What changed in this filing

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Item 1A. Risk Factors

2024-03-01 compared with 2023-03-28 · 182 added, 91 removed, 573 unchanged (32% of the section changed)

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You should carefully consider these risk factors and the other reports and documents filed by us with the SEC.

Risks Related to our Financial Condition

• We have generated substantial net losses and negative operating cash flows since inception and expect to continue to do so for the foreseeable future;

• We will require additional capital to continue planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to our stockholders;

Risks Related to our Business and Financial Condition

• We have generated substantial net losses and negative operating cash flows since inception and may never achieve or maintain profitability or generate positive cash flows;

• We may require additional capital to continue planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to our stockholders;

• Our operating results could be materially and adversely affected if it loses any of its largest customers due to concentration risk;

• The loss of one or more key members of our management team or personnel, or our failure to attract, integrate and retain additional personnel in the future, could harm our business and negatively affect our ability to successfully grow our business;

Risks Related to our Business

• The market in which we operate is highly competitive and rapidly changing and we may be unable to compete successfully;

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• If we are unable to maintain and enhance our brand or reputation as an industry leader, our operating results may be adversely affected;

• Our acquisition of Synq3, Inc.

and any potential future acquisitions or strategic transactions may subject us to various risks that could adversely affect our business and for which we may not achieve the anticipated benefit of such a transaction;

• We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet its periodic reporting obligations and the trading price of our stock could be negatively affected.

Risks Related to our Intellectual Property and Technology

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• We have a dual class common stock structure that has the effect of concentrating voting control with the holders of our Class B Common Stock.

Our Class B Common Stock has multiple votes per share and this ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of

our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may adversely affect the trading price of our Class A Common stock;

Our Class B Common Stock has multiple votes per share and this ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may adversely affect the trading price of our Class A Common stock;

• We are considered a “controlled company” within the meaning of Nasdaq listing standards and, as a result, qualify for, and may rely on, exemptions from certain corporate governance requirements.

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

Risks Related to SoundHound’s Business

Risks Related to SoundHound’s Business and Financial Condition

The market in which SoundHound operates is highly competitive and rapidly changing and SoundHound may be unable to compete successfully.

There are a number of companies that develop or may develop products that compete in the Voice AI market.

The market for SoundHound’s products and technologies is characterized by intense competition, evolving industry and regulatory standards, emerging business and distribution models, disruptive software technology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, including alternatives to certain of SoundHound’s products from other vendors which may be offered at significantly lower costs or free of charge.

The market for SoundHound’s products and technologies is characterized by intense competition, evolving industry and

regulatory standards, emerging business and distribution models, disruptive software technology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, including alternatives to certain of SoundHound’s products from other vendors which may be offered at significantly lower costs or free of charge.

Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the ability of their technologies to address the needs of SoundHound’s current and prospective customers.

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Such factors may also negatively impact consumer demand for products, including automobiles, that incorporate or use SoundHound products or technologies.

In addition, global production and sales trends can be affected by

SoundHound’s customers’ ability to continue operating in response to challenging economic conditions, and in response to labor relations issues, regulatory requirements, trade agreements and other factors.

In addition, global production and sales trends can be affected by SoundHound’s customers’ ability to continue operating in response to challenging economic conditions, and in response to labor relations issues, regulatory requirements, trade agreements and other factors.

The volume of global automotive production, in particular, has fluctuated, sometimes significantly, from year to year, and such fluctuations give rise to fluctuations in the demand for SoundHound’s products.

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The design and development of new cloud-connected and embedded products and technologies and the addition of new languages will involve significant expense.

SoundHound’s research and development costs have greatly increased in recent years and, together with certain expenses associated with delivering SoundHound’s connected services, are projected to continue to escalate in the near future.

SoundHound may encounter difficulties with designing, developing, and releasing new cloud-connected and embedded components, as well as integrating these components with SoundHound’s existing technologies.

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Prospective customers generally must make significant commitments of resources to test and validate SoundHound’s products before including them in a product or vehicle.

The development cycles of SoundHound’s products with new customers are

approximately six months to two years after a design win, depending on the customer and the complexity of the product.

The development cycles of SoundHound’s products with new customers are approximately six months to two years after a design win, depending on the customer and the complexity of the product.

These development cycles result in SoundHound investing its resources in customers and customer products prior to realizing any revenues from the related customer contracts.

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Alternatively, there is a risk that one or more of SoundHound’s major customers could be unable to pay its invoices as they become due or that a customer will simply refuse to make such payments given its financial difficulties.

If a major customer becomes subject to bankruptcy or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against SoundHound legally enforcing its obligations, it is likely that SoundHound will be forced to record a substantial loss.

obligations, it is likely that SoundHound will be forced to record a substantial loss.

In addition, certain of SoundHound’s customers that are tier 1 suppliers to the automotive industry exclusively sell to certain OEMs, including some of SoundHound’s other customers.

A bankruptcy of, or other significant disruption to, any of these OEMs could intensify any adverse impact on our business and results of operations.

During the years ended December 31, 2023, two customers accounted for 62% of SoundHound's total revenues.

During the years ended December 31, 2022 and 2021, three customers accounted for the following approximate percentages of SoundHound’s total revenues during the respective applicable period:

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

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

Accounts receivable balances due from three customers collectively totaled 87% of the Company’s consolidated accounts receivable balance at December 31, 2023.

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

The unbilled receivables balances from three customers collectively totaled 86% of the Company’s consolidated unbilled receivables balance at December 31, 2023.

The unbilled receivables balances from three customers collectively totaled 78% of the Company’s consolidated unbilled receivables balance at December 31, 2022.

In addition to upfront payments pursuant to professional services or custom engineering agreements, SoundHound generally enters into master service agreements with its largest customers and also provides them with engineering and custom services.

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Therefore, SoundHound’s failure to meet revenue expectations would seriously harm its operating results, financial condition, and cash flows.

SoundHound has generated substantial net losses and negative operating cash flows since its inception and expects to continue to do so for the foreseeable future.

To date, SoundHound has generated substantial net losses and negative cash flows from operating activities.

SoundHound is continuing to implement its restructuring plan in an effort to reduce such losses and accelerate a pathway to profitability, however there is no guarantee that the restructuring plan will be successful.

If such restructuring plan is unsuccessful, SoundHound expects that its net losses and its negative operating cash flows will continue for the foreseeable future.

Even if the restructuring plan is successful, SoundHound may continue to have net losses and negative operating cash flows as SoundHound continues to invest in its development activities, and in sales and marketing.

SoundHound also expects to incur the incremental costs of operating as a public company, contributing to SoundHound’s losses and operating uses of cash.

SoundHound’s costs may also increase due to such factors as higher than anticipated financing and other costs;

increases in the costs of labor or infrastructure, in particular following the implementation of the restructuring plan;

and major incidents or catastrophic events.

If any of these or similar factors occur, SoundHound’s net losses and accumulated deficit could increase significantly and the price of shares of its common stock could decline.

SoundHound will require additional capital to continue its planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to its stockholders.

SoundHound will require additional capital to continue its planned business operations.

SoundHound implemented its restructuring plan to reduce the amount of capital required to meet its current business needs, but anticipates that current cash, cash equivalents, cash provided by operating activities and funds available through SoundHound’s equity line of

credit, will not be sufficient to meet its future capital needs.

SoundHound will need additional financing to execute on its current or future business strategies, including to:

• potentially hire additional software engineers, sales and marketing professionals, and other personnel as needed following implementation of the restructuring plan;

• develop new or enhance existing products and services;

• enhance SoundHound’s operating infrastructure;

• acquire complementary businesses or technologies;

• otherwise respond to competitive pressures.

If SoundHound raises additional funds through the issuance of equity, including its current equity line of credit arrangement, or convertible debt securities, the percentage ownership of its stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders, including those acquiring shares in this offering.

SoundHound cannot assure you that additional financing will be available on terms favorable to SoundHound, or at all, particularly in light of inflationary pressures and resulting increases in the cost of borrowing.

If adequate funds are not available or are not available on acceptable terms, if and when needed, SoundHound’s ability to fund its operations, take advantage of unanticipated opportunities, develop or enhance its products, or otherwise respond to competitive pressures would be significantly limited.

The loss of one or more key members of SoundHound’s management team or personnel, or its failure to attract, integrate and retain additional personnel in the future, could harm its business and negatively affect its ability to successfully grow its business.

SoundHound is highly dependent upon the continued service and performance of the key members of SoundHound’s management team and other personnel.

The loss of any of these individuals, each of whom is “at will” and may terminate his or her employment relationship with us at any time, could disrupt SoundHound’s operations and significantly delay or prevent the achievement of our business objectives.

Additionally, if any of SoundHound’s key management team members or other employees were to leave, SoundHound could face substantial difficulty in hiring qualified successors, particularly with consideration to our recent reduction in force related to our restructuring plan, and could experience a loss in productivity while any successor obtains the necessary training and experience.

Although SoundHound has arrangements with some of its executive officers designed to promote retention, its employment relationships are generally at-will and SoundHound has had key employees leave in the past.

SoundHound cannot assure you that one or more key employees will not leave in the future.

SoundHound intends to continue to hire additional highly qualified personnel, including research and development and operational personnel, as needed (with consideration to our restructuring plan) but may not be able to attract, assimilate or retain qualified personnel in the future or may be required to pay increased compensation in order to do so.

Any failure to attract, integrate, motivate and retain such employees could harm SoundHound’s business or impair our ability to timely meet business goals and objectives.

SoundHound depends on skilled employees and could be impacted by a shortage of critical skills.

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SoundHound’s services involve the transmission, use, and storage of customers’ and their customers’ information, which may be confidential or contain personally identifiable information.

Any cybersecurity or data privacy

incidents could have a material adverse effect on SoundHound’s results of operations and financial condition.

Any cybersecurity or data privacy incidents could have a material adverse effect on SoundHound’s results of operations and financial condition.

While SoundHound maintains a broad array of information security and privacy measures, policies and practices, its networks may be breached through a variety of means, resulting in someone obtaining unauthorized access to SoundHound’s information, to information of SoundHound’s customers or their customers, or to SoundHound’s intellectual property;

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China has recently implemented new regulation pertaining to cybersecurity and the protection of personal information, including the Data Security Law which took effect in September 2001 and the Personal Information Protection Law which took effect in November 2021.

Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or

changes in enforcement.

Compliance with cybersecurity and data security legislation could significantly increase the cost to SoundHound of carrying out its business in China, require significant changes to its operations or even prevent SoundHound from providing certain service offerings in jurisdictions in which SoundHound currently operates or in which it may operate in the future.

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SoundHound conducts a significant portion of the development of its voice recognition and natural language understanding solutions in Canada, Germany, Japan and China.

SoundHound is exposed to fluctuating exchange rates of foreign currencies including the euro, British

pound, Canadian dollar, Chinese RMB, Japanese yen, Indian rupee and South Korean won.

SoundHound is exposed to fluctuating exchange rates of foreign currencies including the euro, British pound, Canadian dollar, Chinese RMB, Japanese yen, Indian rupee and South Korean won.

Accordingly, SoundHound’s future results could be harmed by a variety of factors associated with international sales and operations, including:

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SoundHound currently generates less than $0.1 million annually in revenue from its operations in China, though SoundHound expects to expand its business in China going forward.

Foreign ownership of certain types of internet businesses, such as internet information services, is subject to restrictions under applicable Chinese laws, rules and

Foreign ownership of certain types of internet businesses, such as internet information services, is subject to restrictions under applicable Chinese laws, rules and regulations.

For example, foreign investors are generally not permitted to own more than 50% of the equity interests in a value-added telecommunication service provider.

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In addition, it is unclear what impact Chinese government actions would have on SoundHound and on its ability to consolidate the financial results of its variable interest entity in its consolidated financial statements, if the Chinese government authorities were to find SoundHound’s legal structure and contractual arrangements to be in violation of Chinese laws, rules and regulations.

If the imposition of any of these government actions causes SoundHound to lose its right to direct the activities of its variable interest entity or otherwise separate from it and if SoundHound is not able to restructure its ownership structure and operations in a satisfactory manner, SoundHound would no longer be able to consolidate the financial results of its variable interest entity in its consolidated financial statements.

If the imposition of any of these government actions causes SoundHound to lose its right to direct the activities of its variable

interest entity or otherwise separate from it and if SoundHound is not able to restructure its ownership structure and operations in a satisfactory manner, SoundHound would no longer be able to consolidate the financial results of its variable interest entity in its consolidated financial statements.

Any of these events could have a material adverse effect on SoundHound’s business, financial condition and results of operations through its Chinese subsidiary.

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SoundHound’s international operating results may be affected by volatility in currency exchange rates and its ability to effectively manage its currency transaction risks.

SoundHound would incur currency transaction risks if SoundHound were

to enter into either a purchase or a sale transaction using a different currency from the currency in which SoundHound reports revenue.

SoundHound would incur currency transaction risks if SoundHound were to enter into either a purchase or a sale transaction using a different currency from the currency in which SoundHound reports revenue.

In such cases, SoundHound may suffer an exchange loss because SoundHound does not currently engage in currency swaps or other currency hedging strategies to address this risk.

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• being subject to a wide variety of complex foreign laws, treaties and regulations and adjusting to any unexpected changes in such laws, treaties and regulations;

• specific and significant regulations, including, but not limited to, the European Union’s General Data Protection Regulation (“GDPR”), which imposes compliance obligations on companies who possess and use data of EU residents;

• specific and significant regulations, including, but not limited to, the European Union’s GDPR, which imposes compliance obligations on companies who possess and use data of EU residents;

• differences in analysis of regulatory, legal and tax issues across various countries, such as different interpretations of antitrust and competition laws;

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Operating in international markets requires significant resources and management attention and subjects it to intellectual property, regulatory, economic and political risks that are different from those in the United States.

As SoundHound increases its international sales efforts it will face risks in doing business internationally that could harm its business, including:

SoundHound increases its international sales efforts it will face risks in doing business internationally that could harm its business, including:

• the need to establish and protect SoundHound’s brand in international markets;

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In addition, compliance with laws and regulations applicable to SoundHound’s international operations increases its cost of doing business outside the United States.

SoundHound may be unable to keep current with changes in foreign government requirements and laws as they change from time to time, which often occurs with minimal or no advance notice.

SoundHound may be unable to keep current with changes in foreign

government requirements and laws as they change from time to time, which often occurs with minimal or no advance notice.

Failure to comply with these regulations could harm its business.

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This analysis is heavily dependent upon SoundHound’s current and projected operating results.

A decline in future operating results could provide substantial evidence that a full or partial valuation allowance for deferred

tax assets is necessary.

A decline in future operating results could provide substantial evidence that a full or partial valuation allowance for deferred tax assets is necessary.

This could have a material adverse effect on SoundHound’s results of operations and financial condition.

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If SoundHound does not successfully maintain and enhance its brand and reputation, its operating results may be adversely affected.

We may engage in future acquisitions or strategic transactions which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management.

In January 2024, we completed our acquisition of Synq3, Inc.

and we are continuing to actively evaluate opportunities to grow and enhance our business and technologies.

In the event we engage in an acquisition or strategic transaction, including by making an investment in another company, we may need to acquire additional financing.

Obtaining financing through the issuance or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution to our current stockholders.

Additionally, any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results.

For example, an acquisition or strategic transaction, may entail numerous operational and financial risks, including the risks outlined above and additionally:

• exposure to unknown financial or product liabilities;

• disruption of our business and diversion of our management's time and attention in order to develop acquired products or technologies;

• higher than expected acquisition and integration costs;

• write-downs of assets or goodwill or impairment charges;

• increased amortization expenses;

• difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;

• impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership;

• inability to retain key employees of any acquired businesses.

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

If intangible assets and goodwill that we recorded in connection with our acquisitions become impaired, we may have to take significant charges against earnings.

Under generally accepted accounting principles in the United States, we must assess, at least annually and potentially more frequently, whether the value of indefinite-lived intangible assets and goodwill have been impaired.

Intangible assets and goodwill will be assessed for impairment in the event of an impairment indicator.

Any reduction or impairment of the value of intangible assets and goodwill will result in a charge against earnings, which could materially adversely affect our results of operations and shareholders’ equity in future periods.

Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.

As a part of our growth strategy, we have made and may continue to make selected acquisitions of complementary products and/or businesses.

Any acquisition involves numerous risks and operational, financial, and managerial challenges, including the following, any of which could adversely affect our business, financial condition, or results of operations:

• difficulties in integrating new operations, technologies, products, and personnel;

• problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems;

• lack of synergies or the inability to realize expected synergies and cost-savings;

• difficulties in managing geographically dispersed operations, including risks associated with entering foreign markets in which we have no or limited prior experience;

• underperformance of any acquired technology, product, or business relative to our expectations and the price we paid;

• negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges;

• the potential loss of key employees, customers, and strategic partners of acquired companies;

• claims by terminated employees and shareholders of acquired companies or other third parties related to the transaction;

• the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash;

• the issuance of equity securities to finance or as consideration for any acquisitions that dilute the ownership of our stockholders (which in the case of certain of our prior acquisitions were significant);

• the issuance of equity securities to finance or as consideration for any acquisitions may not be an option if the price of our common stock is low or volatile which could preclude us from completing any such acquisitions;

• diversion of management’s attention and company resources from existing operations of the business;

• inconsistencies in standards, controls, procedures, and policies;

• the impairment of intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies;

• assumption of, or exposure to, historical liabilities of the acquired business, including unknown contingent or similar liabilities, including product liability, that are difficult to identify or accurately quantify;

• risks associated with acquiring intellectual property, including potential disputes regarding acquired companies’ intellectual property.

In addition, the successful integration of acquired businesses requires significant efforts and expense across all operational areas, including sales and marketing, research and development, finance, legal, and information technologies.

There can be no assurance that any of the acquisitions we may make will be successful or will be, or will remain, profitable.

Our failure to successfully address the foregoing risks may prevent us from achieving the anticipated benefits from any acquisition in a reasonable time frame, or at all.

The integration of our acquisitions may result in significant accounting charges that adversely affect the announced results of our company.

The financial results of our company may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with our acquisitions.

In addition to the anticipated cash charges, costs associated with the amortization of intangible assets are expected.

The price of our common stock could decline to the extent our financial results are materially affected by the foregoing charges or if the foregoing charges are larger than anticipated.

Our recent acquisitions may result in unexpected consequences to our business and results of operations.

Although we believe that our recently acquired businesses will generally be subject to risks similar to those to which we are subject to in our existing operations, we may not have discovered all risks applicable to these businesses during the due diligence process.

Some of these risks could produce unexpected and unwanted consequences for us.

Undiscovered risks may result in us incurring financial liabilities, which could be material and have a negative impact on our business operations.

Failure to realize the benefits expected from our recent acquisitions could adversely affect the value of our common stock.

The success of our recent acquisition will depend, in part, on our ability to:

• integrate Synq3’s customer base and capitalize on our cross-selling opportunities;

• realize cost savings from reduced back-office and infrastructure expenses, elimination of duplicative company and management structure costs;

• operate our combined businesses efficiently, achieve the strategic operating objectives for our business and realize significant cost savings and synergies;

• realize the attractive risk-adjusted equity returns from our acquisitions for our stockholders;

• capitalize on the embedded and/or underexploited expansion opportunities offered by our acquisitions that we can expand upon.

However, to realize the anticipated benefits of our acquisition we must successfully integrate their business in a manner that permits those benefits and cost savings to be realized.

Although we expect significant benefits to result from this acquisition, there can be no assurance that we will be able to successfully realize these benefits.

The challenges involved in this integration will be complex and time consuming and may require a disproportionate amount of resources and management attention and could result in the loss of valuable employees, the disruption of each company’s ongoing

business or inconsistencies in standards, controls, procedures, practices, and policies that could adversely impact our operations.

If we do not successfully manage these and related issues and challenges, we may not achieve the anticipated benefits of these acquisitions and our revenue, expenses, operating results, financial condition and stock price could be materially adversely affected.

SoundHound has generated substantial net losses and negative operating cash flows since its inception and may continue to do so for the foreseeable future.

To date, SoundHound has generated substantial net losses and negative cash flows from operating activities.

SoundHound may continue to have net losses and negative operating cash flows as SoundHound continues to invest in its development activities, and in sales and marketing.

SoundHound also expects to incur the incremental costs of operating as a public company, contributing to SoundHound’s losses and operating uses of cash.

SoundHound’s costs may also increase due to such factors as higher than anticipated financing and other costs;

increases in the costs of labor or infrastructure, in particular following the implementation of the restructuring plan;

and major incidents or catastrophic events.

If any of these or similar factors occur, SoundHound’s net losses and accumulated deficit could increase significantly and the price of shares of its common stock could decline.

SoundHound may require additional capital to continue its planned business operations but may not be able to obtain such capital when desired on favorable terms, if at all, or without dilution to its stockholders.

SoundHound will require additional capital to continue its planned business operations.

SoundHound anticipates that current cash, cash equivalents, cash provided by operating activities and funds available through SoundHound’s at-the-market offering program (ATM program), will not be sufficient to meet its future capital needs.

SoundHound will need additional financing to execute on its current or future business strategies, including to:

• potentially hire additional software engineers, sales and marketing professionals, and other personnel as needed following implementation of the restructuring plan;

• develop new or enhance existing products and services;

• enhance SoundHound’s operating infrastructure;

• acquire complementary businesses or technologies;

• otherwise respond to competitive pressures.

If SoundHound raises additional funds through the issuance of equity, including its ATM Program, or convertible debt securities, the percentage ownership of its stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders, including those acquiring shares in this offering.

SoundHound is highly dependent upon the continued service and performance of the key members of SoundHound’s management team and other personnel.

Additionally, if any of SoundHound’s key management team members or other employees were to leave, SoundHound could face substantial difficulty in hiring qualified successors, particularly with consideration to our recent reduction in force related to our restructuring plan and could experience a loss in productivity while any successor obtains the necessary training and experience.

Although SoundHound has arrangements with some of its executive officers designed to promote

retention, its employment relationships are generally at-will and SoundHound has had key employees leave in the past.

SoundHound cannot assure you that one or more key employees will not leave in the future.

Any failure to attract, integrate, motivate and retain such employees could harm SoundHound’s business or impair our ability to timely meet business goals and objectives.

The Company has identified material weaknesses in its internal control over financial reporting and may identify additional material weaknesses in the future, which may result in material misstatements of the Company’s consolidated financial statements or cause the Company to fail to meet its periodic reporting obligations and the trading price of our stock could be negatively affected.

Since becoming a public company, our Company has been classified as a non-accelerated filer, emerging growth company and smaller reporting company.

On June 30, 2023 (the annual measurement date for SEC filing status), our public float was in excess of $700 million, and accordingly we have become a large accelerated filer for the year ended December 31, 2023 and are now subject to the requirements of 404(b) of Sarbanes-Oxley Act of 2002 (“SOX”) for the year ended December 31, 2023.

The Company did not maintain an effective control environment as it lacked sufficient oversight of activities related to its internal control over financial reporting due to a lack of appropriate level of experience and training commensurate with its financial reporting requirements.

Further, due to rapid business growth, changes to existing controls or the implementation of new controls have not been sufficient 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.

These material weaknesses contributed to the following additional material weaknesses as of December 31, 2023:

• The Company did not design and maintain effective controls to verify appropriate accounting for complex financing transactions.

• The Company did not design and maintain effective controls to verify appropriate segregation of duties, including assessment of incompatible duties, identification of instances where incompatible duties were assigned to an individual, and addressing conflicts on a timely basis.

• The Company did not design and maintain effective controls over certain information technology (IT) general controls over information systems that are relevant to the preparation of the Company’s financial statements.

Specifically, the Company did not design and maintain:

(i) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel;

(ii) program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately;

and (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored.

The material weaknesses related to the control environment, risk assessment and complex financing transactions resulted in the revision of the consolidated financial statements as of and for the periods ended September 30, 2022, December 31, 2022, March 31, 2023 and June 30, 2023.

The material weaknesses related to segregation of duties and IT general controls did not result in a misstatement to our annual or interim consolidated financial statements.

Additionally, the material weaknesses could result in misstatements to substantially all of our accounts and disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.

Effective internal control over financial reporting is necessary to provide reliable financial reports and to assist in the effective prevention or detection of material misstatements due to error or fraud.

Any inability to provide reliable financial reports or prevent or detect material misstatements due to error or fraud could harm our business.

We regularly review and update our internal control over financial reporting, disclosure controls and procedures, and corporate governance policies.

In addition, we are required under the rules and regulations of the SEC regarding compliance with SOX to report annually on the effectiveness of our internal control over financial reporting.

Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.

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 our annual or interim

financial statements will not be prevented or detected on a timely basis.

Accordingly, a material weakness increases the risk that the financial information we report contains material misstatements.

While we are in the process of addressing our material weaknesses as disclosed herein, elements of our remediation plan can only be accomplished over time and we can offer no assurance that these initiatives will ultimately have the intended effects.

Any failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial results on a timely and accurate basis.

If our financial statements are not accurate, investors may not have a complete understanding of our operations or may lose confidence in our reported financial information.

Likewise, if our financial statements are not filed on a timely basis as required by the SEC and The NASDAQ Stock Market, we could face severe consequences from those authorities.

In either case, it could result in a material adverse effect on our business or have a negative effect on the trading price of our common stock.

Further, if we fail to remedy these deficiencies (or any other future deficiencies) or maintain effective internal control over financial reporting, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation.

We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of our financial statements will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of those controls.

Further, in the future, if we cannot conclude that we have effective internal control over our financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could lead to a decline in our stock price.

Natural disasters, health epidemics, or other catastrophic events may cause damage or disruption to our operations, commerce and the global economy, and have a negative effect on our business and operations.

Our business operations are subject to interruption by natural disasters, flooding, fire, power shortages, health epidemics, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, the effects of climate change (such as drought, wildfires, hurricanes, and increased storm severity) and other events beyond our control.

Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, and could cause us to incur substantial expense.

Our insurance may not be sufficient to cover losses or additional expenses that we may sustain.

Our corporate headquarters are located near major seismic faults in California.

Customer data could be lost, significant recovery time could be required to resume operations and our financial condition and operating results could be adversely affected in the event of a major natural disaster or catastrophic event.

In addition, the impacts of climate change on the global economy and our industry are rapidly evolving.

We may be subject to increased regulations, reporting requirements, standards or expectations regarding the environmental impacts of our business.

Risks Relating to SoundHound’s Intellectual Property and Technology

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In addition, the laws of some foreign countries do not protect SoundHound’s proprietary rights to the same extent as the laws of the United States.

Although the source code for SoundHound’s proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessary to enforce its intellectual property

rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.

Although the source code for SoundHound’s proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessary to enforce its intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.

Litigation, regardless of the outcome, can be very expensive and can divert management’s efforts.

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SoundHound’s ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in its ability to be competitive.

There is a risk that we will not be able to achieve the technological advances that may be necessary for us to be competitive or that certain of its products will become obsolete.

There is a risk that we will not be able to achieve the technological advances that may be necessary for us to be competitive or that

certain of its products will become obsolete.

SoundHound is also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly.

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Risks Related to SoundHound’s Class A Common Stock and the Securities Market

SoundHound’s stock price and trading volume may fluctuate significantly.

SoundHound’s stock price and trading volume has fluctuated significantly and may continue to fluctuate significantly in the future.

The market price and trading volume of SoundHound’s Class A Common Stock has fluctuated widely and may continue to fluctuate widely, depending on many factors, some of which may be beyond our control, including:

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Low trading volume for SoundHound’s Class A Common Stock, which may occur if an active trading market does not develop, among other reasons, would amplify the effect of the above factors on stock price volatility.

In addition, over the last few years, the stock market more broadly has experienced price and volume fluctuations, including due to factors relating to the ongoing outbreak of COVID-19 and the war in Ukraine, and this volatility has sometimes been unrelated to the operating performance of particular companies.

In addition, over the last few years, the stock market more broadly has experienced price and volume fluctuations, including due to factors relating to the outbreak of COVID-19, inflationary pressures, and the wars in Ukraine and in Gaza, and this volatility has sometimes been unrelated to the operating performance of particular companies.

As a result, there is a potential for rapid and substantial decreases in the price of our Class A Common Stock, including decreases unrelated to our operating performance or prospects.

This market and share price volatility relating to the effects of COVID-19 or the war in Ukraine, as well as general economic, market or political conditions, has and could further reduce the market price of our Class A Common Stock in spite of our operating performance and could also increase our cost of capital, which could prevent us from accessing debt and equity capital on terms acceptable to us or at all.

This market and share price volatility relating to these outside effects, as well as

general economic, market or political conditions, has and could further reduce the market price of our Class A Common Stock in spite of our operating performance and could also increase our cost of capital, which could prevent us from accessing debt and equity capital on terms acceptable to us or at all.

Additionally, a proportion of our Class A Common Stock may be traded by short sellers which may put pressure on the supply and demand for our Class A Common Stock, creating further price volatility.

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The requirements of being a public company may strain SoundHound’s resources and divert management’s attention, and the increases in legal, accounting and compliance expenses may be greater than SoundHound anticipates.

As a public company, and particularly after we are no longer an “emerging growth company” or a “smaller reporting company,” we will continue to incur significant legal, accounting and other expenses that SoundHound did not incur as a private company.

SoundHound is subject to the reporting requirements of the Exchange Act, and is required to comply

with the applicable requirements of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the Nasdaq, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.

As a public company, and particularly since we are no longer an “emerging growth company” or a “smaller reporting company,” we will continue to incur significant legal, accounting and other expenses that SoundHound did not incur as a private company.

SoundHound is subject to the reporting requirements of the Exchange Act, and is required to comply with the applicable requirements of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the Nasdaq, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.

Compliance with these rules and regulations can be burdensome.

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Moreover, these rules and regulations have increased, and will continue to increase, SoundHound’s historical legal and financial compliance costs and will make some activities more time-consuming and costly.

For example, SoundHound expects to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when SoundHound is no longer an “emerging growth company” or a “smaller reporting company” with revenues of less than $100 million.

SoundHound will need to hire additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and technical accounting knowledge and maintain an internal audit function, which will increase its operating expenses.

For example, SoundHound expects to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.

SoundHound has hired and will continue to need to hire additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and technical accounting knowledge and maintain an internal audit function, which has and will increase its operating expenses.

Moreover, SoundHound could incur additional compensation costs in the event that it decides to pay cash compensation closer to that of other publicly listed companies, which would increase its general and administrative expenses and could materially and adversely affect its profitability.

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Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of the post-combination company.

SoundHound may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies.

SoundHound may not have

adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies.

SoundHound’s management will need to continually assess its staffing and training procedures to improve its internal control over financial reporting.

For example, SoundHound did not timely file its Form 10-Q for the quarter ended March 31, 2021 and unless the matters discussed in this risk factor and elsewhere in this Annual Report are mitigated, the risk exists that SoundHound may not be able to file timely in the future.

For example, SoundHound did not timely file its Form 10-Q for the quarter ended March 31, 2021 and had to file an extension for its Form 10-Q for the quarter ended September 30, 2023 and unless the matters discussed in this risk factor and elsewhere in this Annual Report are mitigated, the risk exists that SoundHound may not be able to file timely in the future.

Further, the development, implementation, documentation and assessment of appropriate processes, in addition to the need to remediate any potential deficiencies, will require substantial time and attention from management.

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SoundHound Founders own shares of Class B Common Stock representing approximately 63% of the voting power of the outstanding capital stock of SoundHound.

In addition, because of the ten-to-one voting ratio between our Class B and Class A Common Stock, holders of our Class B Common Stock could continue to control a majority of the combined voting power of our Common Stock and therefore control all matters submitted to our stockholders for approval until such time, if any, as a sufficient number of shares of our Class B Common Stock are converted into shares of our Class A Common Stock in accordance with the terms of the Amended Charter.

This concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transactions requiring stockholder approval.

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Delaware law and provisions in our charter documents could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.

The Amended Charter, Amended Bylaws, and Delaware law contain provisions that could depress the trading price of our common stock by acting to discourage, delay, or prevent a change of control of SoundHound or changes in SoundHound that our management or stockholders may deem advantageous.

The Amended Charter, Amended & Restated Bylaws of the Company (the "Amended Bylaws"), and Delaware law contain provisions that could depress the trading price of our common stock by acting to discourage, delay, or prevent a

change of control of SoundHound or changes in SoundHound that our management or stockholders may deem advantageous.

Among other things, the Amended Charter and Amended Bylaws include the following provisions:

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On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”).

In particular, sweeping changes were made to the U.S.

In particular, sweeping changes were made to the

taxation of foreign operations.

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federal and $109.4 million of state net operating loss carryforwards available to reduce future taxable income.

federal net operating loss carryforwards, $256.0 million will be carried forward indefinitely for U.S.

federal tax purposes and $88.6 million will begin to expire in 2025.

SoundHound’s U.S.

state net operating loss carryforwards will begin to expire in 2028.

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.

It is possible that SoundHound will not generate taxable income in time to use these net operating loss carryforwards before their expiration or at all.

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Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

Unresolved Staff Comments

Our corporate headquarters is located in Santa Clara, California, within a consolidated building covering 61,360 square feet.

Our lease began in 2017 and is set to expire in 2024.

In addition to our headquarters, we lease offices in Boulder, CO;

Toronto, Paris, Tokyo, and Beijing and leverage shared workspace offices in Berlin and Seoul.

Legal Proceedings

The material set forth in the section titled “Legal Proceedings” in Note 7 of our Notes to Consolidated Financial Statements is incorporated herein by reference.

Mine Safety Disclosures

Not applicable.

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 1A. Risk Factors