SoundHound AI Inc

Item 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including those described ibelow and those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our stock. TOthere h than as described below, there have been no material changes from these risk factors during the quarter ended June 30, September 30, 2024.

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 and in August 2024., we completed our acquisition of Amelia and we continue to actively evaluate opportunities to grow and enhance our business and technologies. In the event we engage in an acquisition or other 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; and

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, including our SYNQ3 and Amelia acquisitions, become impaired, we may have to take significant charges against earnings, which would have a negative impact on our financial condition and results of operations.

We record goodwill and intangible assets at fair value upon the acquisition of a business. Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired. 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.

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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 managements 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; and

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, and in particular, our acquisitions of SYNQ3 and Amelia, may result in significant accounting charges that adversely affect the financial 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 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.

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The existence of a material weakness in internal control over financial reporting of one of our acquired entities may adversely affect our ability to provide timely and reliable financial results.

A material weakness is a deficiency, or a combination of deficiencies, in the internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a companys financial statements will not be prevented or detected on a timely basis. To the extent that any material weakness or significant deficiency exists in the internal control over financial reporting of an acquired entity or a potential acquired entity, such material weakness or significant deficiency may adversely affect our ability to accurately assess such potential acquisition, and, if acquired, may negatively affect our ability to provide timely and reliable financial information necessary for the conduct of our business and the satisfaction of our reporting obligations under the federal securities laws. For example, Amelia identified material weaknesses in its reporting system in connection with its fiscal 2023 audit, relating to revenue recognition, financial close processes and income taxes. As of the date of our acquisition of Amelia, such material weaknesses had not yet been successfully remediated. In addition, as disclosed in our Annual Report, our management identified material weaknesses in our internal control over financial reporting. While we are in the process of addressing our material weaknesses as discussed in our Annual Report and this Quarterly Report on Form 10-Q, 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.

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

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

integrate SYNQ3s and Amelias customer bases and capitalize on our cross-selling opportunities;

realize cost savings from reduced back-office and infrastructure expenses, eliminate 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; and

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 acquisitions we must successfully integrate their businesses in a manner that permits those benefits and cost savings to be realized. Although we expect benefits to result from these acquisitions, 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 companys 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.