UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 2, 2021, the registrant had
Table of Contents
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Page |
PART I. |
FINANCIAL INFORMATION |
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Item 1. |
8 |
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Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 |
8 |
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9 |
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10 |
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11 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
12 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
31 |
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Item 4. |
32 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
33 |
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Item 1A. |
33 |
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Item 2. |
69 |
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Item 3. |
69 |
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Item 4. |
69 |
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Item 5. |
69 |
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Item 6. |
70 |
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72 |
2
basis of presentation
As used in this Quarterly Report, unless the context otherwise requires, references to:
3
4
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, business strategy, expectations regarding the impact of COVID-19, our efforts to remediate our material weakness in internal control over financial reporting, and our objectives for future operations.
These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, which involve a number of judgments, risks and uncertainties, including without limitation, risks related to:
Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
5
RISK FACTORS SUMMARY
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report, that represent challenges that we face in connection with the successful implementation of our strategy and the growth of our business. In particular, the following considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of shares of our common stock or warrants and result in a loss of all or a portion of your investment:
6
7
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TALKSPACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
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June 30, 2021 |
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December 31, 2020 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Deferred issuance costs |
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Intangible assets, net |
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Goodwill |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, CONVERTIBLE PREFERRED STOCK AND |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Deferred revenues |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Warrant liabilities |
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Other long-term liabilities |
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Total liabilities |
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CONVERTIBLE PREFERRED STOCK: |
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Convertible preferred stock (Series Seed, Seed-1, Seed-2, A, B, C and D) of |
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STOCKHOLDERS’ DEFICIT: |
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Common stock of |
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Additional paid-in capital (1) |
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Accumulated deficit |
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Total stockholders’ deficit |
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( |
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Total liabilities, convertible preferred stock and stockholders’ deficit |
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$ |
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$ |
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(1) Prior period results have been adjusted to reflect the exchange of Old Talkspace’s common stock for Talkspace’s common stock at an exchange ratio of approximately
The accompanying notes are an integral part of the condensed consolidated financial statements.
8
TALKSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
U.S. dollars in thousands (except share and per share data)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of Revenues |
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Gross profit |
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Operating expenses: |
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Research and development, net |
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Clinical operations |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Operating loss |
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Financial expense (income), net |
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( |
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Loss before taxes on income |
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Taxes on income |
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Net loss |
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Other comprehensive income (loss) |
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Comprehensive loss |
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Net loss per share (1): |
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Basic and diluted net loss per share |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares |
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(1)
The accompanying notes are an integral part of the condensed consolidated financial statements.
9
TALKSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (Unaudited)
U.S. dollars in thousands (except share data)
Three and six months ended June 30, 2020: |
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Convertible Preferred Stock (1) |
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Common Stock (1) |
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Number of |
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Amount |
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Number of |
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Amount |
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Additional |
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Accumulated |
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Total |
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Balance as of December 31, 2019 |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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Stock-based compensation |
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— |
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— |
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Net loss |
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— |
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— |
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( |
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Balance as of March 31, 2020 |
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( |
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Exercise of stock options |
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*) |
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Stock-based compensation |
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— |
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— |
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Net loss |
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— |
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— |
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( |
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Balance as of June 30, 2020 |
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$ |
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$ |
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$ |
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$ |
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Three and six months ended June 30, 2021: |
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Convertible Preferred Stock (1) |
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Common Stock (1) |
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Number of |
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Amount |
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Number of |
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Amount |
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Additional |
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Accumulated |
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Total |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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Stock-based compensation |
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— |
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— |
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Issuance of warrants |
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— |
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— |
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Net loss |
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— |
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— |
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( |
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Balance as of March 31, 2021 |
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( |
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Exercise of stock options |
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*) |
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Stock-based compensation |
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— |
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— |
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Common stock issued related to exercise of warrants |
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*) |
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Acquisition of warrants |
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— |
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— |
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Preferred stock conversion |
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Issuance of common stock in connection with Business Combination and PIPE offering, net of issuance costs |
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Net loss |
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— |
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— |
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( |
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Balance as of June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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*) |
Represents an amount lower than $1 |
(1) Prior period results have been adjusted to reflect the exchange of Old Talkspace’s common stock for Talkspace’s common stock at an exchange ratio of approximately
The accompanying notes are an integral part of the condensed consolidated financial statements.
10
TALKSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands
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Six months ended |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of debt issuance cost |
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Stock-based compensation |
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Warrant issuance cost and change in fair value |
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Increase in accounts receivable |
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( |
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( |
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Increase in other current assets |
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( |
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( |
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Increase (decrease) in accounts payable |
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( |
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Increase in deferred revenues |
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Decrease in accrued expenses and other current liabilities |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from reverse capitalization, net of transaction costs |
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Proceeds from borrowings |
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Repayment of borrowings |
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( |
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Payment of debt issuance cost |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Change in cash and cash equivalents |
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Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period |
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$ |
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$ |
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Supplemental cash flow data: |
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Cash paid for interest |
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Non-cash financing activity: |
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Conversion of preferred stock to common stock |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
11
TALKSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Talkspace, Inc. (together with its consolidated subsidiaries, the “Company” or “Talkspace”) is a leading behavioral healthcare company enabled by a purpose-built technology platform. Talkspace provides individuals and licensed therapists, psychologists and psychiatrists with an online platform for one-on-one therapy delivered via messaging, audio and video.
Talkspace, Inc. was originally incorporated as Hudson Executive Investment Corp. (“HEC”), a special purpose acquisition company, in Delaware on October 30, 2019 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization or other similar business combination with one or more businesses or entities.
Business Combination
On January 12, 2021, HEC, entered into an Agreement and Plan of Merger, dated as of January 12, 2021 (the “Merger Agreement”), with Groop Internet Platform, Inc. (“Old Talkspace”), Tailwind Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of HEC (“First Merger Sub”), and Tailwind Merger Sub II, LLC, a Delaware limited liability company (“Second Merger Sub”).
On June 22, 2021, as contemplated by the Merger Agreement, First Merger Sub merged with and into Old Talkspace (the “First Merger”) with Old Talkspace surviving the First Merger, and immediately following the First Merger and as part of the same overall transaction as the First Merger, Old Talkspace merged with and into Second Merger Sub, with Second Merger Sub surviving the merger as a wholly owned subsidiary of HEC (the “Second Merger” and, together with the First Merger, the “Business Combination”). In connection with the Business Combination, HEC filed the Certificate of Incorporation and changed its name to “Talkspace, Inc.”
The Business Combination was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, HEC who was the legal acquirer, is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Old Talkspace issuing stock for the net assets of HEC, accompanied by a recapitalization. The net assets of HEC are stated at historical cost, with no goodwill or other intangible assets recorded.
Old Talkspace was determined to be the accounting acquirer based on the following predominant factors:
The consolidated assets, liabilities and results of operations prior to the Business Combination are those of Old Talkspace. The shares and corresponding capital amounts and losses per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the exchange ratio established in the Business Combination.
See Note 3, “Business Combination,” for further details.
Other
On November 1, 2020, the Company completed an acquisition of Lasting, an app-based subscription for relationship and couple counseling for a total cash consideration of $
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Operating Segments
The Company operates its business in a single segment, which is how its chief operating decision maker, the Company’s Chief Executive Officer, reviews financial performance and allocates resources. The majority of the Company’s operations is based in the United States.
COVID-
The global pandemic associated with COVID-19 has caused major disruption to all aspects of the global economy and daily life, particularly as quarantine and stay-at-home orders have been imposed by all levels of government. The Company has followed guidance by the United States, Israeli and other applicable foreign and local governments to protect its employees and operations during the pandemic and has implemented a remote environment for its business. The Company cannot predict the potential impacts of the COVID-19 pandemic on its business or operations, but continuously monitors performance and other industry reports to assess the risk of future negative impacts as the disruptions of the COVID-19 pandemic continue to evolve.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The Company’s interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.
The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2020, have been applied consistently in these unaudited condensed consolidated financial statements, unless otherwise stated. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019 included in the Company’s final prospectus filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on July 13, 2021 (the “Prospectus”).
Reclassifications
The Company has made certain reclassifications to prior period amounts to conform to the current period presentation within the accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements.
Use of estimates
The preparation of consolidated financial statements, in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Emerging growth company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, it is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
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Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.
Recently adopted accounting standards
In February 2016, the FASB issued ASU 2016-02, Topic 842 “Leases”. This ASU clarifies the definition of a lease and requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. In November 2019, the FASB issued ASU 2020-05 which extends the effective date of ASU 2016-02 for non-public business entities, including smaller reporting companies, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted.
The Company adopted ASC 842 on January 1, 2021 and did not restate comparative periods. In addition, the Company elected the available practical expedients on adoption.
The Company determines if an arrangement is a lease at inception. Lease classification is governed by five criteria in ASC 842-10-25-2. If any of these five criteria is met, the Company classifies the lease as a finance lease. Otherwise, the Company classifies the lease as an operating lease. As of June 30, 2021, all arrangements were classified as operating leases.
Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments. Operating lease expenses are recognized on a straight-line basis over the lease term.
The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means that for those leases, the Company does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition, but recognizes lease expenses over the lease term on a straight-line basis. The Company also elected the practical expedient to not separate lease and non-lease components for all of the Company’s leases.
The Company does not currently have any leases with terms in excess of 12 months. The Company adopted this ASU with no impact on its financial statements or related footnotes.
NOTE 3. BUSINESS COMBINATION
As discussed in Note 1, on June 22, 2021, the Company completed the Business Combination pursuant to the Merger Agreement dated
Upon the Closing, among other things, all shares of Old Talkspace’s Common Stock, par value $
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cancelled or assumed, as applicable, and converted into the right to receive, at the election of the holders thereof, a number of shares of Talkspace’s Common Stock, par value $
In connection with the Business Combination, a number of investors (each, a “Subscriber”) purchased from the Company an aggregate of
In addition, in connection with the execution of the Merger Agreement, Talkspace entered into an amendment to the forward purchase agreement (as amended, the “Forward Purchase Agreement”) with HEC Master Fund LP, a Delaware limited partnership and affiliate of the Sponsor (“HEC Fund”), dated June 8, 2020. Pursuant to the Forward Purchase Agreement, HEC Fund agreed to purchase
Immediately after giving effect to the redemption of
Upon the closing of the Business Combination, the Company’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of common stock to
Public Warrants and Private Placement Warrants
As a result of the Business Combination, the Company assumed the outstanding Public Warrants to purchase