upon the same terms.

As a result of the Business Combination, the SNAP June 2020 Note converted into the Company’s securities on the Closing Date.

As the SNAP June 2020 Note was not paid in full and did not mature on June 26, 2022 due to its conversion, the maturity date of the SCI June 2021 Note is May 31, 2025.

Additionally, as the Company and its Agent did not mutually consent to the equity conversion that could have been triggered by the Business Combination, the conversion feature no longer existed subsequent to the Closing Date.

As of December 31, 2022, the SCI June 2021 Note was classified as a note payable.

The below tables summarize the Company’s debt balances (in thousands):

December 31, 2022

Note SCI June 2021 Note Total

Notes payable, current portion $ 12,000 $ 4,718 $ 16,718

Notes payable, net of current portion 10,050 8,261 18,311

Unamortized loan discount ( 62 ) — ( 62 )

Total $ 21,988 $ 12,979 $ 34,967

Unamortized debt issuance cost recorded as an asset $ — $ 295 $ 295

December 31, 2021

SVB March 2021

Note payable, current portion $ 31,050

Unamortized loan discount ( 1,086 )

Carrying value $ 29,964

request additional commitments of up to $ 25.0 million in the aggregate, with funding of such commitments in the sole discretion of the Lenders, under certain circumstances and under the same terms as the Term Loan.

On the Term Loan Closing Date, the Company also entered into that certain Guarantee and Collateral Agreement, dated as of April 14, 2023, by and among the Company, the other grantors named therein and the Agent (the “Guarantee and Collateral Agreement”).

In addition, the Company is obligated to pay incremental lender fees, beginning on the Closing Date, equal to initially 3.5 % of the principal amount of the Term Loans, decreasing to 2.5 % after the 18-month anniversary, semi-annually (the “Lender Fees”) to provide a collateral protection insurance policy on behalf of the Lenders.

The Lender Fees are effectively additional fees payable to the Lenders as the Lenders are the sole beneficiary of the insurance policy and is therefore being recognized as interest expense over the term of the Term Loan based on the effective interest method.

The Company used the proceeds from the Term Loan to (i) repay outstanding amounts equal to approximately $ 30.0 million under the Company’s existing loan facilities, (ii) fund an escrow account on the Term Loan Closing Date in the name of the Agent for an amount equal to the first four interest payments, (iii) pay certain fees and expenses incurred in connection with entering into the Credit Agreement, and (iv) fund the Lender Fees, together with related taxes, with the remaining proceeds to be used to fund growth investments and for general corporate purposes as permitted under the Credit Agreement.

The outstanding principal balance of the Term Loan bears interest at the applicable margin plus, at the Company’s election, either (i) the Term SOFR rate published by CME Group Benchmark Administration Limited for a one-month interest period plus 0.15 % or (ii) the alternate base rate (“ABR”), which is a per annum rate equal to the greatest of (a) the Prime Rate (as defined in the Credit Agreement), (b) the NYFRB Rate (as defined in the Credit Agreement) plus 0.50 % and (c) the Term SOFR rate plus 1.00 %.

The applicable margin under the Credit Agreement is 8.50 % per annum with respect to SOFR loans, and 7.50 % per annum with respect to ABR loans.

As of December 31, 2023 , the contractual interest rate was approximately 14.0 %.

The Company was amortizing the discounts on an effective interest basis over the period from issuance through the Early Maturity Date.

The effective interest rate was 25.18 % for the year ended December 31, 2023.

The Company incurred and paid $ 9.9 million in stated interest in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

During the year ended December 31, 2023, the Company recorded $ 5.4 million in interest expense related to the debt discount.

The remaining period over which the discount will be amortized is 3.33 years as of December 31, 2023.

Subject to certain exceptions as set forth in the Credit Agreement, interest on the Term Loan is payable quarterly in arrears on the last business day of each fiscal quarter.

The Term Loan is set to mature on April 14, 2027 (the “Maturity Date”).

The Credit Agreement provides for no scheduled principal payments prior to the Maturity Date.

The Term Loan is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company’s subsidiaries other than Excluded Subsidiaries.

As set forth in more detail in the Credit Agreement, the Company is required to make mandatory prepayments on the Term Loan in the event of certain specified events, including in the event of certain capital raises by the Company and its subsidiaries.

The Company may also elect to prepay amounts at any time.

If the Term Loan is prepaid for any reason prior to the second anniversary of the Closing Date, in additional to principal and accrued interest, the Company will have to pay an amount equal to the discounted future interest payments from the date of redemption through the second anniversary of the Closing Date, calculated on the basis of the interest rate in effect on the redemption date and discounted based on the applicable rate for US treasury securities of equal tenor plus 50 basis points.

Additionally, the Company will have to pay the excess of 14 % of the Term Loans over the amount of the Lender Fees paid through the Redemption Date.

The Credit Agreement also contains customary representations and warranties for a facility of this nature and affirmative and negative covenants.

In particular, the Credit Agreement requires the Company to have liquidity at least equal to the Interest Escrow Required Amount (as defined in the Credit Agreement) as of the last day of each fiscal quarter.

The Interest Escrow Required Amount as described in Note 2 is included in restricted cash equivalents, non-current, on the consolidated balance sheet as of December 31, 2023.

In addition, the Credit Agreement limits the Company’s and its subsidiaries’ ability to incur indebtedness, make restricted payments, including cash dividends on its common stock, make certain investments, loans and advances, enter into mergers and acquisitions, sell, assign transfer or otherwise dispose of its assets, enter into transactions with its affiliates and engage in sale and leaseback

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2021

SNAP June 2020 Note SCI June 2021 Note Total

Convertible notes, current portion $ 15,000 $ 15,525 $ 30,525

Unamortized loan discount ( 657 ) — ( 657 )

transactions, among other restrictions.

As of December 31, 2023, the Company was in compliance with all covenants prescribed in the Credit Agreement.

The Credit Agreement includes customary events of default, including, but not limited to, nonpayment of principal or interest, breaches of representations and warranties, failure to perform or observe covenants, cross-defaults with certain other indebtedness, final judgments or orders, certain change of control events, and certain bankruptcy-related events or proceedings.

Upon the occurrence of an event of default (subject to notice and grace periods), obligations under the Credit Agreement could be accelerated.

The aggregate long-term debt maturities were as follows as of December 31, 2023 (in thousands):

Total 100,000

Unamortized debt issuance cost recorded as an asset $ — $ 1,132 $ 1,132

Additionally, interest expense on the consolidated statements of operations and comprehensive loss is inclusive of stated interest incurred on the Company’s debt instruments during the relevant periods, as well as the amortization of debt discounts and issuance costs.

The life of each instrument may be shortened if a lender demands payment if certain events occur that are outside the control of the Company.

FAIR VALUE MEASUREMENTS

The following tables present the fair value of the Company’s financial instruments that are measured or disclosed at fair value on a recurring basis (in thousands):

Fair Value Measurements as of

unamortized discount ( 15,688 )

Long-term portion of debt $ 84,312

The following table summarizes the Company's debt balances as of December 31, 2023 and December 31, 2022 (in thousands):

December 31, 2023 December 31, 2022

Term Loan $ 100,000 $ —

SVB March 2021 Note — 22,050

SCI June 2021 Note — 12,979

Total debt $ 100,000 $ 35,029

Current portion of debt — ( 16,668 )

Unamortized discount and debt issuance costs ( 15,688 ) ( 62 )

Carrying value of long-term debt $ 84,312 $ 18,299

RESTRUCTURING

In January 2023, the Company announced a restructuring plan (the “Restructuring Plan”) intended to reduce operating costs, improve operating margins, improve cash flows and accelerate the Company’s path to profitability.

The Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 40 % or 180 positions globally.

Costs associated with the Restructuring Plan consist of employee severance payments, employee benefits and share-based compensation.

The costs associated with the Restructuring Plan were recorded to the restructuring expense line item within our consolidated statements of operations as incurred.

During the year ended December 31, 2023, we recorded $ 4.6 million of restructuring expenses in connection with the Restructuring Plan, of which $ 1.4 million were cash payments.

The Restructuring Plan was substantially complete as of December 31, 2023.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FAIR VALUE MEASUREMENT

The following table presents the fair value of the Company's financial instruments that are measured or disclosed at fair value on a recurring basis (in thousands):

December 31, 2023

1 unchanged sentence

Cash equivalents:

Derivative liability — — ( 3,488 )

Total $ 4,863 $ — $ ( 3,488 )

There were no financial instruments measured or disclosed at fair value on a recurring basis as of December 31, 2022.

The fair values of the derivative liabilities were determined based on significant inputs not observable in the market, which represent Level 3 measurements within the fair value hierarchy.

Treasury bills $ 35,961 $ — $ —

Money market funds 54,542 $ — $ —

Total assets $ 90,503 $ — $ —

There were no financial instrument assets measured or disclosed at fair value on a recurring basis as of December 31, 2022.

Equity Line of Credit

January 1, 2022 $ —

Issuance of ELOC 1,075

December 31, 2022 1,075

Change in fair value 1,901

Settlements ( 2,976 )

December 31, 2023 $ —

The Company estimated the Level 3 fair value of the liability related to the ELOC using contractual inputs of the commitment shares and reimbursement fees prior to the settlement.

The Company determined that the ELOC was not indexed to the Company’s own common stock and, therefore, should be accounted for in accordance with ASC 815:

Derivatives .

Accordingly, the Company recorded a derivative liability with an initial fair value of $ 1.1 million based on the upfront commitment fee and the reimbursement amount to the investor as consideration for its irrevocable commitment to purchase up to 25,000,000 shares of the Company's common stock.

Subsequent changes in the fair value of the derivative liability are dependent upon, among other things, changes in the closing share price of the Company’s common stock, the quantity and purchase price of shares purchased during the reporting period, the unused capacity under the ELOC as of the balance sheet date and the cost of raising other forms of capital.

The Company adjusts the previous fair value estimate of the committed equity facility at each reporting period based on changes in the weighted average purchase price of shares purchased during the period, the unused capacity available under the ELOC, expected stock price volatility and other macroeconomic factors which impact the cost of raising comparable forms of capital.

The changes in the fair value of the committed equity facility were an increase of $ 1.9 million for the year ended December 31, 2023, which is included in other (income) expense, net on the consolidated statements of operations and comprehensive income (loss).

The fair value of the liability then is remeasured as of the settlement date equal to the difference between the volume weighted average price at a 3 % discount compared to the fair value of the common stock.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Series C Warrants (April 2013 and November 2013)

3 unchanged sentences

The warrants were recorded as Series C Preferred Stock at their fair value of $ 5.8 million upon net share settlement.

Common Stock Warrants (SVB March 2021 Note and SCI June 2021 Note)

The Company issued common stock warrants in connection with the SVB March 2021 Note and SCI June 2021 Note (See Note 8 for additional information).

The SVB March 2021 Note and SCI June 2021 Note warrants were recorded based on the allocation of its relative fair of the debt proceeds of $ 2.3 million and $ 1.5 million, respectively.

The warrants were classified as equity instruments at inception with a corresponding discount recorded at issuance against the outstanding notes in connection with the SVB March 2021 Note or as an asset in connection with the SCI June 2021 Note.

The common stock warrants are not subject to remeasurement at each subsequent balance sheet date due to their classification as equity instruments as they are considered indexed to the Company’s stock.

The SVB March 2021 Note warrants expire in March 2031 and the SCI June 2021 Note warrants expire in June 2031.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company determined the fair value of the SVB March 2021 Note and SCI June 2021 Note common stock warrants at issuance using the Black-Scholes option-pricing model using the following assumptions:

SVB March 2021 Note Common Stock Warrants

Expected dividend rate 0 %

Risk-free interest rate 1.74 %

Expected volatility 47 %

Expected term (in years) 10

SCI June 2021 Note Common Stock Warrants

Expected dividend rate 0 %

Risk-free interest rate 1.51 %

Expected volatility 47 %

Expected term (in years) 10

Upon the Closing of the Business Combination, all outstanding warrants associated with the SVB March 2021 Note and SCI June 2021 Note were exercised, leading to a net issuance of 673,416 shares of Class A Common Stock.

Derivative Liability (SNAP June 2020 Note)

3 unchanged sentences

The Company utilized the following assumptions at the valuation date:

December 31, 2021

Probability of Next Equity Financing 3 %

9 unchanged sentences

As the Closing of the Business Combination triggered the Conversion Feature contained within the SNAP June 2020 Note, therefore converting the note’s principal to equity, the embedded derivative associated with the note was extinguished.

The Company recorded the remeasurement of derivative liabilities in other expense, net on the consolidated statements of operations and comprehensive loss.

The fair value of the embedded derivative was recorded as additional paid-in capital upon extinguishment on the consolidated balance sheet.

The Company recorded the remeasurement of derivative liabilities in other expense, net on the consolidated statements of

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

operations and comprehensive loss.

The fair value of the embedded derivative was recorded as additional paid-in capital upon extinguishment on the consolidated balance sheet.

The following table summarizes the fair value remeasurement of the embedded derivative for the years ended December 31, 2022 and 2021 (in thousands):

2 unchanged sentences

The following table sets forth a summary of changes in fair value of the Company’s derivative liability and warrant liability for which fair value was determined by Level 3 inputs:

Liability Warrant

Derivative Liability Warrant Liability

Balance as of December 31, 2020 $ 2,380 $ 2,004

5 unchanged sentences

Balance as of December 31, 2022 $ — $ —

There were no transfers of financial instruments between the three levels of the fair value hierarchy during the years ended December 31, 2022 and 2021.

Term Loan and Term Loan Warrant

The fair value of the Company's variable rate Term Loan approximates aggregate principal amount as the interest rate of the loan approximates market rates.

The Company issued a Class A Common Stock warrant in connection with the Term Loan (see Note 8 for additional information).

The warrant was recorded based on the allocation of its relative fair value of the debt proceeds of $ 4.1 million.

The warrants were classified as equity instruments at inception with a corresponding discount recorded at issuance against the outstanding note payable in connection with the Term Loan.

The common stock warrant is not subject to remeasurement at each subsequent balance sheet date due to its classification as an equity instrument as it is considered indexed to the Company’s stock.

The Term Loan warrant expires in April 2033.

The Company determined the fair value of the Term Loan common stock warrant at issuance using the Black-Scholes option-pricing model using the following assumptions:

Expected dividend rate

Risk-free interest rate 3.60 %

Expected volatility 52 %

Expected term (in years) 5

As of December 31, 2023, no warrants related to the Term Loan had been exercised.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PREFERRED STOCK

Legacy SoundHound Preferred Stock

Legacy SoundHound Preferred Stock was not mandatorily redeemable.

Legacy SoundHound Preferred Stock was contingently redeemable upon a deemed liquidation event which the Company determined was not solely within its control as the Company determined that a deemed liquidation event can only occur with the approval of the board of directors and the preferred shareholders maintained control of the board of directors as of December 31, 2021 and through April 26, 2022, the effective date of the Business Combination, and thus has classified shares of Legacy SoundHound Preferred Stock as temporary equity.

Since the occurrence of a deemed liquidation event was not probable, the carrying values of the shares of legacy SoundHound Preferred Stock were not being accreted to their redemption values.

A summary of the Legacy SoundHound Preferred Stock authorized, issued and outstanding as of the date of the Business Combination is as follows :

10 unchanged sentences

127,785,195 106,949,326 $ 1,582,562 $ 279,503

Upon the closing of the Business Combination, the outstanding shares of Series A, B, C, C-1, D, D-1, D-2, and D-3 preferred stock were converted into 106,949,326 shares of SoundHound Class A Common Stock at the exchange ratio of 5.5562 .

Shares Authorized and Shares Issued above have been retroactively adjusted to reflect the exchange.

Upon the closing of the Business Combination, the outstanding shares of Series A, B, C, C-1, D, D-1, D-2, and D-3 preferred stock were converted into 106,949,326 shares of SoundHound AI Class A Common Stock at the exchange ratio of 1-for-1.

Shares Authorized and Shares Issued above have been retroactively adjusted to reflect the exchange of 1 share of Legacy SoundHound stock into 5.5562 shares of the Company's Class A or Class B Common Stock.

As a result of the conversion of the Legacy SoundHound redeemable convertible preferred stock, the Company reclassified the amount of redeemable convertible preferred stock to additional paid in capital.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Upon the consummation of the Business Combination, the Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share.

The number of authorized shares of preferred stock may also be increased or decreased by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of capital stock of the Company entitled to vote thereon, without a separate vote of the holders of preferred stock.

Any new series of preferred stock may be designated, fixed and determined as provided by the Board without approval of the holders of common stock or preferred stock.

The preferred stock holders have the rights to elect one or more directors as per the Company’s restated certificate of incorporation.

The Company has no preferred stock outstanding as of December 31, 2022.

Any new series of preferred stock may be designated, fixed and determined as provided by the Board without approval of the holders of common stock or preferred stock and the preferred stock holders may be granted such rights, powers (including voting powers) and preferences as determined by the Board in its sole discretion, including the right to elect one or more directors.

Series A Convertible Preferred Stock

On January 20, 2023, the Company entered into the Purchase Agreements with the Investors, pursuant to which the Company issued and sold to the Investors an aggregate of 835,011 shares of its newly designated Series A Convertible Preferred Stock for issuance price of $ 30.00 per share, raising an aggregate of approximately $ 25.0 million in cash proceeds.

On January 20, 2023, the Company filed a Certificate of Designations of Preferences, Rights and Limitations of the Series A Preferred Stock with the Secretary of State of the State of Delaware (the "Certificate of Designations"),

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

designating shares of Series A Preferred Stock.

The shares of Series A Preferred Stock were issued and sold in a private placement exempt from the registration requirements of the Securities Act.

The Company does not intend to register the shares of Series A Preferred Stock or the underlying common stock for resale under the Securities Act.

The holders of Series A Preferred Stock are entitled to cumulative dividends payable for such share at the rate of 14 % per annum, compounding semi-annually to Liquidation Preference on January 1 and July 1 of each year.

The Company may also elect to pay any dividend in cash in lieu of accretion to Liquidation Preference if permitted under the agreements and instruments governing its outstanding indebtedness at such time.

After payment of the cumulative dividend, including by way of accretion to the Liquidation Preference, any additional dividends declared or paid shall be distributed among the holders of Preferred Stock and common stock then outstanding pro rata based on the number of shares of common stock then held by each holder (assuming conversion of all such Preferred Stock into common stock at the then-effective conversion price.

Liquidation Preference

The Liquidation Preference per share of Preferred Stock was initially equal to $ 30.00 , the original issue price per share.

On July 1, 2023, the Company's Series A Preferred Stock holders received dividends paid-in-kind as an increase in the Liquidation Preference, thereby increasing the Liquidation Preference per share to approximately $ 31.90 .

Additionally, as of December 31, 2023 , the Series A Preferred Stock had accrued additional dividends since the last dividend payment date which has the effect of increasing the Liquidation Preference to approximately $ 34.16 .

The Series A Preferred Stock is not mandatorily redeemable.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or in the event of any Deemed Liquidation Event (as defined below), the holders of the Series A Preferred Stock will be entitled to receive, prior and in preference to any distribution of the proceeds of the transaction or any of the assets of the Company to holders of the common stock, an amount per share equal to the greater of (i) two and a half time ( 2.5 x) the Liquidation Preference (including any accrued and unpaid dividends since the last dividend payment date) or (ii) the amount as would have been payable had the Series A Preferred Stock been converted into common stock.

A Deemed Liquidation Event includes (i) a merger or acquisition of the Company in which 50% or less of the voting securities of the surviving entity are no longer held by the shareholders of the Company immediately prior to such transaction or (ii) a sale, lease, transfer, exclusive license, or other disposal of all or substantially all of the Company’s assets.

If the Company is not liquidated within 90 days of a Deemed Liquidation Event, the holders of the Series A Preferred Stock will have the option to require the redemption of the Preferred Stock to the extent the Company has sufficient available proceeds to do so.

The Company determined that a Deemed Liquidation Event can only occur with the approval of the board of directors, and therefore the exercise of this contingent redemption feature is within the control of the Company and the Investors are not in control of the Company.

Therefore, the Series A Preferred Stock is not classified as redeemable equity within the Company’s consolidated balance sheet and consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit).

Each share of Series A Preferred Stock is convertible, at the option of the holder, into such number of shares of Class A Common Stock equal to the Liquidation Preference per share at the time of conversion divided by $ 1.00 (the “Conversion Price”).

In addition, each share of Series A Preferred Stock will automatically convert into shares of Class A Common Stock at the Conversion Price on or after January 20, 2024 if and when the daily volume-weighted average closing price per share of Class A Common Stock is at least 2.5 times the Conversion Price for each of any 90 trading days during any 120 consecutive trading day period, which 120 -trading day period may commence (but may not end) prior to January 20, 2024.

During the year ended December 31, 2023, some Investors optionally converted 360,006 shares of Series A Preferred Stock into 11,597,656 shares of Class A Common Stock.

The conversion was pursuant to the original terms of the agreement and therefore the carrying value of Series A Preferred Stock was converted into Class A Common Stock with no gain or loss upon conversion.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Voting Rights

The Investors do not have voting rights, except with respect to certain protective provisions and as required by the Delaware General Corporation Law.

However, as long as the Series A Preferred Stock are outstanding, the Company may not take certain actions that may materially and adversely impact the powers, preferences, or rights of the Investors without the consent of at least a majority of the Investors.

The Company had 250,030,433 shares of Legacy SoundHound common stock authorized for issuance prior to the closing of the Business Combination.

On April 26, 2022, the Company consummated a Business Combination which was accounted for as a reverse recapitalization (refer to Note 3 for additional information).

Pursuant to the Company’s restated certificate of incorporation, the Company is authorized to issue 500,000,000 shares of capital stock, consisting of (a) 455,000,000 shares of Class A Common Stock with a par value of $ 0.0001 per share, (b) 44,000,000 shares of Class B Common Stock with a par value of $ 0.0001 per share, and (c) 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share.

On April 26, 2022, following the Business Combination and pursuant to the Company’s certificate of incorporation, the Company is authorized to issue 500,000,000 shares of capital stock, consisting of (a) 455,000,000 shares of Class A Common Stock with a par value of $ 0.0001 per share, (b) 44,000,000 shares of Class B Common Stock with a par value of $ 0.0001 per share, and (c) 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share.

The outstanding shares of the Company’s common stock are fully paid and non-assessable.

7 unchanged sentences

As a result, it is possible that one or more of the persons or entities holding our Class B Common Stock could gain significant voting control as other holders of Class B Common Stock sell or otherwise convert their shares into Class A Common Stock.

Equity Line of Credit ("ELOC")

On August 16, 2022, the Company entered into a common stock purchase agreement (“Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (the “Counterparty”).

Pursuant to the Common Stock Purchase Agreement, the Company had the right, but not the obligation, to direct the Counterparty to purchase up to 25,000,000 shares of Class A Common Stock, subject to certain limitations and conditions as described below (the "ELOC Program") at a purchase price equal to 97 % of the volume weighted average stock price for a given purchase date.

In connection with the execution of the Common Stock Purchase Agreement and the side letter on February 14, 2023, the Company issued 250,000 shares of Common Stock (the “Initial Commitment Shares”) and additional cash commitment fee of $ 0.3 million.

The Company controlled the timing and amount of any sales to the Counterparty, which depended on a variety of factors including, among other things, market conditions, the trading price of the Company’s common stock, and determinations by the Company as to appropriate sources of funding for its business and operations.

However, the Counterparty’s obligation to purchase shares is subject to certain conditions, including the daily trading volume of the Company’s stock.

In all instances, the Company may not sell shares of its common stock under the Purchase Agreement if it would result in the Counterparty and its affiliate beneficially owning more than 4.99 % of its outstanding voting power or shares of common stock at any one point in time, or the aggregation number of shares of

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

common stock would not exceed 39,365,804 shares of common stock representing 19.99 % of the voting power or number of shares of common stock.

The Company evaluated the Common Stock Purchase Agreement with the Counterparty and determined that it was not indexed to the Company’s own common stock and, therefore, should be accounted for as a derivative instrument at fair value with changes in fair value as other income (expense), net in the period in which they occur.

Accordingly, the Company recorded a derivative liability with an initial fair value of $ 1.1 million based on the upfront commitment fee in the form of proceeds from future issuance of commitment shares to the Counterparty plus certain fees and expenses as specified in the Purchase Agreement.

Subsequent changes in the fair value of the derivative liability were dependent upon, among other things, changes in the closing share price of the Company’s common stock, the quantity and purchase price of shares purchased by the Counterparty during the reporting period and the cost of raising other forms of capital.

The Company recorded changes in the fair value of the derivative liability associated with the ELOC of $ 1.9 million and $ 1.1 million respectively, for the years ended December 31, 2023 and 2022 as other income (expense), net on its consolidated statements of operations and comprehensive loss.

The Company incurred third-party costs of $ 0.2 million related to the execution of the Common Stock Purchase Agreement which were recorded as general and administrative expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

Refer to Note 2 for information on the fair value of the derivative liability.

During the year ended, the Company sold the entirety of the 25,000,000 shares under the ELOC Program for aggregate proceeds of approximately $ 71.7 million, with the volume weighted average stock price of shares purchased by the Counterparty ranging from $ 1.75 to $ 4.26 per share.

Sales Agreement

On July 28, 2023, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., H.C.

Wainwright & Co., LLC, and D.A.

Davidson & Co.

(each a “Sales Agent” and collectively, the “Sales Agents”), pursuant to which the Company may offer and sell up to $ 150.0 million of shares of our Class A common stock from time to time through or to the Sales Agents acting as agent or principal.

Sales of our Class A common stock, if any, under the Sales Agreement will be made at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act.

We will pay the Sales Agents commission for their services in acting as agent in the sale of our Class A common stock.

The Sales Agents are entitled to aggregate compensation at a fixed commission rate of 2.5 % of the gross sales price per share sold under the Sales Agreement.

We have also agreed to reimburse the Sales Agents for certain specified expenses, including the reasonable and documented fees and disbursements of its legal counsel in an amount not to exceed $ 75 thousand in the aggregate in connection with the execution of the Sales Agreement.

During the year ended December 31, 2023, the Company sold 5,805,995 shares of our common stock under the Sales Agreement, at a weighted-average price of $ 2.19 per share and raised $ 12.7 million of gross proceeds.

The commissions and offering costs borne by the Company during the year were approximately $ 0.3 million.

As of December 31, 2023, the Company has a remaining capacity to sell up to an additional $ 137.3 million of the Company's common stock under the Sales Agreement.

STOCK INCENTIVE PLANS

3 unchanged sentences

As of the Closing Date of the Business Combination, the Company no longer has shares available for issuance under the 2016 Plan.

The 2016 Plan provides for incentive stock options to be granted to employees at an exercise price not less than 100 % of the fair value at the grant date as determined by the Board of Directors, unless the optionee is a 10 % stockholder, in which case the option price will not be less than 110 % of such fair market value.

Options granted generally have a maximum term of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the time of grant, and generally vest over a four-year period, with a 25 % cliff vesting after one year and then ratably on a monthly basis for the remaining three years.

RSUs granted generally vest over a four-year period, with 25 % cliff vesting after one year and then ratably on a quarterly basis for the remaining three years.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

which case the option price will not be less than 110 % of such fair market value.

RSUs granted generally vest over a four-year period, with 25 % cliff vesting after one year and then ratably on a quarterly basis for the remaining three years.

On April 26, 2022, the stockholders of the Company approved the SoundHound AI, Inc.

14 unchanged sentences

The first offering period under the ESPP began on November 1, 2022.

As of December 31, 2022, we had not yet issued any shares pursuant to the ESPP.

As of December 31, 2023, we had issued 478,023 shares pursuant to the ESPP.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Option Activity

11 unchanged sentences

Outstanding, December 31, 2022 25,420,425 3.74 6.32 1,448

Exercised ( 3,585,829 ) 2.37 — $ 5,207

Forfeited or cancelled ( 4,993,229 ) 5.24 — —

Outstanding, December 31, 2023 16,841,367 $ 3.59 4.77 $ 1,392

Exercisable, December 31, 2023 15,084,586 3.26 4.45 1,392

1 unchanged sentence

There were no option exercises during the year ended December 31, 2023, 2022 and 2021 that were subject to repurchase.

The weighted average grant date fair value per option granted was $ 3.11 and $ 3.06 , during the years ended December 31, 2022 and 2021, respectively.

The total fair value of options vested was approximately $ 9.9 million and

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 5.4 million, during the years ended December 31, 2022 and 2021, respectively.

The weighted average grant date fair value per option granted was $ 3.11 , during the year ended December 31, 2022 and $ 3.06 during the year ended December 31, 2021.

There were no options granted during the year ended December 31, 2023.

The total fair value of options vested was approximately $ 4.5 million, $ 9.9 million and $ 5.4 million during the years ended December 31, 2023, 2022 and 2021, respectively.

The Company recorded stock-based compensation expense related to options of $ 4.0 million, $ 8.7 million and $ 6.3 million for the years ended December 31, 2023, 2022 and 2021.

As of December 31, 2023, the unamortized expense related to outstanding options was $ 4.5 million.

2 unchanged sentences

The assumptions under the Black-Scholes option-pricing model during the years ended December 31, 2022 and 2021 were as follows for option awards:

Year Ended December 31,

Dividend yield 0 % 0 %

2 unchanged sentences

Risk free interest rate 2.58 % 1.14 %

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ESPP Activity

For the purpose of determining the estimated fair value of ESPP shares, the Company uses the Black-Scholes option-pricing model.

The assumptions under the Black-Scholes option-pricing model during the year ended December 31, 2022 were as follows for ESPP awards:

December 31, 2022

The assumptions under the Black-Scholes option-pricing model during the year ended December 31, 2023 and 2022 were as follows for ESPP awards:

Year Ended Year Ended

December 31, 2023 December 31, 2022

Dividend yield 0 % 0 %

2 unchanged sentences

Risk free interest rate 5.26 % 4.53 %

During the year ended December 31, 2023 , the Company reco rded $ 0.4 million of stoc k-based compensation related to its ESPP.

There was $ 0.1 million of unrecognized stock-based compensation expense for the year ended December 31, 2023, related to the ESPP that is expected to be recognized over an average vesting period of 0.36 years .

Restricted Stock Unit Activity

Restricted stock unit activity under the Plans was as follows for the year ended December 31, 2022:

The activity for nonvested Restricted Stock Units under the Plans was as follows for the year ended December 31, 2023, 2022 and 2021:

Number of Shares Weighted Average Grant Date Fair Value

Outstanding, December 31, 2021 — $ —

Nonvested, December 31, 2021 — —

Granted 20,416,417 4.26

1 unchanged sentence

Forfeited ( 1,183,843 ) 4.46

Outstanding, December 31, 2022 16,716,383 $ 4.14

Nonvested, December 31, 2022 16,716,383 4.14

Granted 11,158,301 2.38

Vested ( 7,678,184 ) 3.32

Forfeited ( 3,852,909 ) 3.90

Nonvested, December 31, 2023 16,343,591 3.39

The Company recorded stock-based compensation expense of $ 1.3 million related to Performance-Based RSUs during the year ended December 31, 2023.

1 unchanged sentence

To derive the fair value of Market-Based RSUs, the Company applies a Monte Carlo simulation to determine the grant date fair value.

Stock-based compensation related to Market RSUs is recognized over the derived service period.

The assumptions under the Monte Carlo simulation model and the calculated fair value of the Market-Based RSUs granted to employees during the year ended December 31, 2022 were as follows.

The Company did not grant Market-Based RSUs during the year ended December 31, 2023.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The assumptions under the Monte Carlo simulation model and the calculated fair value of the Market-Based RSUs granted to employees during the year ended December 31, 2022 were as follows:

December 31, 2022

Expected volatility 52 %

1 unchanged sentence

Drift rate 2.9 %

The weighted average grant date fair value of the Market-Based RSUs was $ 3.91 .

The Company recorded $ 1.1 million in stock-based compensation expense related to Market-Based RSUs during the year ended December 31, 2022.

The Company recorded $ 1.5 million and $ 1.1 million in stock-based compensation expense related to Market-Based RSUs during the year ended December 31, 2023 and 2022.

Unamortized expense related to Market-Based RSUs was $ 0.6 million as of December 31, 2023.

During the year ended December 31, 2022, the fair value of RSUs that vested was $ 12.0 million.

During the year ended December 31, 2022, the Company recorded $ 19.0 million, of stock-based compensation related to RSUs.

As of December 31, 2022, the unamortized expense related to RSUs was $ 55.6 million.

There were no Market-Based RSU's granted during the year ended, December 31, 2023.

During the year ended December 31, 2023 and 2022, the fair value of RSUs that vested was $ 25.5 million and $ 12.0 million.

During the year ended December 31, 2023 and 2022 the Company recorded $ 20.4 million and $ 19.0 million of stock-based compensation related to RSUs.

As of December 31, 2023 and the unamortized expense related to RSUs was $ 50.5 million.

The weighted average remaining amortization period over which the balance as of December 31, 2023 is to be amortized is 2.32 years.

Equity Award Modifications

In connection with the Restructuring Plan (as defined in Note 10), the Company entered into severance arrangements with 166 affected employees.

Pursuant to these arrangements, these employees received acceleration of vesting of RSUs and extensions of the post-termination exercise period of stock option awards.

All award modifications related to restructuring activities were expensed in the year ended December 31, 2023.

The total incremental compensation cost resulting from these modifications is $ 3.2 million.

There were no significant modifications during the years ended December 31, 2022 and December 31, 2021.

Compensation Costs

3 unchanged sentences

As the Class B Common Stock shares have ten votes per share, the exchange resulted in incremental stock-based compensation expense of $ 1.0 million which is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022.

Stock-based compensation is classified in the following operating expense accounts on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021 (in thousands):

Stock-based compensation is classified in the following expense accounts on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31,

2023 2022 2021

Cost of revenue $ 412 $ 99 $ —

2 unchanged sentences

General and administrative 8,784 11,913 1,379

Restructuring costs 3,142 — —

Total $ 27,931 $ 28,792 $ 6,322

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company leases certain facilities under non-cancelable operating leases that expire at various dates through 2030.

2 unchanged sentences

The finance leases are collateralized by the financed assets.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Aggregate non-cancelable future minimum lease payments under operating and finance leases were as follows as of December 31, 2023 (in thousands):

2 unchanged sentences

2024 $ 3,250 $ 122

2024 3,234 122

Thereafter 785 —

6 unchanged sentences

Year Ended December 31,

2023 2022 2021

Operating lease cost $ 3,177 $ 3,423 $ 3,654

7 unchanged sentences

Weighted average discount rate 5.83 % 10.50 %

The Company’s rent expense totaled approximately $ 3.9 million and $ 4.2 million during the years ended December 31, 2022 and 2021, respectively.

The Company’s rent expense totaled approximately $ 5.3 million, $ 3.9 million and $ 4.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

OTHER EXPENSE, NET

Other expense, net on the consolidated statements of operations and comprehensive loss is comprised of the following for the years ended December 31, 2022 and 2021 (in thousands):

OTHER INCOME (EXPENSE), NET

Other income (expense), net on the consolidated statements of operations and comprehensive loss is comprised of the following for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31,

Other expense, net:

2023 2022 2021

Other income (expense), net:

Interest income $ 2,866 $ 390 $ 7

Change in fair value of derivative and warrant liability — ( 606 ) ( 4,920 )

Loss on change in fair value of ELOC program ( 1,901 ) ( 1,075 ) —

Other income (expense), net 190 32 ( 502 )

Total other expense, net $ ( 184 ) $ ( 5,415 )

Total other income (expense), net $ 1,155 $ ( 1,259 ) $ ( 5,415 )

NET LOSS PER SHARE

1 unchanged sentence

Year Ended December 31,

2023 2022 2021

Net loss (in thousands) $ ( 88,937 ) $ ( 116,713 ) $ ( 79,540 )

Cumulative dividends attributable to Series A Preferred Stock ( 2,774 ) — —

Net loss attributable to SoundHound common shareholders (in thousands) ( 91,711 ) ( 116,713 ) ( 79,540 )

Weighted average shares outstanding – basic and dilutive 229,264,904 157,317,695 67,255,538

Basic and diluted net loss per share $ ( 0.40 ) $ ( 0.74 ) $ ( 1.18 )

For the years ended December 31, 2022 and 2021, the diluted earnings per share is equal to the basic earnings per share as the effect of potentially dilutive securities would have been antidilutive.

For the years ended December 31, 2023, 2022 and 2021, the diluted net loss per share is equal to the basic earnings per share as the effect of potentially dilutive securities would have been antidilutive.

The following table summarizes the outstanding shares of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive for the years ended December 31, 2023, 2022 and 2021:

Year Ended December 31,

2023 2022 2021

Stock options 16,841,367 25,420,425 30,361,405

3 unchanged sentences

Redeemable convertible preferred stock — — 106,949,326

Series A Preferred Stock 16,226,645 — —

Total 56,678,251 46,279,440 138,373,945

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following is a geographical breakdown of loss before income taxes:

The following is a geographical breakdown of income (loss) before income taxes:

Year Ended December 31,

2023 2022 2021

Domestic $ ( 86,724 ) $ ( 116,964 ) $ ( 79,962 )

3 unchanged sentences

Year Ended December 31,

2023 2022 2021

Current provision:

9 unchanged sentences

The Company has incurred net pre-tax losses in the United States only for all periods presented.

The Company recorded an income tax expense of $ 2.9 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively, which reflects withholding tax paid on the U.S.

books for sales in foreign jurisdictions and estimated 2022 income tax related to foreign subsidiaries.

The Company recorded an income tax expense of $ 3.9 million, $ 2.9 million, and $ 0.5 million for the years ended December 31, 2023, 2022, and 2021 respectively, which reflects withholding tax paid for sales to customers in foreign jurisdictions and income tax related to foreign subsidiaries.

SOUNDHOUND AI, INC.

2 unchanged sentences

Year Ended December 31,

2023 2022 2021

Federal statutory income tax rate 21.0 % 21.0 % 21.0 %

7 unchanged sentences

Permanent book tax differences 516 751 996

Other deferred adjustments ( 1,701 ) — —

Other — ( 230 ) 748

7 unchanged sentences

Deferred revenue 767 1,612

Contract liability — 1,154

Share-based compensation 3,062 1,235

Stock-based compensation 2,246 3,062

Operating lease liabilities 1,333 2,106

9 unchanged sentences

Non-current deferred tax assets $ 1,179 $ 55

Non-current deferred tax liabilities (included as a component of Other liabilities) ( 13 ) —

Non-current deferred tax liabilities (included as a component of other non-current liabilities) ( 1,168 ) ( 13 )

Net deferred tax assets $ 11 $ 42

2 unchanged sentences

Based on available objective evidence, management believes it is more-likely-than-not that the domestic federal and state deferred tax assets;

and excess Canadian SR&ED tax credits will not be fully realized due to the Company’s cumulative losses and inability to utilize excess tax credits.

Accordingly, the Company has provided a valuation allowance on deferred tax assets in excess of deferred tax liabilities against its federal and state deferred tax assets as of December 31, 2022 and 2021.

The valuation allowance increased by $ 25.5 million and by $ 17.9 million for the years ended December 31, 2022 and 2021, respectively.

The Company capitalized research and development expenditures incurred during the year ended December 31, 2022 and amortizes such expenditures over 5 or 15 years, as applicable, pursuant to Section 174 of the Internal Revenue Code as required by the 2017 Tax Cuts and Jobs Act.

and excess Canadian SR&ED tax credits will not be fully realized due to the Company’s cumulative losses arising in the United States, and its inability to utilize excess tax credits in Canada.

Accordingly, the Company has recorded a valuation allowance on deferred tax assets in excess of deferred tax liabilities against its federal and state deferred tax assets and excess Canadian SR&ED tax credits as of December 31, 2023, and 2022.

The valuation allowance increased by $ 20.7 million from the year ended December 31, 2022 to December 31, 2023.

The Company capitalized research and development expenditures incurred during the years ended December 31, 2023 and 2022, and amortizes such expenditures over 5 or 15 years, as applicable, pursuant to Section 174 of the Internal Revenue Code as required by the 2017 Tax Cuts and Jobs Act.

The mandatory capitalization requirement did not have a material impact on our net deferred tax assets or cash tax liabilities.

The Company is not asserting permanent reinvestment of its unrepatriated foreign earnings.

As of December 31, 2022, the Company anticipated that the tax liability associated with any potential repatriation of foreign earnings is not material.

As of December 31, 2022, the Company had net operating loss carry forwards of approximately $ 344.6 million and $ 106.9 million available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively.

The federal and state net operating loss carry forwards will start to expire in 2025 and 2028, respectively, with the exception of $ 256.0 million in federal net operating loss carryforwards, which can be carried forward indefinitely.

The Company also had federal and state research and development credit carry forwards of approximately $ 11.4 million and $ 9.1 million, respectively, at December 31, 2022.

The Company has not provided U.S.

income or foreign withholding taxes on the undistributed earnings of its foreign subsidiaries as of December 31, 2023 because it intends to indefinitely reinvest such earnings outside of the U.S.

If these foreign earnings were to be repatriated in the future, the related U.S.

tax liability will not be material.

As of December 31, 2023, the Company had net operating loss carryforwards of $ 395.5 million of U.S.

federal and $ 109.4 million of state net operating loss carryforwards available to reduce future taxable income.

The federal and state net operating loss carryforwards will start to expire in 2025 and 2028, respectively, with the exception of $ 306.8 million federal net operating loss carryforwards and $ 5.6 million state net operating loss carryforwards, which can be carried forward indefinitely.

The Company had federal and state research and development credit carryforwards of $ 14.4 million and $ 10.9 million, respectively, as of December 31, 2023.

The federal credits will expire starting in 2029 if not utilized.

State research and development tax credits can be carried forward indefinitely.

The state credits can be carried forward indefinitely.

The Company also had Canadian SR&ED tax credits of $ 1.7 million, which will expire starting in 2038 if not utilized.

Under Sections 382 and 383 of the Internal Revenue Code of 1986 and similar state tax laws, utilization of net operating loss carryforwards and tax credits may be subject to annual limitations due to certain ownership changes.

10 unchanged sentences

Balance as of December 31, 2021 $ 5,068

Increase for tax positions of prior years 0

Increase for tax positions of current year 1062

Balance as of December 31, 2022 6,130

Increase for tax positions of prior years 370

Increase for tax positions of current year 1,095

Balance as of December 31, 2023 $ 7,595

These unrecognized tax benefits, if recognized, would not affect the effective tax rate and would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance.

As of December 31, 2022, the Company has not accrued any interest or penalties.

The Company does not anticipate any significant change in the Company’s uncertain tax positions within 12 months of this date.

As of December 31, 2023, the

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company has not accrued any interest or penalties.

The Company does not anticipate any significant change in the Company’s uncertain tax positions within 12 months of this date.

RELATED PARTY TRANSACTIONS

The Company entered into revenue contracts to perform professional services for certain companies who are also investors in the Company.

These companies are holders of the Company’s Class A Common Stock.

As a result of the Business Combination during the second quarter of 2022, each company's ownership interest in us was reduced to less than 5%.

Consequently, considering all aspects of our relationships with the companies, as of June 30, 2022, we no longer consider the companies related parties.

As of June 30, 2022, these entities are no longer related parties.

Below we provide our disclosures for transactions with the companies through June 30, 2022.

During the six months ended June 30, 2022, we recognized revenue from the companies of $ 5.2 million.

During the year ended December 31, 2021, we recognized revenue from the companies of $ 7.0 million.

As of December 31, 2021, we had accounts receivable and deferred revenue balances related to the companies of $ 0.6 million and $ 15.2 million, respectively.

SUBSEQUENT EVENTS

Restructuring

On January 5, 2023, SoundHound announced a restructuring plan (the “Restructuring Plan”) intended to reduce operating costs, improve operating margins, improve cash flows and accelerate the Company’s path to profitability.

The Restructuring Plan included a reduction of the Company’s then-current workforce by approximately 40 %.

The Company estimates that it will incur approximately $ 4.5 million to $ 5.5 million in charges in connection with the Restructuring Plan, of which the majority is expected to be incurred in the first quarter of 2023 and consists of severance payments, employee benefits and share-based compensation.

Of the aggregate amount of charges that the Company estimates it will incur in connection with the Restructuring Plan, the Company expects that approximately $ 2.0 million to $ 3.0 million will be in cash expenditures.

Issuance of Preferred Stock

On or around January 20, 2023, the Company entered into Preferred Stock Purchase Agreements (the “Purchase Agreements”) with certain investors (the “Investors”) pursuant to which the Company issued and sold to the Investors an aggregate of 835,011 shares of its newly designated Series A Convertible Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred Stock”) for an aggregate issue price of approximately $ 25.0 million.

Our Chief Financial Officer, Nitesh Sharan, and one of our directors, Eric Ball, each participated in the Transaction, purchasing 3,334 shares of Series A Preferred Stock each for $ 100,000 each.

The Purchase Agreements contain customary representations, warranties and covenants.

The shares of Series A Preferred Stock were issued and sold in a private placement exempt from the registration requirements of the Securities Act.

The Company does not intend to register the shares of Series A Preferred Stock or the underlying Common Stock for resale under the Securities Act.

Equity Line of Credit

On August 16, 2022, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) and related registration rights agreement (the “CFPI Registration Rights Agreement”) with CF Principal Investments LLC (“CFPI”).

Pursuant to the Common Stock Purchase Agreement, the Company, has the right to sell to CFPI up to the lesser of (i) 25,000,000 shares of Class A common stock and (ii) the Exchange Cap (as defined in the Common Stock Purchase Agreement), subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement.

On February 14, 2023, the Company’s Registration Statement on Form S-1 registering the resale of the ELOC Shares was declared effective.

The Company expects to utilize proceeds from the ELOC for working capital and other general corporate purposes.

Through March 17, 2023, the Company has sold approximately 8.8 million shares under the ELOC program for aggregate proceeds of approximately $ 24.9 million.

During the year ended December 31, 2022 and 2021, we recognized revenue from the companies of $ 5.2 million and $ 7.0 million, respectively.

On January 20, 2023, our Chief Financial Officer and one of our directors each entered into Purchase Agreements, purchasing 3,334 shares of Series A Preferred Stock each for a total purchase price of $ 100,000 each.

REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the period ended September 30, 2023, the Company identified immaterial prior period errors related to the following:

1) accounting for the ELOC as a derivative instrument;

2) classification of Lender Fees and allocation of the warrants in connection with the Term Loan;

and 3) the incorrect recording of in-kind dividends associated with the Company’s Series A Preferred Stock.

The identified errors were included in the Company's previously issued quarterly unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, the three months ended March 31, 2023 and annual consolidated financial statements as of and for the year ended December 31, 2022.

In accordance with SEC Staff Accounting Bulletin No.

99, “Materiality,” and SEC Staff Accounting Bulletin No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the errors and determined that the related impacts were not material to its consolidated financial statements for the prior year periods when they occurred, but the Company determined it would be appropriate to correct the errors in the current period in the Company’s consolidated statements of operations and comprehensive loss, consolidated balance sheets, consolidated statements of cash flows or consolidated statements of redeemable convertible preferred stock and stockholders’ deficit for any periods impacted.

The Company revised the previously issued condensed consolidated statements of operations and comprehensive loss, condensed consolidated balance sheets, condensed consolidated statements of cash flows and condensed consolidated statements of redeemable convertible preferred stock and stockholders’ deficit tables as of and for the three and six months ended June 30, 2023 and as of and for the three months ended March 31, 2023 as well as the previously issued consolidated statements of operations and comprehensive loss, consolidated balance sheets, consolidated statements of cash flows and consolidated statements of redeemable convertible preferred stock and stockholders’ deficit tables and as of and for the year ended December 31, 2022 to correct for such errors.

All relevant prior period amounts affected by these revisions have been corrected in the notes in this Form 10-K.

The following tables reflect the impact of these revisions on the Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2023 ( dollars in thousands, except per share amounts ):

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The purchase price of the shares that the Company elects to sell to CFPI pursuant to the Common Stock Purchase Agreement will be the volume weighted average price of the Common Stock during the applicable purchase date on which the Company has timely delivered written notice to CFPI directing it to purchase the shares under the Common Stock Purchase Agreement.

The Company will receive 97 % of the volume weighted average price of the Common Stock so sold.

In connection with the execution of the Common Stock Purchase Agreement, the Company issued CFPI 250,000 shares as consideration for its irrevocable commitment to purchase the shares upon the terms and subject to the satisfaction of the conditions set forth in the Common Stock Purchase Agreement.

The Company has also agreed to make a cash payment of $ 250,000 within 120 days after the commencement date of the offering and to reimburse CFPI of up to $ 75,000 of expenses.

June 30, 2023

Condensed Consolidated Balance Sheet As Previously Reported Adjustment As Revised

Accrued liabilities $ 16,381 $ ( 2,872 ) $ 13,509

Total current liabilities 27,003 ( 2,872 ) 24,131

Notes payable, net of current portion 66,428 15,872 82,300

Other non-current liabilities 16,824 ( 12,821 ) 4,003

Total liabilities 118,789 179 118,968

Additional paid-in capital 564,197 3,597 567,794

Accumulated deficit ( 550,403 ) ( 3,776 ) ( 554,179 )

Total stockholders’ equity 38,789 ( 179 ) 38,610

Total liabilities and stockholders’ equity $ 157,578 $ — $ 157,578

Three Months Ended June 30, 2023

Condensed Consolidated Statements Of Operations And Comprehensive Loss As Previously Reported Adjustment As Revised

General and administrative $ 6,377 $ 47 $ 6,424

Loss from operations ( 16,436 ) ( 47 ) ( 16,483 )

Other income (expense), net 493 ( 1,328 ) ( 835 )

Total other expense, net ( 5,079 ) ( 1,328 ) ( 6,407 )

Loss before provision for income taxes ( 21,515 ) ( 1,375 ) ( 22,890 )

Net loss ( 21,932 ) ( 1,375 ) ( 23,307 )

accrual of Series A Preferred Stock paid-in-kind dividends — ( 877 ) ( 877 )

Net loss attributable to common stockholders $ ( 21,932 ) $ ( 2,252 ) $ ( 24,184 )

Net loss per share:

Basic and diluted $ ( 0.10 ) $ ( 0.01 ) $ ( 0.11 )

Six Months Ended June 30, 2023

Condensed Consolidated Statements Of Operations And Comprehensive Loss As Previously Reported Adjustment As Revised

General and administrative $ 13,502 $ 211 $ 13,713

Loss from operations ( 41,474 ) ( 211 ) ( 41,685 )

Other income (expense), net 587 ( 2,225 ) ( 1,638 )

Total other expense, net ( 6,081 ) ( 2,225 ) ( 8,306 )

Loss before provision for income taxes ( 47,555 ) ( 2,436 ) ( 49,991 )

Net loss ( 48,301 ) ( 2,436 ) ( 50,737 )

accrual of Series A Preferred Stock paid-in-kind dividends — ( 1,559 ) ( 1,559 )

Net loss attributable to common stockholders $ ( 48,301 ) $ ( 3,995 ) $ ( 52,296 )

Net loss per share:

Basic and diluted $ ( 0.23 ) $ ( 0.02 ) $ ( 0.25 )

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended June 30, 2023

Condensed Consolidated Statement of Stockholders' Equity (Deficit) As Previously Reported Adjustment As Revised

Additional paid-in capital $ 564,197 $ 3,597 $ 567,794

Accumulated deficit ( 550,403 ) ( 3,776 ) ( 554,179 )

Net loss $ ( 21,932 ) $ ( 1,375 ) $ ( 23,307 )

Six Months Ended June 30, 2023

Condensed Consolidated Statements of Cash Flows As Previously Reported Adjustment As Revised

Net loss $ ( 48,301 ) $ ( 2,436 ) $ ( 50,737 )

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on change in fair value of ELOC program — 1,901 1,901

Changes in operating assets and liabilities

Other non-current assets 628 ( 265 ) 363

Accrued liabilities 5,045 250 5,295

Net cash used in operating activities ( 33,651 ) ( 550 ) ( 34,201 )

Proceeds from sales of common stock under the ELOC program, net 70,905 550 71,455

Net cash provided by financing activities $ 154,008 $ 550 $ 154,558

Noncash financing activities:

Accrued and unpaid debt issuance costs $ 16,461 $ ( 16,461 ) $ —

Non-cash debt discount 4,315 ( 179 ) 4,136

Issuance of common stock to settle commitment shares related to the ELOC program $ — $ 915 $ 915

The following tables reflect the impact of these revisions on the Company’s unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2023 ( dollars in thousands, except per share amounts ):

March 31, 2023

Condensed Consolidated Balance Sheet As Previously Reported Adjustment As Revised

Other non-current assets $ 2,074 $ ( 432 ) $ 1,642

Total assets 72,803 ( 432 ) 72,371

Additional paid-in capital 505,889 1,969 507,858

Accumulated deficit ( 528,471 ) ( 2,401 ) ( 530,872 )

Total stockholders’ deficit 2,382 ( 432 ) 1,950

Total liabilities and stockholders’ deficit $ 72,803 $ ( 432 ) $ 72,371

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended March 31, 2023

Condensed Consolidated Statements Of Operations And Comprehensive Loss As Previously Reported Adjustment As Revised

General and administrative $ 7,125 $ 165 $ 7,290

Loss from operations ( 25,038 ) ( 165 ) ( 25,203 )

Other income (expense), net 94 ( 896 ) ( 802 )

Total other expense, net ( 1,002 ) ( 896 ) ( 1,898 )

Loss before provision for income taxes ( 26,040 ) ( 1,061 ) ( 27,101 )

Net loss ( 26,369 ) ( 1,061 ) ( 27,430 )

accrual of Series A Preferred Stock paid-in-kind dividends — ( 682 ) ( 682 )

Net loss attributable to common stockholders $ ( 26,369 ) $ ( 1,743 ) $ ( 28,112 )

Net loss per share:

Basic and diluted $ ( 0.13 ) $ ( 0.01 ) $ ( 0.14 )

Three Months Ended March 31, 2023

Condensed Consolidated Statement of Stockholders' Equity (Deficit) As Previously Reported Adjustment As Revised

Additional paid-in capital $ 505,889 $ 1,969 $ 507,858

Accumulated deficit ( 528,471 ) ( 2,401 ) ( 530,872 )

Net loss $ ( 26,369 ) $ ( 1,061 ) $ ( 27,430 )

Three Months Ended March 31, 2023

Condensed Consolidated Statements of Cash Flows As Previously Reported Adjustment As Revised

Net loss $ ( 26,369 ) $ ( 1,061 ) $ ( 27,430 )

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on change in fair value of ELOC program — 571 571

Changes in operating assets and liabilities

Other non-current assets 19 167 186

Accrued liabilities 4,306 250 4,556

Net cash used in operating activities ( 14,467 ) ( 73 ) ( 14,540 )

Payment of financing costs associated with ELOC program — ( 250 ) ( 250 )

Proceeds from sales of common stock under the ELOC program, net 28,360 323 28,683

Net cash provided by financing activities $ 51,568 $ 73 $ 51,641

Noncash financing activities:

Issuance of common stock to settle commitment shares related to the ELOC program $ — $ 915 $ 915

The following tables reflect the impact of these revisions on the Company’s consolidated financial statements as of and for the year ended December 31, 2022 ( dollars in thousands, except per share amounts ):

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2022

Consolidated Balance Sheet As Previously Reported Adjustment As Revised

Other non-current assets $ 1,656 $ ( 265 ) $ 1,391

Total assets 38,251 ( 265 ) 37,986

Accrued liabilities 7,462 1,075 8,537

Total current liabilities 37,496 1,075 38,571

Additional paid-in capital 466,857 — 466,857

Accumulated deficit ( 502,102 ) ( 1,340 ) ( 503,442 )

Total stockholders’ deficit ( 35,225 ) ( 1,340 ) ( 36,565 )

Total liabilities and stockholders’ deficit $ 38,251 $ ( 265 ) $ 37,986

Year Ended December 31, 2022

Consolidated Statements Of Operations And Comprehensive Loss As Previously Reported Adjustment As Revised

General and administrative $ 30,178 $ 265 $ 30,443

Loss from operations ( 105,407 ) ( 265 ) ( 105,672 )

Other income (expense), net ( 184 ) ( 1,075 ) ( 1,259 )

Total other expense, net ( 7,077 ) ( 1,075 ) ( 8,152 )

Loss before provision for income taxes ( 112,484 ) ( 1,340 ) ( 113,824 )

Net loss $ ( 115,373 ) $ ( 1,340 ) $ ( 116,713 )

Net loss per share:

Basic and diluted $ ( 0.73 ) $ ( 0.01 ) $ ( 0.74 )

Year Ended December 31, 2022

Consolidated Statement of Stockholders' Equity (Deficit) As Previously Reported Adjustment As Revised

Accumulated deficit $ ( 502,102 ) $ ( 1,340 ) $ ( 503,442 )

Net loss $ ( 115,373 ) $ ( 1,340 ) $ ( 116,713 )

Year Ended December 31, 2022

Consolidated Statements of Cash Flows As Previously Reported Adjustment As Revised

Net loss $ ( 115,373 ) $ ( 1,340 ) $ ( 116,713 )

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on change in fair value of ELOC program — 1,075 1,075

Changes in operating assets and liabilities

Other non-current assets ( 539 ) 265 ( 274 )

Net cash used in operating activities $ ( 94,019 ) $ — $ ( 94,019 )

SOUNDHOUND AI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUBSEQUENT EVENTS

SYNQ3 Acquisition

On January 3, 2024, the Company acquired all of the issued and outstanding equity of Sync3, Inc.

("SYNQ3"), a leading provider of voice AI and other technology solutions to the restaurant industry, for total consideration of approximately $ 5.0 million in cash, subject to customary net working capital adjustments, and 8,968,610 shares of the Company's Class A Common Stock.

The Company has agreed to pay up to $ 4.0 million of additional consideration in cash and shares of Class A Common Stock to certain stockholders of SYNQ3 based on tiered annual revenue targets for each fiscal year 2024, 2025 and 2026, of which 20 % is to be paid in cash and the remaining in the Company's Class A Common Stock.

The stock consideration was based on a reference value of $ 2.23 per share upon the execution of the merger agreement dated December 6, 2023.

In connection with closing, approximately $ 0.5 million of additional consideration in cash and 1,179,524 shares of Class A Common Stock are being withheld for a period of 15 months to partially secure the indemnification obligations of SYNQ3's stockholders under the merger agreement.

Conversion of Preferred Stock Series A

On January 12, 2024, one investor optionally converted 35,000 shares of preferred stock into 1,199,364 shares of Class A Common Stock.

Sales Agreement Issuance

In January and February 2024, the Company sold 34,578,019 shares of our common stock under the Sales Agreement, at an average price of $ 3.37 per share and raised $ 116.4 million of gross proceeds.

The commissions and offering costs borne by the Company were approximately $ 2.9 million.

Following this issuance, the Company has a remaining capacity to sell up to an additional $ 20.8 million of the Company's common stock under the Sales Agreement.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data