SOUNDHOUND AI, INC. Q3 FY2021 earnings

Archimedes Tech SPAC Partners Co. spent the September 2021 quarter the way a blank check company does: holding IPO proceeds in trust, screening acquisition targets, and absorbing the costs of being public. The reported figures put revenue at $4.03 million for the quarter ended September 30, 2021 and $16.05 million for the nine months then ended. Operating margin was -5.7% for the quarter and -2.9% for the nine months. Diluted loss per share came to $0.35 for the quarter and $0.86 year to date. Operating cash flow was -$0.17 million in the quarter and -$0.47 million for the nine months, and capital expenditures were $0.12 million and $0.23 million over the same periods. The MD&A states that the company has not commenced operations and will not generate any operating revenues until after the completion of its initial business combination, at the earliest.

The corporate history explains the shape of the numbers. Archimedes was formed on September 15, 2020 to pursue a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination, with a stated focus on the technology industry. All activity through September 30, 2021 relates to its formation, its IPO and the search for a target. Until a deal closes, the only income it expects is non-operating interest from the trust account.

The trust account is the balance sheet story. The company sold 12,000,000 public units at $10.00 each in its March 15, 2021 IPO, generating gross proceeds of $120,000,000, and 390,000 private units at $10.00 in a simultaneous private placement that raised gross proceeds of $3,900,000. On March 19, 2021 the underwriters partially exercised their over-allotment option, adding 1,300,000 public units for gross proceeds of $13,000,000 and 26,000 private units for $260,000. In total, $133,000,000 was placed in the trust account. Cash held outside the trust account stood at $628,652 on September 30, 2021.

The quarterly loss is small and mostly administrative. The net loss of $191,075 for the three months ended September 30, 2021 comprised operating costs of $229,484, interest income of $3,352 from marketable securities held in the trust account, and an unrealized gain of $35,057 on the change in fair value of warrants. For the nine months ended September 30, 2021, the net loss of $345,648 comprised operating costs of $461,826, interest income of $7,230 and an unrealized gain of $108,948 on warrants. Common stock subject to possible redemption is carried at redemption value as temporary equity, outside of the stockholders' equity section.

Liquidity is where the risk sits. Management states that the $628,652 held outside the trust account will not be sufficient to operate for at least the next 12 months if a business combination is not consummated during that time. The company may need additional financing to consummate a deal, and there is no assurance that new financing will be available on commercially acceptable terms. If no business combination is completed by September 15, 2022, it triggers automatic winding up, liquidation and dissolution. Those conditions raise substantial doubt about the company's ability to continue as a going concern.

One equity detail matters for anyone modeling the shares. Diluted loss per share does not consider the warrants issued in connection with the IPO, the over-allotment exercise and the private placement because their exercise price is higher than the market price; those warrants are exercisable for 6,858,000 shares in the aggregate. The company also reports no off-balance sheet arrangements as of September 30, 2021. Before the IPO, liquidity came from a $25,000 payment from the sponsor for founder shares and a $125,000 unsecured promissory note from the sponsor, which was fully repaid on March 15, 2021. No amounts were outstanding under any working capital loans, although the sponsor, initial stockholders, officers, directors and their affiliates may, but are not obligated to, provide such loans.