SEC Filing - Talkspace, Inc

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39314

TALKSPACE, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	84-4636604
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Not applicable	Not applicable
(Address of principal executive offices)	(Zip Code)

(212) 284-7206

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	TALK	Nasdaq Stock Market
Warrants to purchase common stock	TALKW	Nasdaq Stock Market

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

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 ☐ No ☒

As of August 2, 2021, the registrant had 152,255,736 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	8
	Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	8
	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2021 and 2020	9
	Condensed Consolidated Statements of Stockholder’s Deficit (unaudited) for the three and six months ended June 30, 2021 and 2020	10
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2021 and 2020	11
	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.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
Signatures		72

basis of presentation

As used in this Quarterly Report, unless the context otherwise requires, references to:



“2021 Plan” are to the Talkspace, Inc. 2021 Incentive Award Plan;



“Business Combination” are to, together, (i) the First Merger and (ii) the Second Merger;



“Bylaws” are to our bylaws dated June 22, 2021;



“Certificate of Incorporation” are to the second amended and restated certificate of incorporation of Talkspace, Inc. dated June 22, 2021;



“Closing” are to the consummation of the Business Combination;



“DGCL” are to the Delaware General Corporation Law, as amended;



“2021 ESPP” are to the Talkspace, Inc. 2021 Employee Stock Purchase Plan;



“Exchange Act” are to the Securities Exchange Act of 1934, as amended;



“First Merger” are to the merger of First Merger Sub with and into Old Talkspace;



“First Merger Sub” are to Tailwind Merger Sub I, Inc.;



“HEC” are to Hudson Executive Investment Corp., a Delaware corporation;



“HEC Forward Purchase” are to the purchase by HEC Fund from HEC pursuant to the HEC Forward Purchase Agreement of 5,000,000 forward purchase units (the “Forward Purchase Units”), consisting of one share of Talkspace common stock and one-half of one warrant to purchase one share of Talkspace common stock, for $10.00 per unit, or an aggregate amount of $50,000,000, in a private placement closed concurrently with the Closing;



“HEC Forward Purchase Agreement” are to the forward purchase agreement, entered into as of June 8, 2020, by and between HEC and HEC Fund, as amended by that certain First Amendment to Forward Purchase Agreement, dated January 12, 2021;



“HEC Fund” are to HEC Master Fund LP, a Delaware limited partnership;



“HEC IPO” are to the initial public offering by HEC which closed on June 11, 2020;



“Merger Agreement” are to that certain Agreement and Plan of Merger, dated as of January 12, 2021, by and among HEC, Old Talkspace, First Merger Sub and Second Merger Sub;



“Old Talkspace” are to Groop Internet Platform, Inc. (d/b/a “Talkspace”), a Delaware corporation;



“PIPE Investment” are to the purchase of shares of Talkspace common stock pursuant to the Subscription Agreements;



“private placement warrants” are to the warrants issued by HEC to the Sponsor in a private placement simultaneously with the closing of the HEC IPO and the warrants originally sold as part of the units in the HEC Forward Purchase;



“public warrants” are to the warrants originally sold as part of the units in the HEC IPO (whether they were purchased in the HEC IPO or thereafter in the open market);



“SEC” are to the United States Securities and Exchange Commission;



“Second Merger Sub” are to Tailwind Merger Sub II, LLC;



“Sponsor” are to HEC Sponsor LLC, a Delaware limited liability company;



“Sponsor Support Agreement” are to that certain Support Agreement, dated as of January 12, 2021, by and among HEC, the HEC Insiders and Old Talkspace;



“Subscription Agreements” are to the subscription agreements entered into by and between HEC and the PIPE Investors, in each case, dated as of January 12, 2021 and entered into in connection with the PIPE Investment;



“Transactions” are to, collectively, the Business Combination and the other transactions contemplated by the Merger Agreement;



“Warrant Agreement” are to that certain Warrant Agreement, dated as of June 8, 2020, by and between HEC and Continental Stock Transfer & Trust Company; and



“warrants” are to the public warrants and the private placement warrants.

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:



our history of losses and our ability to achieve or sustain profitability;



the evolution of the markets in which we operate;



our ability to continue to grow our business;



our limited operating history;



our ability to raise additional capital;



factors relating to our business, operations and financial performance, including:

the impact of the COVID-19 pandemic;

our ability to maintain an effective system of internal controls over financial reporting;

our ability to grow market share in our existing markets or any new markets we may enter;

our ability to respond to general economic conditions;

the growth and evolution of the virtual behavioral health market;

risks associated with increased competition in the virtual behavioral health market;

our ability to maintain and enhance our products and brand, and to attract customers;

our ability to manage, develop and refine our technology platform;

our ability to grow our member base; and



other factors detailed under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q.

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.

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:



We have a history of losses, which we expect to continue, and we may never achieve or sustain profitability.



Our business and the markets we operate in are new and rapidly evolving which makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.



We may not grow at the rates we historically have achieved or at all, even if our key metrics may indicate growth, which could have a material adverse effect on the market price of our common stock.



The virtual behavioral health market is immature and volatile, and if it does not develop, if it develops more slowly than we expect, if it encounters negative publicity or if our services are not competitive, the growth of our business will be harmed.



The outbreak of the novel coronavirus (COVID-19) and its impact on business and economic conditions could adversely affect our business, results of operations and financial condition, and the extent and duration of those effects will be uncertain.



We operate in a competitive industry, and if we are not able to compete effectively, our business, financial condition and results of operations will be harmed.



If growth in the number of clients and members or providers on our platform decreases, or the number of products or services that we are able to sell to our clients and members decreases, due to legal, economic or business developments, our business, financial condition and results of operations will be harmed.



We may be unsuccessful in achieving broad market education and changing consumer purchasing habits.



Our growth depends in part on the success of our strategic relationships with third parties that we provide services to.



Our virtual behavioral healthcare strategies depend on our ability to maintain and expand our network of therapists, psychiatrists and other providers. If we are unable to do so, our future growth would be limited and our business, financial condition and results of operations would be harmed.



Developments affecting spending by the healthcare industry could adversely affect our business.



Our business could be adversely affected by legal challenges to our business model or by actions restricting our ability to provide the full range of our services in certain jurisdictions.



We are dependent on our relationships with affiliated professional entities, which we do not own, to provide physician and other professional services, and our business, financial condition and our ability to operate in certain jurisdictions would be adversely affected if those relationships were disrupted or if our arrangements with our providers or clients are found to violate state laws prohibiting the corporate practice of medicine or fee splitting.



The impact on us of recent healthcare legislation and other changes in the healthcare industry and in healthcare spending is currently unknown, but may adversely affect our business, financial condition and results of operations.



Changes in consumer sentiment or laws, rules or regulations regarding the use of cookies and other tracking technologies and other privacy matters could have a material adverse effect on our ability to generate net revenues and could adversely affect our ability to collect proprietary data on consumer behavior.



Our use and disclosure of personally identifiable information, including PHI, personal data, and other health information, is subject to state, federal or other privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our client base and member bases and revenue.



Any failure to protect, enforce or defend our intellectual property rights could impair our ability to protect our technology and our brand.



We may be subject to securities litigation, which is expensive and could divert management attention.

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)


	June 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	248,173		$	13,248
Accounts receivable		6,617			5,914
Other current assets		4,318			1,515
Total current assets		259,108			20,677
Property and equipment, net		549			175
Deferred issuance costs		-			692
Intangible assets, net		4,315			5,195
Goodwill		6,134			6,134
Other long-term assets		98			-
Total assets	$	270,204		$	32,873

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	11,759		$	7,901
Deferred revenues		7,549			5,172
Accrued expenses and other current liabilities		9,640			7,416
Total current liabilities		28,948			20,489

Warrant liabilities		38,897			-
Other long-term liabilities		98			-
Total liabilities		67,943			20,489

CONVERTIBLE PREFERRED STOCK:

Convertible preferred stock (Series Seed, Seed-1, Seed-2, A, B, C and D) of 0.0001 par value — Authorized: 100,000,000 and 95,709,146 shares at June 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 0 and 94,582,550 shares at June 30, 2021 and December 31, 2020, respectively (1)		-			111,282

STOCKHOLDERS’ DEFICIT:

Common stock of 0.0001 par value — Authorized: 1,000,000,000 and 129,397,278 shares at June 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 152,255,736 and 13,413,431 shares at June 30, 2021 and December 31, 2020, respectively (1)		15			1
Additional paid-in capital (1)		354,213			9,889
Accumulated deficit		(151,967	)		(108,788	)
Total stockholders’ deficit		202,261			(98,898	)
Total liabilities, convertible preferred stock and stockholders’ deficit	$	270,204		$	32,873

(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 1.134140 in June 2021 as a result of the Business Combination. See Note 3, “Business Combination,” for further details.

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

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

U.S. dollars in thousands (except share and per share data)


	Three months ended					Six months ended
	June 30,					June 30,
	2021		2020			2021		2020
Revenues	$	30,983	$	17,877		$	58,140	$	28,997
Cost of Revenues		11,697		5,570			21,511		10,980
Gross profit		19,286		12,307			36,629		18,017
Operating expenses:
Research and development, net		4,781		2,400			7,745		5,128
Clinical operations		1,913		759			3,990		1,636
Sales and marketing		26,443		8,442			48,694		17,360
General and administrative		13,710		1,347			16,318		2,461
Total operating expenses		46,847		12,948			76,747		26,585
Operating loss		27,561		641			40,118		8,568
Financial expense (income), net		2,870		(1	)		3,043		(31	)
Loss before taxes on income		30,431		640			43,161		8,537
Taxes on income		10		6			18		9
Net loss		30,441		646			43,179		8,546
Other comprehensive income (loss)		—		—			—		—
Comprehensive loss		30,441		646			43,179		8,546
Net loss per share (1):
Basic and diluted net loss per share	$	1.15	$	0.05		$	2.15	$	0.64
Weighted average number of common shares used in computing basic and diluted net loss per share		26,362,369		13,367,502			20,097,094		13,334,965

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

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:
	Convertible Preferred Stock (1)						Common Stock (1)
	Number of Shares Outstanding			Amount			Number of Shares Outstanding		Amount		Additional paid-in capital (1)		Accumulated deficit			Total
Balance as of December 31, 2019		94,582,550		$	111,282			13,223,673	$	1	$	6,818	$	(86,418	)	$	(79,599	)
Exercise of stock options		—			—			122,004	*)			54		—			54
Stock-based compensation		—			—			—		—		401		—			401
Net loss		—			—			—		—		—		(7,900	)		(7,900	)
Balance as of March 31, 2020		94,582,550			111,282			13,345,677		1		7,273		(94,318	)		(87,044	)
Exercise of stock options		—			—			29,516	*)			8		—			8
Stock-based compensation		—			—			—		—		332		—			332
Net loss		—			—			—		—		—		(646	)		(646	)
Balance as of June 30, 2020		94,582,550		$	111,282			13,375,193	$	1	$	7,613	$	(94,964	)	$	(87,350	)

Three and six months ended June 30, 2021:
	Convertible Preferred Stock (1)						Common Stock (1)
	Number of Shares Outstanding			Amount			Number of Shares Outstanding		Amount		Additional paid-in capital		Accumulated deficit			Total
Balance as of December 31, 2020		94,582,550		$	111,282			13,413,431	$	1	$	9,889	$	(108,788	)		(98,898	)
Exercise of stock options		—			—			684,923	*)			797		—			797
Stock-based compensation		—			—			—		—		1,513		—			1,513
Issuance of warrants		—			—			—		—		125		—			125
Net loss		—			—			—		—		—		(12,738	)		(12,738	)
Balance as of March 31, 2021		94,582,550			111,282			14,098,354		1		12,324		(121,526	)		(109,201	)
Exercise of stock options		—			—			2,617,908	*)			1,128		—			1,128
Stock-based compensation		—			—			—		—		15,196		—			15,196
Common stock issued related to exercise of warrants		—			—			98,871	*)			609		—			609
Acquisition of warrants		—			—			—		—		27,945		—			27,945
Preferred stock conversion		(94,582,550	)		(111,282	)		94,582,550		10		111,272		—			111,282
Issuance of common stock in connection with Business Combination and PIPE offering, net of issuance costs		—			—			40,858,053		4		185,739		—			185,743
Net loss		—			—			—		—		—		(30,441	)		(30,441	)
Balance as of June 30, 2021		—		$	—			152,255,736	$	15	$	354,213	$	(151,967	)	$	202,261


*)	Represents an amount lower than $1

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

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

U.S. dollars in thousands


	Six months ended June 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(43,179	)	$	(8,546	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		955			36
Amortization of debt issuance cost		175			—
Stock-based compensation		16,709			733
Warrant issuance cost and change in fair value		3,043			—
Increase in accounts receivable		(703	)		(785	)
Increase in other current assets		(1,784	)		(556	)
Increase (decrease) in accounts payable		4,833			(326	)
Increase in deferred revenues		2,377			2,068
Decrease in accrued expenses and other current liabilities		(213	)		(286	)
Net cash used in operating activities		(17,787	)		(7,662	)
Cash flows from investing activities:
Purchase of property and equipment		(449	)		(9	)
Net cash used in investing activities		(449	)		(9	)
Cash flows from financing activities:
Proceeds from reverse capitalization, net of transaction costs		251,325			—
Proceeds from borrowings		6,000			—
Repayment of borrowings		(6,000	)		—
Payment of debt issuance cost		(50	)		—
Proceeds from exercise of stock options		1,886			62
Net cash provided by financing activities		253,161			62
Change in cash and cash equivalents		234,925			(7,609	)
Cash and cash equivalents at the beginning of the period		13,248			39,632
Cash and cash equivalents at the end of the period	$	248,173		$	32,023
Supplemental cash flow data:
Cash paid for interest	101			19
Non-cash financing activity:
Conversion of preferred stock to common stock		111,282			—

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

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:



Old Talkspace’s shareholders represent a relative majority of the voting rights in the Company and have the ability to nominate the members of the board of directors for the Company;



Old Talkspace’s operations prior to the acquisition represent the ongoing operations of the Company; and



Old Talkspace’s senior management represents a majority of the senior management of the Company.

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 $10,685. In addition, the Company entered into a non-competition agreement for a total consideration of $939, which was recorded as an intangible asset.

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-19

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.

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 January 12, 2021. The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, HEC, who was the legal acquirer, was 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.

Upon the Closing, among other things, all shares of Old Talkspace’s Common Stock, par value $0.001 per share (the “Old Talkspace Common Stock”), all shares of Old Talkspace’s Series Seed Preferred Stock, par value $0.001 per share, Series Seed-1 Preferred Stock, par value $0.001 per share, Series Seed-2 Preferred Stock, par value $0.001 per share, Series A Preferred Stock, par value $0.001 per share, Series B Preferred Stock, par value $0.001 per share, Series C Preferred Stock, par value $0.001 per share and Series D Preferred Stock, par value $0.001 per share (collectively, the “Old Talkspace Preferred Stock” and, together with the Old Talkspace Common Stock, the “Old Talkspace Capital Stock”) and all vested options exercisable for Old Talkspace Common Stock (“Old Talkspace Vested Options”) outstanding as of immediately prior to Closing were

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 $0.0001 per share (the “Talkspace common stock”) (or, with respect to holders of Old Talkspace Vested Options, a number of vested options exercisable for Talkspace common stock “Talkspace Vested Options”) or a combination of shares of Talkspace common stock and cash (or, with respect to holders of Old Talkspace Vested Options, a combination of Talkspace Vested Options and cash), in each case, as adjusted pursuant to the Merger Agreement, which, in the aggregate with the unvested options exercisable for Old Talkspace Common Stock assumed by Talkspace and converted into unvested options exercisable for Talkspace common stock, equaled approximately $199.3 million in cash and 109,461,534 shares of Talkspace common stock (at a deemed value of $10.00 per share). The 109,461,534 shares consisted of 91,473,779 shares issued to holders of Old Talkspace capital stock and 17,987,755 options to purchase Talkspace common stock issued to holders of Old Talkspace stock options. The exchange ratio of 1.134140 was used to convert Old Talkspace capital stock and stock options into Talkspace capital stock and stock options.

In connection with the Business Combination, a number of investors (each, a “Subscriber”) purchased from the Company an aggregate of 30,000,000 shares of common stock (the “PIPE”), for a purchase price of $10.00 per share and an aggregate purchase price of $300.0 million (the “PIPE Shares”), pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into effective as of January 12, 2021.

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 2,500,000 forward purchase units, consisting of one share of HEC’s Class A common stock and one-half of one warrant to purchase one share of HEC’s Class A common stock, for $10.00 per unit, or an aggregate amount of $25.0 million, in a private placement that would close concurrently with the Closing and to backstop up to $25.0 million of redemptions by stockholders of HEC (the “Forward Purchase”).

Immediately after giving effect to the redemption of 25,968,043 shares of HEC’s Class A common stock in connection with the Business Combination, the Forward Purchase and the PIPE Investment, there were 152,255,736 shares of Talkspace common stock and 33,480,000 warrants to purchase Talkspace common stock (the “Talkspace warrants”) outstanding. Upon the consummation of the Business Combination, HEC’s Class A common stock, warrants and units ceased trading on The Nasdaq Stock Market LLC (the “Nasdaq”), and Talkspace common stock and Talkspace warrants began trading on June 23, 2021 on Nasdaq under the symbols “TALK” and “TALKW,