10-Q
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Table of Contents

first quarter

 

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, 2023

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.)

622 Third Avenue, New York, New York

10017

(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 July 28, 2023, the registrant had 166,510,245 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Table of Contents

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022

3

Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2023 and 2022

4

Condensed Consolidated Statements of Stockholder’s Equity (unaudited) for the three and six months ended June 30, 2023 and 2022

5

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2023 and 2022

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

 

 

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

TALKSPACE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2023

 

 

December 31, 2022

 

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

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 



 

CURRENT ASSETS:

 



 

 



 

Cash and cash equivalents

 

$

126,104

 

 

$

138,545

 

Accounts receivable, net

 

 

8,420

 

 

 

9,640

 

Other current assets

 

 

2,920

 

 

 

4,372

 

Total current assets

 

 

137,444

 

 

 

152,557

 

Property and equipment, net

 

 

456

 

 

 

677

 

Intangible assets, net

 

 

2,157

 

 

 

2,529

 

Other long-term assets

 

 

464

 

 

 

491

 

Total assets

 

$

140,521

 

 

$

156,254

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 



 

 



 

CURRENT LIABILITIES:

 



 

 



 

Accounts payable

 

$

5,484

 

 

$

6,461

 

Deferred revenues

 

 

3,683

 

 

 

4,355

 

Accrued expenses and other current liabilities

 

 

10,444

 

 

 

16,502

 

Total current liabilities

 

 

19,611

 

 

 

27,318

 

Warrant liabilities

 

 

820

 

 

 

939

 

Other long-term liabilities

 

 

295

 

 

 

461

 

Total liabilities

 

 

20,726

 

 

 

28,718

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 



 

 



 

Common stock of $0.0001 par value — Authorized: 1,000,000,000 shares at June 30, 2023 and December 31, 2022; Issued and outstanding: 166,204,295 and 161,155,030 shares at June 30, 2023 and December 31, 2022, respectively

 

 

16

 

 

 

16

 

Additional paid-in capital

 

 

384,443

 

 

 

378,722

 

Accumulated deficit

 

 

(264,664

)

 

 

(251,202

)

Total stockholders’ equity

 

 

119,795

 

 

 

127,536

 

Total liabilities and stockholders’ equity

 

$

140,521

 

 

$

156,254

 

 

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

 

3


Table of Contents

 

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

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

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

 

$

35,645

 

 

$

29,844

 

 

$

68,981

 

 

$

59,994

 

Cost of revenues

 

 

17,833

 

 

 

15,297

 

 

 

34,421

 

 

 

30,426

 

Gross profit

 

 

17,812

 

 

 

14,547

 

 

 

34,560

 

 

 

29,568

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, net

 

 

4,171

 

 

 

5,576

 

 

 

9,524

 

 

 

10,611

 

Clinical operations, net

 

 

1,675

 

 

 

2,316

 

 

 

3,276

 

 

 

4,092

 

Sales and marketing

 

 

13,045

 

 

 

18,931

 

 

 

26,514

 

 

 

40,339

 

General and administrative

 

 

5,329

 

 

 

8,792

 

 

 

10,693

 

 

 

16,802

 

Total operating expenses

 

 

24,220

 

 

 

35,615

 

 

 

50,007

 

 

 

71,844

 

Operating loss

 

 

(6,408

)

 

 

(21,068

)

 

 

(15,447

)

 

 

(42,276

)

Financial (income) expense, net

 

 

(1,712

)

 

 

1,865

 

 

 

(2,136

)

 

 

996

 

Loss before taxes on income

 

 

(4,696

)

 

 

(22,933

)

 

 

(13,311

)

 

 

(43,272

)

Taxes on income

 

 

8

 

 

 

89

 

 

 

151

 

 

 

110

 

Net loss

 

$

(4,704

)

 

$

(23,022

)

 

$

(13,462

)

 

$

(43,382

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.03

)

 

$

(0.15

)

 

$

(0.08

)

 

$

(0.28

)

Weighted average number of common shares used in computing basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

164,195,697

 

 

 

155,709,901

 

 

 

163,003,363

 

 

 

154,901,165

 

 

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

4


Table of Contents

 

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Three and Six Months Ended June 30, 2023

 

Number of Shares
Outstanding

 

 

Amount

 

 

Additional paid-in
capital

 

 

Accumulated
deficit

 

 

Total

 

Balance as of December 31, 2022

 

 

161,155,030

 

 

$

16

 

 

$

378,722

 

 

$

(251,202

)

 

$

127,536

 

Exercise of stock options

 

 

1,739,265

 

 

*)

 

 

 

621

 

 

 

 

 

 

621

 

Restricted stock units vested, net of tax

 

 

225,050

 

 

*)

 

 

 

(65

)

 

 

 

 

 

(65

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,303

 

 

 

 

 

 

2,303

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,758

)

 

 

(8,758

)

Balance as of March 31, 2023 (unaudited)

 

 

163,119,345

 

 

$

16

 

 

$

381,581

 

 

$

(259,960

)

 

$

121,637

 

Exercise of stock options

 

 

1,837,734

 

 

*)

 

 

 

869

 

 

 

 

 

 

869

 

Restricted stock units vested, net of tax

 

 

1,247,216

 

 

*)

 

 

 

(136

)

 

 

 

 

 

(136

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,129

 

 

 

 

 

 

2,129

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,704

)

 

 

(4,704

)

Balance as of June 30, 2023 (unaudited)

 

 

166,204,295

 

 

$

16

 

 

$

384,443

 

 

$

(264,664

)

 

$

119,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Three and Six Months Ended June 30, 2022

 

Number of Shares
Outstanding

 

 

Amount

 

 

Additional paid-in
capital

 

 

Accumulated
deficit

 

 

Total

 

Balance as of December 31, 2021

 

 

152,862,447

 

 

$

15

 

 

$

363,788

 

 

$

(171,530

)

 

$

192,273

 

Exercise of stock options

 

 

2,164,870

 

 

*)

 

 

 

2,063

 

 

 

 

 

 

2,063

 

Restricted stock units vested, net of tax

 

 

77,338

 

 

*)

 

 

 

(67

)

 

 

 

 

 

(67

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,368

 

 

 

 

 

 

2,368

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(20,360

)

 

 

(20,360

)

Balance as of March 31, 2022 (unaudited)

 

 

155,104,655

 

 

$

15

 

 

$

368,152

 

 

$

(191,890

)

 

$

176,277

 

Exercise of stock options

 

 

1,092,515

 

 

*)

 

 

 

286

 

 

 

 

 

 

286

 

Restricted stock units vested, net of tax

 

 

1,175,446

 

 

*)

 

 

 

(126

)

 

 

 

 

 

(126

)

Stock-based compensation

 

 

 

 

 

 

 

 

3,839

 

 

 

 

 

 

3,839

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,022

)

 

 

(23,022

)

Balance as of June 30, 2022 (unaudited)

 

 

157,372,616

 

 

$

15

 

 

$

372,151

 

 

$

(214,912

)

 

$

157,254

 

*) Represents an amount lower than $1

 

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

5


Table of Contents

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

(U.S. dollars in thousands)

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(13,462

)

 

$

(43,382

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

608

 

 

 

697

 

Stock-based compensation

 

 

4,432

 

 

 

6,207

 

Remeasurement of warrant liabilities

 

 

(119

)

 

 

1,217

 

Decrease (increase) in accounts receivable

 

 

1,220

 

 

 

(1,650

)

Decrease in other current assets

 

 

1,452

 

 

 

5,622

 

(Decrease) increase in accounts payable

 

 

(977

)

 

 

381

 

Decrease in deferred revenues

 

 

(672

)

 

 

(1,236

)

Decrease in accrued expenses and other current liabilities

 

 

(6,058

)

 

 

(1,145

)

Other

 

 

(172

)

 

 

178

 

Net cash used in operating activities

 

 

(13,748

)

 

 

(33,111

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(10

)

 

 

(160

)

Proceeds from sale of property and equipment

 

 

28

 

 

 

 

Net cash provided by (used in) investing activities

 

 

18

 

 

 

(160

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

1,490

 

 

 

2,349

 

Payments for employee taxes withheld related to vested stock-based awards

 

 

(201

)

 

 

(67

)

(Payments) proceeds from reverse capitalization, net of transaction costs

 

 

 

 

 

(645

)

Net cash provided by financing activities

 

 

1,289

 

 

 

1,637

 

Net decrease in cash and cash equivalents

 

 

(12,441

)

 

 

(31,634

)

Cash and cash equivalents at the beginning of the period

 

 

138,545

 

 

 

198,256

 

Cash and cash equivalents at the end of the period

 

$

126,104

 

 

$

166,622

 

Supplemental cash flow data:

 

 

 

 

 

 

Cash paid during the period for income taxes

 

$

176

 

 

$

97

 

 

 

 

 

 

 

 

 

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

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TALKSPACE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. The Company offers convenient and affordable access to a fully credentialed network of highly qualified providers. Since its inception, the Company has connected millions of patients with licensed behavioral health providers across a wide and growing spectrum of care through virtual counseling, psychotherapy, and psychiatry.

 

The Company's principal executive office is located in New York, NY. The Company has three wholly owned subsidiaries, Talkspace LLC, Talkspace Network LLC and Groop Internet Platform LTD. In addition, the Company holds a variable interest in one professional association and six professional corporations, which have been established pursuant to the requirements of their respective domestic jurisdiction governing the corporate practice of medicine. See Note 10, “Variable Interest Entities,” in these notes to the condensed consolidated financial statements for further details.

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. These condensed consolidated financial statements should be read in conjuction with the consolidated financial statements as of and for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2022, have been applied consistently in these unaudited condensed consolidated financial statements, unless otherwise stated.

 

Intercompany transactions and balances have been eliminated in the preparation of the condensed consolidated financial statements.

 

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the condensed consolidated financial statements. The Company’s significant estimates and assumptions used in these condensed consolidated financial statements include, but are not limited to, the recognition and disclosure of contingent liabilities, revenue recognition, stock-based compensation awards and the fair value of warrant liabilities. The Company bases its estimates on historical factors, current circumstances and the experience and judgment of management. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based on information available at the time they are made. Estimates, by their nature, are based on judgment and available information, therefore, actual results could be materially different from these estimates.

 

Reclassification

Certain prior year amounts have been reclassified to conform to current year presentation.

Recently Issued and Adopted Accounting Pronouncements

The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on the condensed consolidated financial statements as a result of their future adoption.

 

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NOTE 3. REVENUE RECOGNITION

 

The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, when the Company satisfies its performance obligation to perform its defined contractual obligations to provide virtual behavioral healthcare services. Revenue is recognized in an amount that reflects the consideration that the Company will be entitled in exchange for the service rendered. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that is included in the transaction price. Variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

Through its platform, Talkspace serves its business-to-business (“B2B”) channel, comprised of large health insurance plans and employee assistance programs (“Payors”), and large enterprise clients (“DTE”) who offer their insured members and employees access to the Company's platform at in-network reimbursement rates, or while their employer is under an active contract with Talkspace, where applicable, and its business-to-consumer (“Consumer”) channel, comprised of individual consumers who subscribe directly to the Company's platform.

 

The Company contracts with Payors to provide its therapy and psychiatry services to their eligible covered members. Revenue is recognized at a point in time, as virtual therapy or psychiatry session is rendered. The transaction price is determined based on contracted rates and includes variable consideration in the form of implicit price concessions. The Company determines the total transaction price, including an estimate of variable consideration, at contract inception and reassesses this estimate at each reporting date. The Company estimates the amount of variable consideration that is included in the transaction price primarily based on historical collection experience for each insurance payor. Revenue from Payors is presented net of implicit price concessions. Contracts with Payors include annual evergreen clauses and generally may be terminated by either party typically upon a minimum 60-day advance notice.

 

The Company contracts with enterprises to provide access to its therapist platform for their employees, primarily based on a per-member-per-month access fee model. Revenues from access fees are recognized ratably over the contractual term. The majority of contracts with enterprise clients typically range in length from one to three years and are generally non-cancelable during the initial contractual term.

 

The Company also generates revenues from the sale of monthly, quarterly, bi-annual and annual membership subscriptions to the Company's therapy platform as well as supplementary a la carte offerings directly to individual consumers through a subscription plan. The Company recognizes consumer revenues ratably over the subscription period, beginning when therapy services commence. The Company recognizes revenues from supplementary a la carte offerings at a point in time, as virtual therapy session is rendered. Members may cancel their subscription at any time and will receive a pro-rata refund for the subscription price. The transaction price from member subscription revenue and supplementary a la carte offerings includes variable consideration in the form of refunds. The Company estimates the refund liability for the variable consideration portion of the transaction price primarily based on historical experience. The refund liability is recorded within the “Accrued expenses and other current liabilities” line item in the condensed consolidated balance sheets. Revenue from individual consumers is presented net of refunds.

 

The following table presents the Company’s revenues from sales to unaffiliated customers disaggregated by revenue source:

 

Unaudited

 

Three Months Ended June 30,

 



Six Months Ended June 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues from sales to unaffiliated customers:

 

 

 

 

 

 



 

 

 

 

 

   Payor revenue

 

$

18,539

 

 

$

7,880

 

 

$

33,350

 

 

$

15,990

 

   DTE revenue

 

 

8,039

 

 

 

6,685

 

 

 

16,715

 

 

 

12,346

 

Total B2B revenue

 

 

26,578

 

 

 

14,565

 

 

 

50,065

 

 

 

28,336

 

Consumer revenue

 

 

9,067

 

 

 

15,279

 



 

18,916

 

 

 

31,658

 

Total revenue

 

$

35,645

 

 

$

29,844

 



$

68,981

 

 

$

59,994

 

 

 

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Accounts Receivable and Allowance for Credit Losses

Accounts receivables are stated net of credit losses allowance. The Company is exposed to credit losses primarily through its contracts with health insurance plans, employee assistance programs and enterprise clients. The Company’s methodology for estimating credit loss is based on historical collection experience, customer creditworthiness, current and future economic condition and market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Accounts receivables are written off after all reasonable means to collect the full amount have been exhausted. The allowance for credit losses was immaterial as of June 30, 2023 and December 31, 2022.

 

Deferred Revenue

The Company records deferred revenues when cash payments from customers are received in advance of the Company's performance obligation to provide services. As of June 30, 2023, deferred revenue related mainly to the Company’s consumer channel. The Company expects to satisfy the majority of its performance obligations associated with deferred revenue within one year or less.

NOTE 4. FAIR VALUE MEASUREMENT

The carrying value of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the relatively short-term nature of the underlying assets. The Company’s Private Placement Warrants are carried at fair value with changes in fair value recognized in earnings each period.

The Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying condensed consolidated balance sheets. The warrant liabilities were measured at fair value at inception and thereafter on a recurring, quarterly basis, with changes in fair value presented within financial (income) expense, net, in the condensed consolidated statement of operations.

The Private Placement Warrants were valued using the Black-Scholes-Merton Model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the implied volatility from the trading prices of the Public Warrants.

The following table presents the changes in the fair value of warrant liabilities during the three and six months ended June 30, 2023 and 2022:

 

 

Level 3 Liabilities (unaudited)

 

 

 

For the Three Months Ended June 30, 2023

 

(in thousands)

 

Beginning Balance

 

 

Change in Fair Value

 

 

Ending Balance

 

Private Placement Warrants

 

$

1,128

 

 

$

(308

)

 

$

820

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2023

 

(in thousands)

 

Beginning Balance

 

 

Change in Fair Value

 

 

Ending Balance

 

Private Placement Warrants

 

$

939

 

 

$

(119

)

 

$

820

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 3 Liabilities (unaudited)

 

 

 

For the Three Months Ended June 30, 2022

 

(in thousands)

 

Beginning Balance

 

 

Change in Fair Value

 

 

Ending Balance

 

Private Placement Warrants

 

$

3,195

 

 

$

2,092

 

 

$

5,287

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2022

 

(in thousands)

 

Beginning Balance

 

 

Change in Fair Value

 

 

Ending Balance

 

Private Placement Warrants

 

$

4,070

 

 

$

1,217

 

 

$

5,287

 

 

 

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NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES

Litigation

In January 2022, the Company and certain of its current and former officers and directors were named as defendants in securities class action complaints filed in the United States District Court for the Southern District of New York under the case headings: (1) Baron v. Talkspace et al., No. 22-cv-00163 (S.D.N.Y.) and (2) Valdez v. Talkspace et al., No. 22-cv-00840 (S.D.N.Y.), which were subsequently consolidated under the caption In re Talkspace, Inc. Securities Litigation, No. 22-cv-00163 (S.D.N.Y) (the “Securities Action”). The Securities Action asserts violations of sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rules 10b-5 and 14a-9 promulgated thereunder. These actions generally relate to public disclosures and statements by the Company in connection with its merger with Hudson Executive Investment Corp. (“HEIC”).

 

In December 2022, the Company’s subsidiary Tailwind Merger Sub II, LLC, certain of the Company’s current and former directors and officers, and others were named as defendants in a putative class action complaint filed in the Delaware Court of Chancery under the case caption Valdez v. Braunstein, et al., C.A. No. 2022-1148 (Del. Ch.) (the “Delaware Action”). The Delaware Action asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty relating to the merger with HEIC, among other things, based on many of the same facts at issue in the Securities Action. The complaint seeks, among other things damages on behalf of putative class members who did not redeem their shares in connection with the Company’s merger with HEIC.

 

In February 2023, the Company resolved the Securities Action and the Delaware Action through mediation. The settlement resolves these litigations with respect to all named defendants. The settlement will have to be approved by the court, which the Company expects will occur in the third quarter of 2023.

 

In June and July 2022, two individuals filed stockholder derivative lawsuits on behalf of Talkspace in the United States District Court for the Southern District of New York under the case captions: (1) Odsvall v. Oren Frank et al., No. 22-cv-05016 (S.D.N.Y.) and (2) Nayman v. Berg, et al., No. 22-cv-06258 (S.D.N.Y.), which were subsequently consolidated under the caption In re Talkspace Stockholder Derivative Litigation, No. 22-cv-05016 (S.D.N.Y.) in September 2022 (the “Derivative Action”). The Derivative Action named certain of the Company’s current and former officers and directors as defendants and the Company as a nominal defendant. The Derivative Action asserted claims for violations of federal securities laws, breach of fiduciary duty, and aiding and abetting breaches of fiduciary duty relating to the merger with HEIC, among other things, based on many of the same facts at issue in the Securities Action.

 

In February 2023 the parties reached an agreement in principle to resolve the Derivative Action with respect to all named defendants in exchange for certain changes to the Company’s Corporate Governance environment, including the declassification of the Company’s board of directors, creation of a management-level disclosure committee, enhancements to the responsibilities and duties of the Company’s Audit Committee, the addition of independent directors, enhancements to employee compliance training and retention of an internal controls consultant. In addition, the Company agreed to pay or cause to be paid $550,000 in attorney’s fees and expenses. On May 18, 2023, the parties entered into a Stipulation of Settlement and Release Agreement (the “Stipulation”) that sets forth the terms and conditions for the proposed settlement and dismissal with prejudice of the Derivative Action (the “Settlement”). On June 30, 2023, the court entered an order preliminarily approving the Stipulation and proposed Settlement of the Derivative Action and scheduling a hearing for August 16, 2023 to determine whether to give final approval to the Settlement. The defendants have not admitted any liability or wrongdoing in connection with the Settlement and have entered into the Settlement solely to avoid the costs, risks, distraction, and uncertainties of continued litigation of the Derivative Action.

 

In addition to the foregoing, the Company may in the future be involved in various legal proceedings, claims and litigation that arise in the normal course of business. The Company accrues for estimated loss contingencies related to legal matters when available information indicates that it is probable a liability had been incurred and the Company can reasonably estimate the amount of that loss. In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is often not possible to reasonably estimate the size of the possible loss or range of loss or possible additional losses or range of additional losses.

 

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Warranties and Indemnification

The Company’s arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a client’s data or if the Company’s service infringes a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as a director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.

NOTE 6. CAPITAL STOCK

 

As of June 30, 2023 and December 31, 2022 there were outstanding