Filed pursuant to Rule 424(b)(3)

Registration Statement No. 333-257686

Prospectus Supplement No. 3
(To Prospectus dated July 12, 2021)

PROSPECTUS FOR
118,770,425 SHARES OF COMMON STOCK AND
12,780,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK

AND

33,480,000 SHARES OF COMMON STOCK UNDERLYING WARRANTS
OF
TALKSPACE, INC.

 

This prospectus supplement updates, amends and supplements the prospectus dated July 12, 2021 (as supplemented or amended from time to time, the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration No. 333-257686). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the SEC on November 15, 2021, which is set forth below.

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference.

Talkspace, Inc.’s common stock and warrants are quoted on the Nasdaq Global Select Market under the symbols “TALK” and “TALKW,” respectively. On November 12, 2021, the closing prices of our common stock and warrants were $3.50 and $0.64, respectively.

INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 5 OF THE PROSPECTUS, ON PAGE 33 OF OUR QUARTERLY REPORT ON 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021 (ATTACHED TO PROSPECTUS SUPPLEMENT NO. 2 TO THE PROSPECTUS FILED ON AUGUST 9, 2021) AND ON PAGE 37 OF OUR QUARTERLY REPORT ON 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021 (ATTACHED TO THIS PROSPECTUS SUPPLEMENT).

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is November 15, 2021

 

---

 

 

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 September 30, 2021

OR

☐	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.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
Emerging growth company		☒

 

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 November 8, 2021, the registrant had 152,307,497 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

---

 

Table of Contents

 

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	9
	Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	9
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2021 and 2020	10
	Condensed Consolidated Statements of Stockholder’s Equity (Deficit) (unaudited) for the three and nine months ended September 30, 2021 and 2020	11
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020	12
	Notes to Unaudited Condensed Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
Signatures		76

 

 

 

3

---

 

basis of presentation

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

4

---

 

5

---

 

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 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.

6

---

 

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:

7

---

 

8

---

 

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)

 

		September 30, 2021				December 31, 2020
		(Unaudited)
ASSETS						
CURRENT ASSETS:						
Cash and cash equivalents		$	222,865			$	13,248
Accounts receivable, net			5,318				5,914
Other current assets			10,023				1,515
Total current assets			238,206				20,677
Property and equipment, net			658				175
Deferred issuance costs			-				692
Intangible assets, net			3,876				5,195
Goodwill			6,134				6,134
Other long-term assets			82				-
Total assets		$	248,956			$	32,873
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND    STOCKHOLDERS’ DEFICIT						
CURRENT LIABILITIES:						
Accounts payable		$	14,039			$	7,901
Deferred revenues			8,302				5,172
Accrued expenses and other current liabilities			7,634				7,416
Total current liabilities			29,975				20,489
Warrant liabilities			12,012				-
Other long-term liabilities			86				-
Total liabilities			42,073				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 September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 0 and 94,582,550 shares at September 30, 2021 and December 31, 2020, respectively (1)			-				111,282
STOCKHOLDERS’ EQUITY (DEFICIT):						
Common stock of $0.0001 par value — Authorized: 1,000,000,000 and 129,397,278 shares at September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 152,293,298 and 13,413,431 shares at September 30, 2021 and December 31, 2020, respectively (1)			15				1
Additional paid-in capital (1)			357,330				9,889
Accumulated deficit			(150,462	)			(108,788	)
Total stockholders’ equity (deficit)			206,883				(98,898	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)		$	248,956			$	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.

 

 

9

---

 

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

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

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2021				2020				2021				2020
Revenues		$	26,359			$	21,505			$	84,499			$	50,502
Cost of revenues			12,187				6,414				33,698				17,394
Gross profit			14,172				15,091				50,801				33,108
Operating expenses:
Research and development, net			4,278				2,199				12,023				7,327
Clinical operations			1,896				899				5,886				2,535
Sales and marketing			26,431				12,660				75,125				30,020
General and administrative			6,794				1,737				23,112				4,198
Total operating expenses			39,399				17,495				116,146				44,080
Operating loss			(25,227	)			(2,404	)			(65,345	)			(10,972	)
Financial income (expense), net			26,743				(285	)			23,700				(254	)
Income (loss) before taxes on income			1,516				(2,689	)			(41,645	)			(11,226	)
Taxes on income			11				3				29				12
Net income (loss)			1,505				(2,692	)			(41,674	)			(11,238	)
Other comprehensive income (loss)			—				—				—				—
Comprehensive income (loss)			1,505				(2,692	)			(41,674	)			(11,238	)
Net income (loss) per share (1):
Basic		$	0.01			$	(0.20	)		$	(0.64	)		$	(0.84	)
Diluted		$	0.01			$	(0.20	)		$	(0.64	)		$	(0.84	)
Weighted average number of common shares (1):
Basic			152,267,870				13,375,193				64,638,182				13,348,522
Diluted			165,179,012				13,375,193				64,638,182				13,348,522

 

(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.

 

10

---

 

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited)

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

Nine months ended September 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	)
Stock-based compensation			—				—				—				—				336				—				336
Net loss			—				—				—				—				—				(2,692	)			(2,692	)
Balance as of September 30, 2020			94,582,550			$	111,282				13,375,193			$	1			$	7,949			$	(97,656	)		$	(89,706	)
Nine months ended September 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
Exercise of stock options			—				—				37,562			*)					45				—				45
Stock-based compensation			—				—				—				—				3,875				—				3,875
Net income			—				—				—				—				—				1,505				1,505
Issuance costs in connection with Business Combination and PIPE offering			—				—				—				—				(803	)			—				(803	)
Balance as of September 30, 2021			—			$	—				152,293,298			$	15			$	357,330			$	(150,462	)		$	206,883

 

*) 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 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.

11

---

 

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

U.S. dollars in thousands

 

		Nine months ended September 30,
		2021				2020
Cash flows from operating activities:
Net loss		$	(41,674	)		$	(11,238	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,458				55
Amortization of debt issuance cost			175				—
Stock-based compensation			20,584				1,069
Warrant issuance cost and change in fair value			(23,842	)			—
Increase in accounts receivable			596				(3,045	)
Increase in other current assets			(8,515	)			(1,108	)
Increase in accounts payable			7,113				2,021
Increase in deferred revenues			3,130				3,390
(Decrease) increase in accrued expenses and other current liabilities			(134	)			2,193
Net cash used in operating activities			(41,109	)			(6,663	)
Cash flows from investing activities:
Purchase of property and equipment			(622	)			(43	)
Proceeds from restricted long-term bank deposit			—				414
Net cash (used in) provided by investing activities			(622	)			371
Cash flows from financing activities:
Proceeds from reverse capitalization, net of transaction costs			249,428				—
Proceeds from borrowings			6,000				—
Repayment of borrowings			(6,000	)			—
Payment of debt issuance cost			(50	)			—
Proceeds from exercise of stock options			1,970				62
Net cash provided by financing activities			251,348				62
Change in cash and cash equivalents			209,617				(6,230	)
Cash and cash equivalents at the beginning of the period			13,248				39,632
Cash and cash equivalents at the end of the period		$	222,865			$	33,402
Supplemental cash flow data:
Cash paid for interest		$	115			$	29
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.

 

12

---

 

TALKSPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars

 

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 $10.7 million. In addition, the Company entered into a non-competition agreement for a total consideration of $0.9 million, which was recorded as an intangible asset.

13

---

 

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”).

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 the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

14

---

 

On the last business day of the Company’s second quarter in fiscal 2021, the aggregate market value of the Company’s ordinary shares held by its non-affiliate shareholders exceeded $700 million. As a result, as of December 31, 2021, the Company will be considered a large accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and the Company will cease to be an emerging growth company. Accordingly, the Company will no longer be exempt from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and the Company’s independent registered public accounting firm will evaluate and report on the effectiveness of internal control over financial reporting. Further, following the loss of emerging growth company status, the Company will be required to comply with any new or revised accounting pronouncements as of public company effective dates.

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 September 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

15

---

 

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,” respectively.

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 1,000,000,000 shares, $0.0001 par value per share, and authorized shares of preferred stock to 100,000,000, $0.0001 par value per share.

Public Warrants and Private Placement Warrants

As a result of the Business Combination, the Company assumed the outstanding Public Warrants to purchase 20,700,000 shares of the Company’s common stock and the outstanding Private Placement Warrants to purchase 10,280,000 shares of the Company’s common stock. Additionally, the Company issued 2,500,000 Private Placement Warrants at Closing pursuant to the Forward Purchase Agreement with HEC Fund as described above. Each whole Warrant entitles the registered holder to purchase one share of the Company’s common stock at a price of $11.50 per share, at any time commencing 30 days after the closing of the Business Combination. The warrants expire five years after the completion of the Business Combination.

Redemption of Warrants for Cash

The Company may call the Public Warrants for redemption:

16

---

 

When the Public Warrants become redeemable, the Company may exercise the redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

If the Company calls the Public Warrants for redemption for cash, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.

The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the shares of common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

The Company determined the Public Warrants met the criteria to be classified as equity in accordance with ASC 815-40. The Company valued these warrants using the instrument’s publicly listed trading price on the date of acquisition and included $27.9 million related to these warrants in additional paid-in capital within stockholder’s deficit. The Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40. As of September 30, 2021, the Company included $12.0 million within warrant liabilities in the accompanying condensed consolidated balance sheets. Refer to Note 5, “Fair Value Measurement” for additional information.

NOTE 4. REVENUE RECOGNITION

The Company is operating a virtual behavioral healthcare business that connects individuals and licensed therapists, psychologists and psychiatrists with an online platform for one-on-one therapy delivered via messaging, audio and video. Individuals access the company’s services through the Company’s website or mobile app.

The Company provides these services directly to individuals through a subscription plan. The Company also contracts with health plans and other enterprises to provide its services to individuals who are qualified to receive access to the Company’s services through the Company’s commercial arrangements.

The following table presents the Company’s revenues disaggregated by revenue source (in thousands):